FACULTY OF MACHINE BUILDING. Eng. Horaţiu Dan Dumitraş. Ph.D. THESIS - ABSTRACT-

Transcription

1 FACULTY OF MACHINE BUILDING Eng. Horaţiu Dan Dumitraş Ph.D. THESIS - ABSTRACT- STUDIES AND RESEARCHES REGARDING THE MANAGEMENT OF MULTI-LEVEL MARKETING SYSTEMS Ph.D. Thesis committee: Ph.D. Supervisor, Prof. Eng., Ec. Ioan ABRUDAN, Ph.D. CHAIRMAN: MEMBERS: - Prof. Eng. Petre Berce, Ph.D. - Dean, Faculty of Machine Building, Technical University of Cluj-Napoca; - Prof. Eng., Ec. Ioan Abrudan, Ph.D. Supervisor, Faculty of Machine Building, Technical University of Cluj-Napoca; - Prof. Eng. Monica Izvercianu, Ph.D. - Referent, Faculty of Management in Production and Transportation, Politehnica University of Timişoara; - Prof. Ec. Nicolae Al. Pop, Ph.D.- Dr.H.C - Referent, Faculty of Business Administration, Bucharest Academy of Economic Studies - Prof. Eng.,Ec. Laura Bacali, Ph.D. Referent, Faculty of Machine Building, Technical University of Cluj-Napoca;

2 CONTENTS INTRODUCTION PART 1. LITERATURE REVIEW CHAPTER 1. EVOLUTION OF MULTI-LEVEL MARKETING SYSTEMS IN THE WORLD AND IN ROMANIA CHAPTER 2. CONCEPTUAL APPROACHES REGARDING THE MANAGEMENT OF MULTI/LEVEL MARKETING SYSTEMS CHAPTER 3. HUMAN RESOURCES MANAGEMENT IN MULTI-LEVEL MARKETING PART II. RESEARCH METHODOLOGY CHAPTER 4. APPLIED RESEARCH METHODS PART III. RESULTS AND DISCUSSIONS CHAPTER 5. STUDY REGARDING THE EVALUATION OF THE ACTIVITY OF DISTRIBUTORS ACTING IN THE DIRECT SELLING INDUSTRY AND MULTI-LEVEL MARKETING SYSTEMS IN ROMANIA CHAPTER 6. DEVELOPMENT OF A MARKETING PLAN FOR S.C.DISTRIB S.R.L. CHAPTER 7. CONCLUSIONS 2

3 INTRODUCTION The study of management theories and principles that guide the management process leads to the importance of knowing the practical areas in which the managerial environment may develop. The main area chosen for the present research regards one of the most dynamic industries in the world that appeared as a result of the human society development and of its globalization tendencies. It is the direct selling industry, respectively the systems of distributing products and services through independent distributors, known as Multi-Level Marketing (MLM) or Network Marketing as well. Direct selling may be considered the oldest manner of distribution for consumption goods, while the mouth-to-mouth advertising as the oldest and most efficient method of publicity. Nowadays, direct selling is one of the most dynamic and fastest ways of distribution in the world. Being recognized as a very important marketing channel, some universities from USA, United Kingdom and France have introduced the study of this area in their curricula, as well as a subject of interest for some research projects. According to the opinion of some well-known professors, direct selling will increase in future and will be very successful. In the same time, the parliaments of many industrialized countries have interpreted the direct selling as a modern channel of distribution with equal rights as the other ways of distribution, as it is stipulated in their legislation. Moreover, professional associations of direct selling companies have introduced an ethic code for their activity, to prevent the appearance and development of pyramid schemes, which are illegal. The majorities of direct selling companies produce their own products or have control over the products. Thus, the route from the place of distribution to the consumer is shortened, resulting in a direct relationship producer-distributor-consumer, facilitating the opportunity of an immediate feedback from the consumer. In the last 50 years, several marketing channels have been developed to attract loyal customers and transforming them in competitive distributors. Thus, recruiting and selection techniques have been improved, general management principles have been applied by companies, attempts to built human chains of distributions were done, all of these leading to the improvement of MLM systems or Network systems. The MLM distributor plays the role of a subsystem in a structure of distribution. He needs to specialize in this new profession in order to build a career. He needs to know how to initiate a contact with potential clients, how to present and sell products or services, and the management principles of the new activities. The manager of the MLM company, as the main human factor in the system, should know the economic entity that he leads and should specialize in are of network marketing. The importance of education is more relevant when the system becomes more complex in its interactions with the external economic environment. The main objectives of the thesis are the following: - the evaluation of distributors activity in the direct selling industry from Romania to emphasize the nature of work and the evolution of the activities in the MLM systems - the development of a marketing plan for companies that intend to act in the direct selling industry and MLM systems The information offered by accomplishing the first main objective represents an important informative basis to achieve the second objective. The analysis of the direct selling industry and MLM systems from these two perspectives allows at the end to create a complete and clear image of the benefits obtained by the companies and distributors. To achieve these two objectives, it is necessary to follow some steps, which are intercorrelated and considered to be specific objectives: - evaluation of the current situation of the direct selling industry and MLM systems in the world and in Romania - analysis of the legislation and authorities that play a role in the direct selling industry in the world and in Romania 3

4 - knowledge and understanding the MLM systems by emphasizing the principles of the management of MLM systems, the characteristics of the structures, as well as the compensation plans of the distributors - a comparative analysis of several marketing plans used in the direct selling industry The work was conceived unitary, systematized on 7 chapters well structured, in which are gradually presented the researches conducted, conclusions, contributions, as well as potential new research directions. The researches conducted in this PhD thesis were based on bibliographic study, experience accumulated over years while working at S.C. MLM International Romania SRL as manager and consultant, and marketing researches conducted in collaboration with the Romanian Direct Selling Association (RODSA). Preliminary and final results have been disseminated by publishing three books: The management of network marketing systems in 2002, Introduction in the management of MLM systems in 2003, improved and republished din 2006, and Human resources in Network Marketing in 2005, improved and republished in 2007, at Digital Data Cluj Publishing house, accredited CNCSIS, as well as by publishing two scientific articles and four marketing plans for MLM companies. PART I. LITERATURE REVIEW CHAPTER 1. EVOLUTION OF MULTI-LEVEL MARKETING SYSTEMS IN THE WORLD AND IN ROMANIA Chapter 1 presents a short history of the evolution of MLM systems in the world by identifying major periods: pioneering, professionalism, information and globalization. It continues with the analysis of the situation of direct selling industry and MLM systems in Romania, from the beginning until nowadays by presenting the evolution of the direct selling industry in Romania. In order to understand the legal functioning of such systems, the author identifies and analyzes the legislation and the professional associations that have the role to supervise a legal and correct use of MLM practices. Special attention is given to the Direct Selling Association from Romania (RODSA) which started its activity in 2002 as a necessity to supervise the MLM practices of the companies that act in Romania and to protect customers by illegal practices such as pyramid schemes. CHAPTER 2. CONCEPTUAL APPROACHES REGARDING THE MANAGEMENT OF MULTI-LEVEL MARKETING SYSTEMS Chapter 2 starts with a comparison between the commercial flow of MLM systems and the commercial flow of classic systems to reveal the differences with respect to the channel of distribution. The MLM systems are presented in detail by analyzing the following aspects: the sponsorship, the legal form of collaboration, the direct selling, the distribution of products, the price determination and the training of human resources. The author explains how a MLM system is organized and built, how it may be developed and the benefits to be involved in this industry are. The chapter ends with an analysis of the ethic and social responsibility in MLM. CHAPTER 3. HUMAN RESOURCES MANAGEMENT IN MULTI-LEVEL MARKETING Chapter 3 is dedicated exclusively to the human resources involved in the MLM systems. It starts by defining the place of human resources in MLM systems, the MLM/Network Marketing principles of developing human resources and continues with a close analysis of how to plan human resources in MLM (recruiting, selection, sponsorship, motivation and training, compensation, career development). Special attention is given to the system of compensating the distributors financially for their activity, and for building a career too. The author analyzes a training program on 3 stages 4

5 for each hierarchical position in the marketing plan: professional development, character development and leader development. PART II. RESEARCH METHODOLOGY CHAPTER 4. APPLIED RESEARCH METHODS Chapter 4 starts by presenting the methodology used in developing a MLM marketing plan for companies that intend to enter the direct selling industry. The focus was on the objectives of a MLM marketing plan, typology of MLM marketing plans and the compensation plans. The author presents each type of MLM marketing plan separately and identifies the advantages and disadvantages with the aim of knowing the positive and negative effects of their application in practice. Attention is also given to potential errors in the compensation plans and ways to avoid them. The author develops a model of interaction between the MLM systems, showing the sponsorship relation among partners. The second part of the chapter is reserved to the steps of the marketing research process: define the problem and the research objectives, develop the research plan, collect the information, analyze the information, present the findings, and make the decision. PART III. RESULTS AND DISCUSSIONS CHAPTER 5. STUDY REGARDING THE EVALUATION OF THE ACTIVITY OF DISTRIBUTORS ACTING IN THE DIRECT SELLING INDUSTRY AND MULTI- LEVEL MARKETING SYSTEMS IN ROMANIA Chapter 5 presents in detail the steps of the marketing research process for the current study case. The target population is identified as being the distributors that act in MLM companies. An on-line questionnaire is used to evaluate their activity. The questionnaire was pretested and following implemented in august 2009-august The sample size of 300 respondents is statistically representative. The data base was created using Microsoft Office Excel following a codebook. SPSS v17 (Statistical Package for the Social Sciences) was used for analyses. Descriptive statistics of the data, correlation between variables and hypothesis testing were performed in order to create a complex and clear picture of the activity of MLM distributors. Findings were interpreted and used as key information to achieve the second major objective of the thesis, the development of a MLM marketing plan. CHAPTER 6. DEVELOPMENT OF A MARKETING PLAN FOR S.C.DISTRIB S.R.L. The author develops a marketing plan for a company that intends to use the MLM system as a system of distribution. The marketing plan has two main parts: the step plan and the career plan. The step plan is created on 6 steps, with different ranks of benefits from 0% up to 20%, depending on the activity performed by each distributor. The plan was created such that distributors may collect points monthly. Moreover, the achievement of a higher step is not time constrained; it depends only on the cumulated points. The personal mandatory volume was established such that each distributor has the possibility to achieve it only from own consumption. This is an advantage over other types of MLM marketing plans. The career plan allows a definitive qualification on the career steps, depending on the personal performance and the own network of collaborators. The compensation plan is created to motivate the personal performance and the network s performance as well. The marketing plan is created as a business opportunity for any company that chooses direct selling for distributing their products. The author recommends a system of working steps for distributors, a training program which is critical for this career and an implementation scheme which involves 3 functional blocks: the administrative block, the human resources block and the network block. Definitely, the 5

6 efficiency of the marketing plan depends on the discipline of the distributors as regard to the recommended steps, which may be considered as key steps. CHAPTER 7. CONCLUSIONS Conclusions are presented at the end of the work as well as own contributions and future potential research directions. The main conclusions are: - a continuous increase of the number of MLM distributors may be observed in the last years - the distributors may be considered as the most important actors of the MLM systems - the main reasons to work in MLM are extra revenues, quality of the products, schedule flexibility, financial independency and personal development - the marketing plan built on two distinct parts: the step plan and the career plan offers stability in MLM - the marketing plan has the advantage that points are monthly accumulated, which implies that achieving a higher step is not time constrained, it depends only on the accumulated points - the marketing plan does not lead to any blockings of the system or to stocks of products - the marketing plan assures the possibility to develop a stable and equilibrated network, by stimulating distributors performance - the compensation system was created such that each distributor has benefits once he achieves a higher step The main own contributions of the thesis are: - analysis of the evolution and current situation of the direct selling industry and MLM systems in the world and in Romania - identification of the importance and place of human resources in the MLM systems by analyzing the importance of the development of distributors personality - analysis of several types of MLM marketing plans by identifying the advantages and disadvantages of their application in practice - development of the interaction model in the case of MLM systems - revealing the importance of training of all categories of distributors by analyzing the 3 stages of training and career development - study case regarding the evaluation of the activity of distributors working in the direct selling industry and MLM systems in Romania - development of an innovative marketing plan for companies that intend to use MLM as a distribution system, with two main parts: step plan and career plan - development of the step plan on 6 steps; definitive qualification on each step with no time constraint - development of the career plan; qualification on definitive steps of career for distributors based on personal performance and own network SELECTIVE REFERENCES 1. Armstrong, M. - A Handbook of human resource management practice, Ed. a X-a, Kogan Page, London, Baker, M.J. Marketing strategy and management, 4th edition, Palgrave Macmillan, Berry, R. - Direct Selling: From Door to Door to Network Marketing, Butterworth-Heinemann, Clothier, P. Multi-level marketing. A practical guide to successful network selling, 3 Ed., Kogan Page, Cole, G.A. Management theory and practice, 6th Ed., South-Western Cengage Learning, USA, Covey, S.R. Eficienţa în 7 trepte sau Un abecedar al înţelepciunii, Editura All, Creswell, J.W. - Research design: Qualitative, quantitative, and mixed methods approaches, 3rd edition, Sage Publications, California, USA, Croft, R., Cutts L., Mould Patricia - Shifting the Risk: Buyback Protection in Network Marketing Schemes, Journal of Consumer Policy, 23 (2), , Dătculescu, P. Cercetarea de marketing Cum pătrunzi în mintea consumatorului, cum măsori şi cum analizezi informaţia, Editura Brandbuilders Grup, Dibb, Sally, Simkin, L. Marketing: Concepts and strategies, 5th European edition, Houghton Mifflin, Donaldson, B. Managementul vânzărilor, Editura Codecs Bucureşti, Drucker, P. Managementul strategic, Editura Teora, Bucureşti,

7 13. Dumitraş, D.M. Drumul succesului, Editura Digital Data Cluj, Dumitraş, D.M. - Interviu cu un lider, Editura Digital Data Cluj, Dumitraş, D.M. Start MLM. Construirea unei afaceri de succes ca distribuitor Multi-Level Marketing, Editura Digital Data Cluj, Dumitraş, H.D. - Managementul sistemelor de marketing în reţea, Editura Digital Data Cluj, Dumitraş, H.D. - Freedomland: Planul de marketing şi Ghid de utilizare Netbox, Ed. Digital Data Cluj, Dumitraş, H.D. - DOVAL Implementarea planul de marketing, Editura Digital Data Cluj, Dumitraş, H.D. - Introducere în Managementul Sistemelor MLM, Ed. Digital Data Cluj, 2003 (reeditată 2006) 20. Dumitraş, H.D. - Resursele umane în Network Marketing, Editura Digital Data Cluj, 2005, (reeditată 2007) 21. Dumitraş, H.D. - ZANYX Planul de marketing, regulamentul, magnetoterapia, Ed. Digital Data Cluj, Dumitraş, H.D. - Regulament de funcţionare a sistemului Farmec Network: Planul de marketing, Regulamentul, Codul Etic, Editura Digital Data Cluj, Dumitraş, H.D. Puterea sistemelor MLM / The power of MLM systems, Revista de Management şi Inginerie Economică, Vol.7, Nr.3, Dumitraş, H.D. - Regulament de funcţionare a sistemului Quant Test Network: Planul de marketing, Regulamentul, Codul Etic, Editura Digital Data Cluj, Dumitraş, H.D. - Proiectarea planurilor de marketing pentru sistemele MLM / Designing of MLM systems compensation plans, Revista de Management şi Inginerie Economică, Vol.8, Nr.4, Duncan, R. H. - The MLM Binary Plan, Double Diamond publishing, Failla, D. - Bazele MLM cum se construieşte o structură Multi-Level Marketing plină de succes, Ed. Digital Data Cluj, Failla, D. - Prezentarea de 45 secunde care iti va schimba viata, Editura Digital Data Cluj, Failla, D., Nancy Failla - Sponsorizarea la mare distanţă, Ed 2, Editura Digital Data Cluj, Fogg, J.M. - Cel Mai Mare Specialist în Network Marketing din Lume, Editura Digital Data Cluj, Kalench, J. - Cum să fii cel mai bun în MLM, Editura Digital Data Cluj, Kalench, J. - Cea mai mare şansă din istoria lumii, Ediţia a 2-a, Editura Digital Data Cluj, Kotler, P., Keller, K.L. Marketing management, 13 Edition, Prentice Hall, Ludbrook, E. - Marea Panoramă, Editura Digital Data Cluj, Ludbrook, E. - Principiile Network Marketing, Editura Digital Data Cluj, Malhotra, N.K., Birks, D.F. Marketing research: An applied approach, Harlow: Prentice Hall, Merce, E., Urs, Fl., Merce, C. - Statistică, Academic Pres, Cluj-Napoca, Naylor, J. - Management, Financial Times Pitman Publishing, London, Nelson, D., Frederick W. Taylor and the Rise of Scientific Management, Madison, Wisconsin, University of Winsconsin Press, Nichols, R. - Successful Network Marketing for the 21st Century, Entrepreneur Press; 2 edition, Nogradi, B. Când vei deveni milionar? Metodele liderilor motivaţi, Editura Digital Data Cluj, Rawlins, M.L. - Understanding Multi-Level Commissions and Their Role in a Successful Company, OP Publishing, Canada, Robbins, S.P., DeCenzo, D.A. - Fundamentals of Management, Essential Concepts and Applications, 6th Edition, Pearson Prentice Hall, Robbins, S.P., Coulter, Mary - Management, 10th Edition, Pearson Prentice Hall, RODSA Raport anual Schreiter, T. - Cum se creeaza o structura exploziva, Editura Digital Data Cluj, Silverman, G. The secrets of word-of- mouth: How to trigger exponential sales through runaway word-ofmouth, American Management Association, Taylor, C. Formule de succes în Network Marketing, Editura Digital Data Cluj, Trevisani, Daniele, Psihologia marketingului şi a comunicării, Editura Irecson, Bucureşti, Zacharias, M.: Network-Marketing: Beruf und Berufung. Karrierechancen im Zukunftsmarkt Direktvertrieb. Offenbach: Edition Erfolg Verlag, 2008 Legislation: 51. *** Ordonanţă de Guvern nr. 99 din privind comercializarea produselor şi serviciilor de piaţă, Monitorul Oficial nr. 424 din 1 septembrie 2000, republicată Monitorul Oficial nr. 603 din 31 august *** Lege nr. 650 din pentru aprobarea Ordonanţei Guvernului nr. 99/2000 privind comercializarea produselor şi serviciilor de piaţă, Monitorul Oficial nr. 914 din 16 decembrie *** Lege nr. 211 din 24 octombrie 2008 pentru modificarea şi completarea Ordonanţei Guvernului nr. 99/2000 privind comercializarea produselor şi serviciilor de piaţă, Monitorul Oficial nr. 736 din 30 octombrie 2008 Web pages: 54. *** *** *** *** *** 7