Distribution and MLM are indispensable for user growth and fission

In the author's nearly five-year career in user growth , at the indicator level, I have been responsible for North Star indicators such as daily app activity, new user acquisition, and card binding. At the business level, focusing on the above indicators, I started with event operations and gradually expanded to product operations, scenario operations, user operations and other sub-fields. Based on some early experience, let's talk about growth, fission, distribution, and MLM.

1. The relationship between user growth and fission

In the course of work, I found that many friends, colleagues and leaders in the same industry simply define growth as: using a blockbuster event to bring a large number of high-value users to the company's products with a small budget in a short period of time.

But this is actually fission, not user growth. Fission is just a means of user growth. Attracting new users is always just a process indicator. We need to pay more attention to multiple indicators such as user value, retention rate, conversion rate, repurchase rate, etc., such as the following job descriptions:

It can be found that the main logic is to direct users to core products/business scenarios through means such as attracting new users, promoting activation, and building a user system. In terms of attracting new customers, in addition to fission, we also have delivery, channels, social networking, customer referrals and other means. More importantly, in the current domestic business environment, talking about fission is actually mainly about how to spread virally as much as possible under the rules allowed by WeChat. In short, fission is just a means of growth.

2. The difference between distribution and pyramid selling

Now that we have clarified the definitions of growth and fission, let's talk about the relationship between the two sisters, distribution and MLM, and fission.

The author has always adhered to a concept that most of the current online marketing methods are those that have been used in traditional offline games: for example, Alipay’s annual signature Five Blessings Collection. Think about the 108 generals you used to draw when you bought Little Raccoon instant noodles, and think about the collection of seven stamps in exchange for a cup of milk tea at the beverage store more than a decade ago; for example, the core e-commerce methods of full reduction, full return, discounts, pre-sales, coupons, and red envelopes are actually just the online version of traditional retail methods; for example, the current rampant bargaining and community group buying. Think about the Amway and Infinitus in the past.

Therefore, the essential logic of today’s fission and viral marketing is still to acquire customers based on the previous distribution and pyramid schemes. Distribution and pyramid schemes are both about recruiting people. If the subordinates of the subordinates make purchases or other actions, the top level can still get a corresponding share. As long as you have enough downlines, you can reap the benefits every day.

So what is the difference between distribution and pyramid selling in essence?

In short, from the perspective of the profit chain, levels below three are distribution and are not illegal. Note that what is said here is not illegal rather than legal, because the current law stipulates that levels below three do not constitute a crime, that is, levels above three are under the jurisdiction of the public security department, and levels below three are under the jurisdiction of the industrial and commercial department. Therefore, levels below three can currently be considered a gray area with great operability.

The "Regulations on Prohibition of Pyramid Selling" adopted by the State Council on August 10, 2005 clearly stipulates that the following acts are considered pyramid selling:

(1) An organizer or operator seeks illegal profits by developing personnel and requiring the developed personnel to develop other personnel to join, and calculating and paying remuneration (including material rewards and other economic benefits, the same below) to the developed personnel based on the number of personnel developed directly or indirectly;

(2) An organizer or operator seeks illegal profits by recruiting personnel and requiring them to pay fees or to pay fees in disguised form such as by subscribing to goods, etc., in order to obtain the qualifications to join or recruit other personnel to join;

(3) The organizer or operator develops personnel and requires them to develop other personnel to join, thereby forming a relationship between the upper and lower lines, and calculates and pays the upper line remuneration based on the sales performance of the lower line, in order to make illegal profits.

In 2013, the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security jointly issued the "Opinions on Several Issues Concerning the Application of Law in Handling Criminal Cases of Organizing and Leading MLM Activities" which clearly stated:

Pyramid schemes that, under the guise of business activities such as selling goods and providing services, require participants to pay fees or purchase goods and services to gain membership, and form hierarchies in a certain order, directly or indirectly use the number of recruits as the basis for remuneration or rebates, lure or coerce participants to continue recruiting others to join, defraud money and property, and disrupt the economic and social order, shall be subject to criminal liability for organizers and leaders if there are more than 30 people participating in pyramid schemes within the organization and the number of hierarchies is above three.

In fact, a large part of the above two legal clauses are vague. There is no clear explanation on how to define team-based compensation, three levels, and recruiting people. Therefore, the current distribution systems such as Fenxiang, Taoke, Youzan, etc. are basically in the gray area in the middle. The actual mainstream model is: A develops subordinate B, B develops subordinate C, C sells goods to D. At this time, C is the first level, B is the second level, and A is the third level. C's sales behavior can bring a certain proportion of profits to both A and B, thereby defining three-level distribution.

3. How to use distribution/MLM ideas to achieve fission

Let’s take Fenxiang, which relies on JD.com, as an example. Its official website introduction is:

"Fenxiang social e-commerce means sharing. It is an official strategic partner of JD.com. Based on JD.com's massive product pool, it selects the best products from around the world, takes social sharing as the core, and provides consumers with high-quality and low-priced JD.com special discount products and high-quality services."

"The core founding team of Fenxiang social e-commerce all came from JD.com, integrating the core advantages of R&D, products, business, and operations. The founder and CEO, Mr. Deng Zhengping, is the former founding general manager of JD.com's mobile e-commerce. He led JD.com's mobile users from zero to tens of millions of users and has rich experience in e-commerce R&D and operations. He is also the former general manager of JD.com's smart home, leading JD.com's smart home layout from zero to millions of home users. The technical partner is the former product technology director of JD.com, and the operations partner is the former business operations director of JD.com."

They show users everywhere that they have official support from JD.com, even the same team of people, but there is no clear authorization document, and the industrial and commercial entity has nothing to do with it. Based on this, they attracted a large number of users through the distribution level in a short period of time.

At the same time, Fenxiang also learned the lesson that Huasheng Diary and Yunji were defined as illegal pyramid schemes and punished for collecting capitation fees. In order to comply with regulations, it cancelled the capitation fees, but still encourages the behavior of recruiting people.

Let's take Fenxiang as an example to analyze and disassemble this model:

According to this "treasure map" from Fenxiang's internal information, we can see that its entire user grading system and commission system are quite complete. The entire system is divided into five levels: registered users, super members, mentors, partners, and super partners. Each level has its own condition thresholds, grade rights and interests, and different profit sharing.

Among them, the lowest threshold for registered users is to be invited to register, but the only benefit is to save money and receive rebates on self-purchases, and there is no benefit related to developing downlines. Because the threshold requirements for joining, such as being invited, means having a recommender, the entire platform users are completely covered by a hierarchical chain. There is no "retail investor". In order to attract more downlines, many users even buy promotional ads on search channels to attract new users.

At the promoter level, the first level is super membership , and the condition is to establish a WeChat shopping group of more than 50 people, that is, to have one's own controllable private traffic. In addition to rebates for self-purchases, the benefits include commissions for self-promoted products and 20% of the commissions for product promotions of subordinate super members. That is, super member A is the superior of super member B. Super member B sells products worth 1,000 yuan and can get a commission of 200 yuan. A, as B's superior, can get 20% of 200 yuan, or a reward of 40 yuan. At the same time, the concept of active value has been added to super members. Both themselves and their subordinates can obtain certain active values ​​by promoting products. We will discuss the use of active values ​​below.

The second level is a mentor . There are two ways to become a mentor:

• Method one is that the active value is greater than 3500, that is, the promotion sales amount is greater than 3500 yuan, which proves that you have a certain ability to sell goods; the number of direct super members exceeds 20, and the number of all super members including downlines exceeds 80, which proves that you have a certain ability to attract people.
• The second method is that the activity value is greater than 3500, the number of direct super members is more than 12, and the number of "active super members" is more than 50. The definition of an active super member is that the activity value is more than 200 and the promotion income in the past 30 days is more than 10 yuan. In summary, if you want to become a mentor, you must either win by quantity or by quality.

The rights and interests that a mentor can enjoy are also more complicated. The basic selling and promotion rights are nearly 80% higher than those of a super member. That is to say, if a super member sells goods worth 1,000 yuan and gets a commission of 200 yuan, a mentor can get a commission of about 360 yuan for selling the same 1,000 yuan of goods. Of course, we don't know how much of this nearly 80% will actually be realized.

In addition to promotional rights, mentors also have "platform rewards". If it is a direct team that sells goods, the mentor can get 30% of the direct subordinate super members and 20% of the indirect super members (subordinates of subordinates). If it is a non-direct team that sells goods, the mentor can get 50% of the direct mentor or partner platform reward.

Please note here that if mentor A is mentor B's superior, that is, Team B is A's non-direct team, mentor B's subordinate is mentor C, that is, Team C is B's non-direct team, and super member D is mentor C's subordinate, then D sells goods to non-platform user E, D gets the promotion reward, C can get certain platform rewards based on D's reward, B can get his own platform reward based on C's platform reward, and A can also get his own non-direct team subsidy based on B's platform reward. At this time, the profit chain has obviously exceeded three levels. Whether it complies with the rules depends on one's own opinion.

At the same time, if a direct super member is promoted to a tutor, the superior tutor can get a "Bo Le Award" of 200 yuan, which is a borderline of the capitation fee.

The third level is "partner" . Compared with mentors, the requirements for partners are more stringent. One must be directly under 5 mentors to become a partner. The rights and interests are still promotion income and platform income, but the coefficient is slightly higher than that of mentors, so I will not elaborate on it here.

The fourth level is the “super partner” , which is shown in the information as only open to partners, and the actual details are unknown.

The above is the entire rights and interests system and model of Fenxiang. It can be found that the level of the entire membership level, rights and interests, and activity system is higher than more than 90% of domestic companies. In addition, Fenxiang also has its own database and QA query mechanism. The invitation entry threshold also ensures that every newcomer has his own superior "teaching", because only when the subordinates are getting better and better, the superiors can get better "promotion". The following figure is Fenxiang's knowledge base:

Putting aside the compliance of its business, we can see that this system is of reference value for user growth, such as bank credit card applications, e-commerce promoters, information and short video platform content community operations, etc., all of which can learn certain system experiences. However, in order to avoid risks, it is best to split it into independent companies and open API interfaces to them to improve risk resistance. If there are any problems, they can also be cut off in time.

4. Business Logic and System Design

Overall, in addition to the supply chain and related API interfaces, the distribution system can be basically divided into several modules: distribution rules, front-end rules, management system and financial system. The overall summary is as follows:

V. Conclusion

The ideal distribution model is to promote direct consumption by users while attracting them to develop multiple users vertically by inducing benefits such as “making money without doing anything”. The viral factor k value is greater than 1, achieving exponential fission.

Therefore, special attention should be paid to the design of the overall reward mechanism and promotion mechanism. Reward and promotion mechanisms that conform to market laws should be set up for different users. Some users have strong self-purchase attributes, some users have distribution channels based on social relationships, and some users take both into account. Using reward mechanisms as inducements and promotion mechanisms to increase their desire for advancement and the silent cost of leaving, the so-called fission is nothing more than distribution + Internet, and is also a part of the Internet of Everything.

Returning to user growth, for industries selling goods with multiple categories, low customer orders and low barriers to entry, such as e-commerce and online courses, the correct use of the Internet distribution system will have a certain positive effect on sales and user growth.

Some traditional industries, such as credit card issuance, cash loans, consumer loans, and money market funds in the financial industry, and sales of local service products such as takeout, hotels, and travel packages, as well as related APP acquisition, can also combine distribution with traditional ground channels to establish their own low-cost customer acquisition channels in today's increasingly expensive world of traffic.

Author: Da Lao Wang

Source: Da Lao Wang