History of Network Marketing

HISTORY OF NETWORK MARKETING

If a couple of your friends come to us to buy, you will get a discount." Heard that before? Surely. So, when you hear this, you are dealing with a special distribution technology - network marketing (MLM). And with the help of MLM technology today, you can sell anything. And it was Carl Renborg (the author of the idea of network marketing, the founder of NUTRILITE company) who invented this "golden technology".



The 1920s. China. The revolutionary troops of Chiang Kai-shek are uncompromising towards any imperialist schemes. Hundreds of prisons across the country. The most famous one - a camp for internees in Shanghai. Within its walls - thousands of foreigners: French, Germans, Americans. The conditions are horrendous. Among the prisoners serving his sentence is 35-year-old American Carl Renborg.



Prison is not the best place for scientific experiments, his friends believe, but he spends hours telling them about his experiences in the field of healthy eating. "The forced prison diet is a unique opportunity to experiment on one's body," Renborg jokes. And somehow the restless chemist convinces the Chinese guards to regularly bring him various plants that can be found in the vicinity of the prison.



Laughing, the guards still clear the forests and fields and every day bring bundles of strange flora to the strange prisoner: bamboo shoots, fresh fern leaves, and ginseng roots. And he sits in a corner for hours sharpening nails with a sharpened piece of iron. "The body needs iron," the chemist smiles and adds filings of rusty nails to the stale meat. Carl consumes his experimental dishes himself and offers them to his neighbors.



Many wrinkle their noses and refuse. A year later, those who were on Renborg's diet were released from the camp. The rest did not live to see freedom.



Renborg was born on May 15, 1887, in Florida, in the city of St. Petersburg. From an early age, he read voraciously and therefore always amazed those around him with erudition in various fields of knowledge. He was well-versed in philosophy, religion, history, politics, astronomy, mathematics, aerodynamics, chemistry, human rights. He knew several languages, including Chinese. Although Renborg was not religious, he spent many years studying Christianity, made pilgrimages to Palestine, Israel, and Egypt.



But the special interest of his life was in his early years - studying the world's plant population, the planet's food reserves, and technology for preserving natural products. His first love was the science of nutrition. "The idea was attractive, it met my ideals, and I was persistent," Renborg later recalled.



In 1915, 27-year-old Renborg, already a doctor of chemistry, signed a contract with one of the American oil companies and moved to China, to Tianjin. However, he worked as an accountant. Shortly after - as a controller in a shipbuilding company, then - as a representative of the American Dairy Company, and finally - as a representative of the Colgate Products Company in Shanghai.



But around there was terrible poverty. The Chinese were barely making ends meet. What healthy food?! There was rice cake, meager soup, and water. Near the Colgate factory - a factory kitchen for Chinese workers. At noon, a crowd of dirty people in robes gathered. Everyone had tin bowls. Whoever received their portion of murky liquid was lucky. It was almost a royal meal. Karl Renborg observed all this. It was then that he realized the need to create cheap food additives that could somehow diversify the meager diet of the Chinese. He carefully studied literature on nutrition, made notes of his observations. His key conclusions: a person's health depends, firstly, not on what he eats, but on what he does not eat; and secondly - on special diets. The first conclusion can still be argued, but the second was proven in the Shanghai camp.



In 1927, Renborg returned to the USA penniless and settled for odd jobs. His business in China was successful, but wars undermined the commerce of most foreign firms, including the company where Renborg worked. "I returned to the USA without money. I did whatever it took to earn bread and butter. At that time, I heard about a film director who got rich a second time. When his friends expressed condolences that he was bankrupt, he replied that he was not bankrupt, just broken. That's how I felt," Renborg later wrote.



The ideas born in China did not leave him. He rented a cluttered attic in Balboa Island, California, and set up a small laboratory there to continue experiments on plant products. There he began developing methods for concentrating nutrients from plants. "When I found myself on the attic, where I lived and worked, and started doing real work, I only thought about that, and nothing else. People asked why I wasn't working, but I had one job that took all my time," he recalled.



In the attic, Renborg spent several years. And in 1931, a revelation came to the chemist. Once he discovered a plant that contains almost all minerals and vitamins, a large amount of protein, and many other beneficial components. It was alfalfa, which in China is called the "basis of all good." Soon he invented a new food supplement, which, in addition to alfalfa, included parsley and watercress, and in 1933 began to test its effects on friends. Or more precisely, it was like this: Renborg asked his friends to try these preparations, and they hid small boxes of powders away in the bedside table. However, after some time, they confessed to Karl that they never dared to taste the magical concoction.



And then a banal thought came to Renborg's mind: people do not take free products seriously. If he assigns some price for the supplements, people will consume them at least because they paid for it. So Renborg did, and his preparations began to give the first truly stunning results. The ladies freshened up before his eyes, and the gentlemen, worn out by the Great Depression, crashes, and bankruptcies, noticed a hint of blush on their faces in the mornings. And no bad thoughts. Rumors about Renborg's mysterious products began to spread, his friends' acquaintances asked to arrange a meeting with the chemist-benefactor. And then Renborg came up with the idea of creating a fundamentally new business strategy.



At that moment, the US economy was reaping the fruits of the most severe crisis. Thousands of bankrupt banks, factories, and plants, colossal unemployment. Needless to say, many were looking for opportunities for self-realization in small businesses. Renborg made friends and acquaintances his first distributors: "Offer these products to your friends, and I will pay you commissions after they buy them." He called this sales scheme referral marketing. (Terms meaning the same thing, such as "multi-level marketing" and "network marketing," appeared after Renborg's death).



The essence of the scheme boils down to the fact that, when selling a product, the company's sales representatives (distributors) offer the buyer to become a distributor too. And so on to infinity. Thus, each newcomer has the opportunity to build their own business, their own distributor network. The company's task is to regularly supply each distributor with products and pay them commissions for both the goods that the distributor sold himself and for the products sold by the sales representatives he attracted. As a result, a distributor who is at the top of a huge network may no longer sell anything personally but will still receive lifelong percentages from the sales of distributors in his network. And since the network can grow almost infinitely, in some network marketing companies, such percentages are called infinity percentages.



In addition, Renborg first came up with and developed an extremely important principle in modern multi-level marketing - the concept of sponsorship. The word "sponsor" in English means a guarantor. Applied to his business, Renborg interpreted this concept as follows: sponsorship in marketing through recommendations implies that a company's sales representative who invites a newcomer into the business not only helps and trains them in everything, but also takes responsibility for their further work.



The scheme worked, and in 1934 Renborg founded California Vitamins Inc. on Balboa Island, and in 1939, after moving to Los Angeles and renaming his product Nutrilite, he renamed his enterprise Nutrilite Products.



In the early years, Renborg invested practically all he earned in the business: "When we started the company, we collected incomes bit by bit and invested all the profit into the business. For example, when the company grew to $20,000 in net profit per year, I paid myself a salary of $300 per month, which is $3,600 per year. When we started making millions, they were also spent on buying land, cultivating fields, equipment, production, etc., after paying taxes." In 1946, Renborg's right-hand woman, the indispensable secretary and treasurer of the company, became his wife, Edith Renborg.



In fact, she created the solid financial foundation on which not only all the scientific and production activities of the company relied, but which also allowed investments and loans to be made to many thousands of distributors.



In 1949, two talented young men joined Nutrilite - Rich DeVos and Jay Van Andel. After initial success in this business, they established a trading firm in Rand Rapids, Michigan, to sell Nutrilite products, naming it Ja-Ri Corp. "Rich, do you realize that the marketing plan Renborg came up with is absolutely universal? It can be applied to mass sales of any product!" And Jay suggested to his partner to separate from Nutrilite.



In 1959, DeVos and Andel founded their own company, American Way Corporation, or Amway, which, unlike Nutrilite, did not limit itself to selling dietary supplements, but also distributed household goods for home use. As a result, Amway not only repeated the success of Nutrilite Products, but surpassed its partner. Even in terms of sales volumes of dietary supplements alone, surpassing Nutrilite. As a result, in 1972, Amway acquired a controlling stake in Nutrilite. According to marketers' estimates, today Amway is the largest network marketing company in the world: its sales volume is $2 billion per year.



The sales principle invented by Renborg was borrowed by others. Today, over 25,000 products and services are distributed worldwide using the MLM strategy. The most well-known companies that actively promoted products through multi-level marketing at one time include Coca-Cola, Colgate, Gillette, Visa, Lipton, Ford, Xerox.



But there were many successes and serious failures in the triumphant march of multi-level marketing. The growth of network marketing in the late 1960s to early 1970s was noticeably slowed down due to an unpleasant event that kept the pioneers of this business in suspense for almost four years. At that time, in the USA, fraudulent financial and trading "pyramids" flourished in full bloom. They collected money from gullible citizens, promising them colossal dividends - up to 1000% per year. The US government was seriously concerned about this problem, and in 1975, the Federal Trade Commission issued a series of provisions on "pyramid" type structures. The main target for the blow was chosen to be the company AmWay, which, like a scapegoat, was held accountable. MLM faced the threat of being banned. However, during a lengthy investigation involving a huge number of specialists, it was established that the company's activities were not a "fraudulent pyramid," and the method of promoting goods, called multi-level marketing, was quite acceptable and permissible.



When Renborg's company unfolded, he lived happily ever after, devoting himself to his numerous hobbies. Now he could afford to dedicate some of his time to one of his youthful passions - astronomy. Money was not an issue. He took a liking to a small observatory in the California mountains, where he spent time studying the starry sky. He writes a lot about his observations and is preparing a book on the worlds of stars and his discoveries in astronomy. Sometimes he retreats to Tahiti, his favorite vacation spot, where he has his own house. In general, Renborg became a celebrity during his lifetime. Among his friends were many political stars - King Paul of Greece, Jawaharlal Nehru, Winston Churchill, Pope John XXIII. This gave him considerable, including lobbying, opportunities. Thus, in the mid-60s, Renborg met Eisenhower and, with his help, quickly succeeded in lifting the ban on the use of certain components in food products in the country.



Carl Renborg died, as befits a fan of such a lifestyle, absolutely (or, as doctors say, practically) healthy in 1973 at the age of 87, leaving behind a gigantic empire.