Multi-level marketing

Multi-level marketing (MLM), also called network marketing [1] or pyramid selling,[2][3][4] is a controversial[5] marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce selling the company's products or services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system. An MLM strategy may be an illegal pyramid scheme.[6]

In multi-level marketing, the compensation plan theoretically pays out to participants only from two potential revenue streams. The first is paid out from commissions of sales made by the participants directly to their own retail customers. The second is paid out from commissions based upon the wholesale purchases made by other distributors below the participant who have recruited those other participants into the MLM; in the organizational hierarchy of MLMs, these participants are referred to as one's down line distributors.[7]

MLM salespeople are, therefore, expected to sell products directly to end-user retail consumers by means of relationship referrals and word of mouth marketing, but more importantly they are incentivized to recruit others to join the company's distribution chain as fellow salespeople so that these can become down line distributors.[1][8] According to a report that studied the business models of 350 MLMs in the United States, published on the Federal Trade Commission's website, at least 99% of people who join MLM companies lose money.[9][10] Nonetheless, MLMs function because downline participants are encouraged to hold onto the belief that they can achieve large returns, while the statistical improbability of this is de-emphasised. MLMs have been made illegal or otherwise strictly regulated in some jurisdictions as merely variations of the traditional pyramid scheme, including in mainland China.[11][12]

  1. ^ a b Vander Nat, Peter J.; Keep, William W. (2002). "Marketing Fraud: An Approach for Differentiating Multilevel Marketing from Pyramid Schemes". Journal of Public Policy & Marketing. 21 (1): 139–151. doi:10.1509/jppm.21.1.139.17603. S2CID 154490614.
    Mendelsohn, Martin (2004). The guide to franchising. Cengage Learning Business Press. p. 36. ISBN 1-84480-162-4.
  2. ^ Clegg, Brian (2000). The invisible customer: strategies for successive customer service down the wire. Kogan Page. p. 112. ISBN 0-7494-3144-X.
  3. ^ Kitching, Trevor (2001). Purchasing scams and how to avoid them. Gower Publishing Company. p. 4. ISBN 0-566-08281-0.
    Mendelsohn, Martin (2004). The guide to franchising. Cengage Learning Business Press. p. 36. ISBN 1-84480-162-4.
  4. ^ Karp, Gregory (February 10, 2013). "The fine line between legitimate businesses and pyramid schemes". The Chicago Tribune. Archived from the original on August 9, 2020.
  5. ^ Karp, Gregory (February 10, 2013). "The fine line between legitimate businesses and pyramid schemes". The Chicago Tribune. Archived from the original on August 9, 2020.
  6. ^ "Multilevel Marketing". FTC.
    "Multi-Level Marketing Businesses and Pyramid Schemes". FTC, Bureau of Consumer Protection. Retrieved October 16, 2020.
  7. ^ DuBoff, Leonard D. (2004). The Law (in Plain English) for Small Business. Sphinx Pub. pp. 285–286. ISBN 978-1-57248-377-4.
  8. ^ Cite error: The named reference Xardel was invoked but never defined (see the help page).
  9. ^ "The Perils Of Multi-Level Marketing Programs". Texas Public Radio. October 4, 2017. Retrieved February 16, 2018.
  10. ^ "Legging company, LuLaRoe accused of misleading consultants". Valley News. Retrieved February 16, 2018.
  11. ^ Cite error: The named reference china-briefing was invoked but never defined (see the help page).
  12. ^ Cite error: The named reference china-MLM-law was invoked but never defined (see the help page).