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Multi­level marketing
Multi­Level Marketing (MLM) is a marketing strategy in which the sales force is
compensated not only for sales they generate, but also for the sales of the other salespeople
that they recruit. This recruited sales force is referred to as the participant's "downline", and
can provide multiple levels of compensation.[1] Other terms used for MLM include pyramid
selling,[2][3][4][5][6]
network marketing,[5][7][8]
and referral marketing.[9]
According to the US
FTC, some MLM companies constitute illegal pyramid schemes which exploit members of the
organization.[10][11][12]
MLM is one type of direct selling. Most commonly, the salespeople are expected to sell
products directly to consumers by means of relationship referrals and word of mouth
marketing. MLM salespeople not only sell the company's products but also encourage others
to join the company as a distributor.[1][7][13]
Companies that use MLM models for compensation have been a frequent subject of criticism
and lawsuits. Criticism has focused on their similarity to illegal pyramid schemes, price fixing
of products, high initial entry costs (for marketing kit and first products), emphasis on
recruitment of others over actual sales, encouraging if not requiring members to purchase
and use the company's products, exploitation of personal relationships as both sales and
recruiting targets, complex and exaggerated compensation schemes, the company and/or
leading distributors making major money off training events and materials, and cult­like
techniques which some groups use to enhance their members' enthusiasm and
devotion.[9][14]
Direct selling, network marketing, and multi­level marketing
History
Contents

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Network marketing and multi­level marketing have been described by author Dominique
Xardel as being synonymous, and as methods of direct selling.[1] According to Xardel, direct
selling and network marketing refer to the distribution system, while the term "multi­level
marketing" describes the compensation plan.[1]
Other terms that are sometimes used to
describe multi­level marketing include "word­of­mouth marketing", "interactive distribution",
and "relationship marketing". Critics have argued that the use of different terms and
"buzzwords" is an effort to distinguish multi­level marketing from illegal Ponzi schemes, chain
letters, and consumer fraud scams.[15] Some sources classify multi­level marketing as a form
of direct selling rather than being direct selling.[16][17][18]
The Direct Selling Association (DSA), a lobbying group for the multi­level marketing industry,
reported that in 1990 twenty­five percent of members used MLM, growing to 77.3 percent in
1999.[19] By 2009, 94.2% of DSA members were using MLM, accounting for 99.6% of sellers,
and 97.1% of sales.[20] Companies such as Avon, Electrolux, Tupperware,[21] and Kirby all
originally used single level marketing to sell their goods and later introduced multi­level
compensation plans.[16] The DSA has approximately 200 members [22] while it is estimated
there are over 1,000 firms using multi­level marketing in the United States alone.[23]
Setup
Income levels
Legality and legitimacy
United States
Criticism
See also
References
External links
Direct selling, network marketing, and multi­level
marketing

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The origin of multi­level marketing is often disputed; but multi­level marketing style
businesses existed in the 1920s,[24] 1930s California Vitamin Company,[25] (later named
Nutrilite) or California Perfume Company (renamed as "Avon Products"),[26]
MLM binary tree structure. The blue
individual will receive compensation from
the sales of the downline red members.
Independent non­salaried participants, referred to as distributors (or associates, independent
business owners, independent agents, etc.), are authorized to distribute the company's
products or services. They are awarded their own immediate retail profit from customers plus
commission from the company, not downlines, through a multi­level marketing compensation
plan, which is based upon the volume of products sold through their own sales efforts as well
as that of their downline organization.
Independent distributors develop their organizations by either building an active consumer
network, who buy direct from the company, or by recruiting a downline of independent
distributors who also build a consumer network base, thereby expanding the overall
organization. Additionally, distributors can also earn a profit by retailing products they
purchased from the company at wholesale price.
Several sources have commented on the income level of specific MLMs or MLMs in general:
The Times: "The Government investigation claims to have revealed that just 10% of
Amway's agents in Britain make any profit, with less than one in ten selling a single item of
the group's products."[27]
History
Setup
Income levels

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Eric Scheibeler, a high level "Emerald" Amway member: "UK Justice Norris found in 2008
that out of an IBO [Independent Business Owners] population of 33,000, 'only about 90 made
sufficient incomes to cover the costs of actively building their business.' That's a 99.7 percent
loss rate for investors."[28]
Newsweek: based on Mona Vie's own 2007 income disclosure statement "fewer than 1
percent qualified for commissions and of those, only 10 percent made more than $100 a
week."[29]
Business Students Focus on Ethics: "In the USA, the average annual income from MLM for
90% MLM members is no more than US $5,000, which is far from being a sufficient means of
making a living (San Lian Life Weekly 1998)"[30]
USA Today has had several articles:
"While earning potential varies by company and sales ability, DSA says the median
annual income for those in direct sales is $2,400."[31]
In an October 15, 2010 article, it was stated that documents of a MLM called Fortune
reveal that 30 percent of its representatives make no money and that 54 percent of the
remaining 70 percent only make $93 a month. The article also states Fortune is under
investigation by the Attorneys General of Texas, Kentucky, North Dakota, and North
Carolina with Missouri, South Carolina, Illinois, and Florida following up complaints against
the company.[32]
A February 10, 2011 article stated "It can be very difficult, if not impossible, for most
individuals to make a lot of money through the direct sale of products to consumers. And
big money is what recruiters often allude to in their pitches."[33]
"Roland Whitsell, a former business professor who spent 40 years researching and
teaching the pitfalls of multilevel marketing": "You'd be hard­pressed to find anyone making
over $1.50 an hour, (t)he primary product is opportunity. The strongest, most powerful
motivational force today is false hope."[33]
United States
MLM businesses operate in all 50 U.S. states. Businesses may use terms such as "affiliate
marketing" or "home­based business franchising". Many pyramid schemes attempt to present
Legality and legitimacy

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themselves as legitimate MLM businesses.[13]
Many courts, and portions of the public assert
that all MLMs are essentially pyramid schemes even if they are legal.[9][34][35][36]
The U.S. Federal Trade Commission (FTC) states "Steer clear of multilevel marketing plans
that pay commissions for recruiting new distributors. They're actually illegal pyramid
schemes. Why is pyramiding dangerous? Because plans that pay commissions for recruiting
new distributors inevitably collapse when no new distributors can be recruited. And when a
plan collapses, most people—except perhaps those at the very top of the pyramid—end up
empty­handed."[37]
In a 2004 Staff Advisory letter to the Direct Selling Association, the FTC states:
The Federal Trade Commission warns "Not all multilevel marketing plans are legitimate.
Some are pyramid schemes. It's best not to get involved in plans where the money you make
is based primarily on the number of distributors you recruit and your sales to them, rather
than on your sales to people outside the plan who intend to use the products."[39]
Criticism
The Federal Trade Commission issued a decision, In re Amway Corp., in 1979 in which it
indicated that multi­level marketing was not illegal per se in the United States. However,
Amway was found guilty of price fixing (by effectively requiring "independent" distributors to
sell at the same fixed price) and making exaggerated income claims.[40][41]
The FTC advises that multi­level marketing organizations with greater incentives for
Much has been made of the personal, or internal, consumption issue in recent
years. In fact, the amount of internal consumption in any multi­level
compensation business does not determine whether or not the FTC will
consider the plan a pyramid scheme. The critical question for the FTC is
whether the revenues that primarily support the commissions paid to all
participants are generated from purchases of goods and services that are not
simply incidental to the purchase of the right to participate in a money­
making venture.[38]
“
”

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recruitment than product sales are to be viewed skeptically. The FTC also warns that the
practice of getting commissions from recruiting new members is outlawed in most states as
"pyramiding".[42] In April 2006, it proposed a Business Opportunity Rule intended to require
all sellers of business opportunities—including MLMs—to provide enough information to
enable prospective buyers to make an informed decision about their probability of earning
money. In March 2008, the FTC removed Network Marketing (MLM) companies from the
proposed Business Opportunity Rule:
Walter J. Carl stated in a 2004 Western Journal of Communication article that "MLM
organizations have been described by some as cults (Butterfield, 1985), pyramid schemes
(Fitzpatrick & Reynolds, 1997),[44]
or organizations rife with misleading, deceptive, and
unethical behavior (Carter, 1999), such as the questionable use of evangelical discourse to
promote the business (Hopfl & Maddrell, 1996), and the exploitation of personal relationships
for financial gain (Fitzpatrick & Reynolds, 1997)".[44][45] In China, volunteers working to
rescue people from the schemes have been physically attacked.[46]
MLMs are also criticized for being unable to fulfill their promises for the majority of
participants due to basic conflicts with Western cultural norms.[47]
There are even claims that
the success rate for breaking even or even making money are far worse than other types of
businesses:[48][49][50]
"The vast majority of MLMs are recruiting MLMs, in which participants
must recruit aggressively to profit. Based on available data from the companies themselves,
the loss rate for recruiting MLMs is approximately 99.9%; i.e., 99.9% of participants lose
money after subtracting all expenses, including purchases from the company."[48] In part, this
is because encouraging recruits to further "recruit people to compete with [them]"[9]
leads to
"market saturation."[14]
It has also been claimed "(b)y its very nature, MLM is completely
devoid of any scientific foundations."[51]
Another criticism is that MLM has effectively outlived
its usefulness as a legitimate business practice. The argument is that, in the time when the
United States was a series of relatively small, isolated towns and rural areas not easily
accessible to small companies, MLM was a useful way to let people know of and buy
products or services. But the advent of internet commerce, with its ability to advertise and sell
The revised proposal, however, would not reach multi­level marketing
companies or certain companies that may have been swept inadvertently into
scope of the April 2006 proposal.[43]
“
”

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directly to consumers, has rendered that model obsolete. Thus, today, nearly all modern
MLMs ostensibly sell vastly overpriced goods and services (if there even is a real product or
service involved at all) as a thin cloak of legitimacy, while their members are driven to recruit
even more people into the MLM, effectively turning these programs into pyramid schemes.[35]
Because of the encouraging of recruits to further recruit their competitors, some people have
even gone so far as to say at best modern MLMs are nothing more than legalized pyramid
schemes[9][34][35][36]
with one stating "Multi­level marketing companies have become an
accepted and legally sanctioned form of pyramid scheme in the United States"[34]
while
another states "Multi­Level Marketing, a form of Pyramid Scheme, is not necessarily
fraudulent."[36]
In October 2010 it was reported that multilevel marketing companies were being investigated
by a number of state attorneys general amid allegations that salespeople were primarily paid
for recruiting and that more recent recruits cannot earn anything near what early entrants
do.[52]
Industry critic Robert L. FitzPatrick has called multi­level marketing "the Main Street bubble"
that will eventually burst.[53]
List of multi­level marketing companies
1. ^ a
b
c
d
Xardel, Dominique (1993). The Direct Selling Revolution. Understanding the
Growth of the Amway Corporation. Blackwell Publishing. pp. 1–4. ISBN 978­0­631­19229­9.
2. ^ Edwards, Paul (1997). Franchising & licensing: two powerful ways to grow your business
in any economy. Tarcher. p. 356. ISBN 0­87477­898­0.
3. ^ Clegg, Brian (2000). The invisible customer: strategies for successive customer service
down the wire. Kogan Page. p. 112. ISBN 0­7494­3144­X.
4. ^ Higgs, Philip; Smith, Jane (2007). Rethinking Our World. Juta Academic. p. 30. ISBN 0­
7021­7255­3.
5. ^ a
b
Kitching, Trevor (2001). Purchasing scams and how to avoid them. Gower Publishing
See also
References

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Company. p. 4. ISBN 0­566­08281­0.
6. ^ Mendelsohn, Martin (2004). The guide to franchising. Cengage Learning Business
Press. p. 36. ISBN 1­84480­162­4.
7. ^ 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): 139–15. doi:10.1509/jppm.21.1.139.17603 .
8. ^ Mendelsohn, Martin (2004). The guide to franchising. Cengage Learning Business
Press. p. 36. ISBN 1­84480­162­4.
9. ^ a
b
c
d
e
Carroll, Robert Todd (2003). The Skeptic's Dictionary: A Collection of Strange
Beliefs, Amusing Deceptions, and Dangerous Delusions . John Wiley & Sons. pp. 235–36.
ISBN 0­471­27242­6. Retrieved June 29, 2009.
10. ^ "The Bottom Line About Multilevel Marketing Plans and Pyramid Schemes" (PDF).
FTC. “Not all multilevel marketing plans are legitimate. Some are pyramid schemes.”
11. ^ "Multilevel Marketing" . FTC.
12. ^ "Multilevel Marketing" . FTC, Bureau of Consumer Protection.
13. ^ a
b
Debra A. Valentine (May 13, 1998). "Pyramid Schemes" . FTC. Retrieved June 24,
2009.
14. ^ a b "What's Wrong With Multi­Level Marketing?" . Vandruff.com. Retrieved June 29,
2009.
15. ^ Charles W. King; James W. Robinson (2000). The New Professionals. Prima
Publishing. p. 80. ISBN 0­7615­1966­1.
16. ^ a b Edwards, Paul; Edwards, Sarah; Economy, Peter (2009). Home­Based Business for
Dummies (3rd ed.). Wiley. pp. 38–39. ISBN 978­0­470­53805­0.
17. ^ " 'Person to person' sales plans... "dream" opportunity or business nightmare? [Amway
Ad]" . Life 68 (7): 51. February 27, 1970.
18. ^ Brown Caryne (Dec 1992). "Door­to­door Selling Grows Up". Black Enterprise 23 (5):
76.
19. ^ Michael L. Sheffield (Feb–Mar 1999). "Comp Plan Conversion:Direct Sales to MLM
Compensation Plans" . Direct Sales Journal. (citing Neil Offen, president of the Direct

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Selling Association)
20. ^ "US Direct Selling in 2009" (PDF). Direct Selling Association. 2010.
21. ^ Zoe Brennan (January 18, 2007). "How Tupperware has conquered the world" . Daily
Mail. Retrieved May 19, 2009.
22. ^ "Direct Selling Organization Membership" . Direct Selling Association. Retrieved
April 29, 2011.
23. ^ Zig Ziglar; John P Hayes, PhD (2001). Network Marketing for Dummies. Hungry Minds.
ISBN 0­7645­5292­9.
24. ^ Pareja, Sergio (2008). "Sales Gone Wild: Will the FTC's Business Opportunity Rule Put
an End to Pyramid Marketing Schemes?". McGeorge Law Review 39 (83).
25. ^ Attri, Rekha (2011). "A Study of Consumer Perceptions of the Products Sold Through
Multilevel Marketing". Management Research Journal (Prabandhan & Taqniki) 39 (83): 97–
103.
26. ^ "MLM History" . network­experience.net. January 24, 2014. Retrieved January 24,
2014.
27. ^ Brown, David (November 27, 2007). "Marketing group merely 'selling a dream' " . The
Times. Retrieved July 13, 2009.
28. ^ Berkowitz, Bill (January 28, 2009). "Republican Benefactor Launches Comeback" .
Inter press service. Retrieved July 11, 2009. (in reference to BERR vs Amway (Case
No:2651, 2652 and 2653 of 2007) in point of objectionability"c")
29. ^ Tony Dokoupil (August 2, 2008). "A Drink's Purple Reign" . Newsweek. Retrieved
July 17, 2009.
30. ^ Ryan (Editor), Leo; Wojciech, Gasparski (Editor); Georges, Enderle (Editor) (2000).
Business Students Focus on Ethics (Praxiology): The international Annual of Practical
Philosophy and Methodology Volume 8. New Jersey: Transaction Publishers. p. 75. ISBN 0­
7658­0037­3.
31. ^ Peterecca, Laura (September 14, 2009). "What kind of business do you want to
start?" . USA Today. pp. 4B. Retrieved September 14, 2009.
32. ^ O'Donnell, Jayne (October 15, 2010). "Fortune Hi­Tech: American dream or pyramid
scheme?" . USA Today. pp. 6B. Retrieved October 1, 2011.

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33. ^ a
b
O'Donnell, Jayne (February 10, 2011). "Multilevel marketing or 'pyramid?' Sales
people find it hard to earn much" . USA Today. Retrieved April 5, 2011.
34. ^ a
b
c
Coenen, Tracy (2009). Expert Fraud Investigation: A Step­by­Step Guide. Wiley.
p. 168. ISBN 0­470­38796­3.
35. ^ a
b
c
Ogunjobi, Timi (2008). Scams ­ and How to Protect Yourself from Them. Tee
Publishing. pp. 13–19.
36. ^ a
b
c
Salinger (Editor), Lawrence M. (2005). Encyclopedia of White­Collar & Corporate
Crime 2. Sage Publishing. p. 880. ISBN 0­7619­3004­3.
37. ^ "FTC Consumer Alert; Lotions and Potions: The Bottom Line About Multilevel Marketing
Plans" . FTC. January 2000. Retrieved March 26, 2001.
38. ^ Kohm, James A. (January 14, 2004). "RE: Staff Advisory Opinion ­ Pyramid Scheme
Analysis" (reprint). Federal Trade Commission.
39. ^ Facts for Consumers; The Bottom Line About Multilevel Marketing Plans and Pyramid
Schemes Federal Trade Commission
40. ^ Richard Eisenberg (June 1, 1987). "The Mess Called Multi­Level Marketing With
celebrities etting the bait, hundreds of pyramid­style sales companies are raking in millions,
often taking in the gullible" . CNN.
41. ^ In re Amway Corp., 93 F.T.C. (1979).
42. ^ "Multilevel Marketing Plans" . FTC Consumer Alert. November 1996. Retrieved May 7,
2008.
43. ^ "FTC Press Release" .
44. ^ a
b
"FalseProfitsHomePage" . Falseprofits.com. Retrieved March 5, 2010.
45. ^ Carl, Walter J. (2004). "The Interactional Business of Doing Business: Managing
Legitimacy and Co­constructing Entrepreneurial Identities in E­Commerce Multilevel
Marketing Discourse". Western Journal of Communication 68.
46. ^ Hu Yongqi. "Going against the slippery slope of a pyramid scheme" . China Daily.
47. ^ Bloch, Brian (1996). "Multilevel marketing: what's the catch?". Journal of Consumer
Marketing 13 (4): 18–26.
48. ^ a
b
Taylor, Jon M. (2002). "Comparing Recruiting MLMs with No­product Pyramid

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Schemes, and with Gambling" . Consumers Awareness Institute. Retrieved March 10, 2014.
49. ^ FitzPatrick, Robert L. (August 4, 2002). "The 10 Big Lies of Multi­Level Marketing" .
Consumers Awareness Institute. Retrieved June 25, 2009.
50. ^ Cruz, Joan Paola; Camilo, Olaya (2008). "A System Dynamics Model for Studying the
Structure of Network Marketing Organizations [Peer reviewed paper that refers uses Taylor
as references]" (PDF).
51. ^ Sandbek PhD, Terry. "Brain Typing: The Pseudoscience of Cold Reading" . American
Board of Sport Psychology.
52. ^ "Multilevel marketing or 'pyramid?' Sales people find it hard to earn much" . USA
Today. February 10, 2011. Retrieved March 3, 2011.
53. ^ Greenberg, Herb (January 9, 2013). "Multi­Level Marketing Critic: Beware 'Main Street
Bubble' " . CNBC. Retrieved February 11, 2014.
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