Multi-level marketing

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Multi-level marketing (MLM), also called network marketing[1] or pyramid selling,[2][3][4][5] is a controversial[5] and sometimes illegal marketing strategy for the sale of products or services in which 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.[6][7]

In multi-level marketing, the compensation plan usually pays out to participants from two potential revenue streams: the first is based on a sales commission from directly selling the product or service, while the second is paid out from commissions based upon the wholesale purchases made by other sellers whom the participant has recruited to also sell product. In the organizational hierarchy of MLM companies, recruited participants (as well as those whom the recruit recruits) are referred to as one's downline distributors.[8] 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 downline distributors.[1][9]

According to a study of 350 MLM companies in the United States, at least 99% of recruits lose money.[10][11][12] Nonetheless, MLM companies 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-emphasized. MLM companies have been made illegal or otherwise strictly regulated in some jurisdictions as merely variations of the traditional pyramid scheme.[13][14]

  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.
  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.
  4. ^ Mendelsohn, Martin (2004). The guide to franchising. Cengage Learning Business Press. p. 36. ISBN 1-84480-162-4.
  5. ^ a b Karp, Gregory (August 24, 2021) [February 10, 2013]. "The fine line between legitimate businesses and pyramid schemes". Chicago Tribune. Archived from the original on May 10, 2024.
  6. ^ "Multi-Level Marketing Businesses and Pyramid Schemes". FTC. July 2022.
  7. ^ "Multi-Level Marketing". FTC, Bureau of Consumer Protection. January 4, 2018. Archived from the original on November 3, 2014. Retrieved October 16, 2020.
  8. ^ DuBoff, Leonard D. (2004). The Law (in Plain English) for Small Business. Sphinx Pub. pp. 285–286. ISBN 978-1-57248-377-4.
  9. ^ Cite error: The named reference Xardel was invoked but never defined (see the help page).
  10. ^ "The Perils Of Multi-Level Marketing Programs". Texas Public Radio. October 4, 2017. Retrieved February 16, 2018.
  11. ^ Taylor, Jon. "Chapter 7: MLM's Abysmal Numbers" (PDF). Consumer Awareness Institute. Retrieved April 28, 2024.
  12. ^ "Legging company, LuLaRoe accused of misleading consultants". Valley News. Retrieved February 16, 2018.
  13. ^ Cite error: The named reference china-briefing was invoked but never defined (see the help page).
  14. ^ Cite error: The named reference china-MLM-law was invoked but never defined (see the help page).
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