From Wikipedia, the free encyclopedia
Jump to: navigation, search
Marketing
Key concepts
Product • Pricing
Distribution • Service • Retail
Brand management
Account-based marketing
Marketing ethics
Marketing effectiveness
Market research
Market segmentation
Marketing strategy
Marketing management
Market dominance
Marketing process outsourcing
Promotional content
Advertising • Branding • Underwriting
Direct marketing • Personal Sales
Product placement • Publicity
Sales promotion • Sex in advertising
Promotional media
Printing • Publication • Broadcasting
Out-of-home • Internet marketing
Point of sale • Promotional items
Digital marketing • In-game
In-store demonstration • Brand Ambassador
Word of mouth • Drip Marketing
This box: view • talk • edit
It has been suggested that Direct selling be merged into this article or section. (Discuss)
Multi-level marketing (MLM), (also called network marketing,[1][2][3][4][5] direct selling,[6][3] and referral marketing,[7][8][9][10][11][12]) is a term that describes a marketing structure used by some companies as part of their overall marketing strategy. The structure is designed to create a marketing and sales force by compensating promoters of company products not only for sales they personally generate, but also for the sales of other promoters they introduce to the company, creating a downline of distributors and a hierarchy of multiple levels of compensation.
The products and company are usually marketed directly to consumers and potential business partners by means of relationship referrals and word of mouth marketing.[13]
MLM companies have been a frequent subject of controversy as well as the target of lawsuits. Criticism has focused on their similarity to illegal pyramid schemes, price-fixing of products, high initial start-up costs, emphasis on recruitment of lower-tiered salespeople over actual sales, encouraging if not requiring salespeople to purchase and use the company's products, potential exploitation of personal relationships which are used as new sales and recruiting targets, complex and sometimes exaggerated compensation schemes, and cult-like techniques which some groups use to enhance their members' enthusiasm and devotion. Not all MLM companies operate the same way, and MLM groups have persistently denied that their techniques are anything but legitimate business practices
Income levels
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 per cent of Amway's agents in Britain make any profit, with less than one in ten selling a single item of the group's products."[14]
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."[15]
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."[16]
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)"[17]
USA Today: "While earning potential varies by company and sales ability, DSA says the median annual income for those in direct sales is $2,400."[18]
[edit] Legality and Legitimacy
MLM businesses operate in the United States in all 50 states and in more than 100 other countries, and new businesses may use terms like "affiliate marketing" or "home-based business franchising". However, many pyramid schemes try to present themselves as legitimate MLM businesses.[6]
The 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 empty-handed."[19]
In a 2004 Staff Advisory letter to the Direct Selling Association, the United States Federal Trade Commission (FTC) states:
Much has been made of the personal, or internal, consumption issue in recent years. In fact, the amount of internal consumption in any multi-level 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.[20]
The FTC 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."[21] and states that research is your best tool, giving eight steps to follow:
1) Find — and study — the company’s track record
2) Learn about the product
3) Ask questions
4) Understand any restrictions
5) Talk to other distributors (beware shills)
6) Consider using a friend or adviser as a neutral sounding board or for a gut check
7) Take your time
8) Think about whether this plan suits your talents and goals[21]
However, there are people who hold that all MLMs are nothing more than pyramid schemes even if they are legal,[7][22][23][24] rendering the whole issue of a particular MLM being legal moot.
