What is MultiLevel Marketing? It is What We Know?

Multilevel marketing, also Popularly Known as Network Marketing, Pyramid Marketing, and Referral Marketing.

Therefore, MLM salespeople are expected to sell their products directly to end-user retail consumers through relationship referrals and word-of-mouth marketing. Still, most importantly, they are incentivized to recruit others to join the company's distribution chain as fellow salespeople, becoming downline distributors. Nonetheless, the MLMs model function because downline participants are encouraged to believe that they can achieve significant returns, while the statistical improbability of this is de-emphasized. MLMs have been made illegal or strictly regulated in some jurisdictions as mere variations of the traditional pyramid scheme, including in mainland China.

Business model 

Participants  

Most MLM participants participate at either an insignificant or nil net profit. Indeed, the most significant proportion of participants must operate at a net loss so that the few distributors at the uppermost level of the MLM pyramid can derive their considerable earnings. Said the MLM company then emphasizes gains to all other distributors to encourage their participation by continuing financial loss.

Companies  

Many MLM companies create billions of dollars in annual revenue and hundreds of millions in annual profit. However, the MLM company's profits are accrued to the detriment of the majority of the company's constituent workforce. Only some of the said profit is significantly shared among the individual participants at the top of the MLM distributorship pyramid. Those top few participants' incomes are focused on and championed at company seminars, meetings and conferences, creating an illusion of how they can become financially successful if they participate in the MLM. The MLM company then advertises this to recruit more distributors to participate in the MLM with a false expectation of income margins that are merely statistically and

Although an MLM company holds top-earner individual participants as proof of how participation in the MLM could lead to financial freedom, the MLM business model depends on the failure of the devastating majority of all other distributors through the injecting of money from their own pockets, so that it can become the profit and revenue of the MLM company, of which the MLM company shares only a tiny proportion of profit to a few distributors at the very top level of the MLM participant pyramid. Few Participants, other than the few distributors at the top, provide nothing more than their financial loss for the company's profit and the profit of the top few individual distributors.

Financial Independence  

The main sales point of MLM companies to their distributors and prospective distributors is not the MLM company's services or products. The products or services are primarily external to the MLM model. Instead, the actual sales pitch and emphasis is on the confidence given to the distributor of potential financial independence by joining the MLM, charming with phrases like "lifestyle you deserve" or "financial freedom." The MLMs company are not selling the product or services; they are just selling their dream.

Even though  the emphasis is constantly  placed on the potential for success and  the positive life-changing events that  "may" or "could" result, it is still challenging to find evidence that MLM members are provided with adequate print disclaimers that they as members shouldn't rely on the procuring outcomes  of other members in the most significant levels of the MLM member pyramid as a sign of what they should hope to acquire. MLMs seldom underscore the outrageous probability of disappointment, or the outrageous probability of monetary misfortune, from support in MLM. MLMs are also rarely approaching the way that any critical progress of a couple of people at the highest point of the MLM member pyramid is subject to the proceeded with monetary misfortune and disappointment of any remaining members underneath them the MLM pyramid.

Comparisons to pyramid schemes  

MLMs have been made unlawful in certain wards as a straightforward variety of the customary fraudulent business model, remembering for China. Considering that by far, most MLM members can't reasonably create a net gain, not to mention a critical net benefit, yet rather predominantly work at overall deficits, a few sources have characterized all MLMs as a sort of fraudulent business model, regardless of whether they have not been made unlawful like conventional fraudulent business models through regulative resolutions.

MLMs are profitable for the company's owners and shareholders and a select few participants at the top of the MLM pyramid. The US Federal Trade Commission claims that some MLM businesses are already illegal pyramid schemes under the more restrictive current laws because they take advantage of the organization's members.

Lawsuits  

Companies that follow the MLM business model have been the target of many criticisms and litigation. Among the legal allegations made against MLMs have been:

their similar nature to traditional illegal pyramid schemes,

way of price-fixing of products or services,

conspiracy and racketeering in backroom transactions in which secret reward packages are devised between the MLM firm and a few individual participants at the expense of others,

The initial Entry cost is High,

emphasis on recruitment of others over actual sales,

encouraging, if not required, members to purchase and use the company's products,

the exploitation of personal relationships as both recruiting target and sales,

exaggerated and complex compensation schemes,

having false product claims,

the company or leading distributors making significant money off participant-attended conventions, training events and materials, advertising materials, and

Some groups use cult-like techniques to enhance their members' enthusiasm and devotion. Other terms which are also used to describe multilevel marketing include "word-of-mouth marketing", "interactive distribution", and "relationship marketing". Critics have argued that using these and other different terms and "buzzwords" is an effort to distinguish multilevel marketing from illegal Ponzi schemes, chain letters, and consumer fraud scams.

According to the Direct Selling Association, a lobbying group for the MLM industry, only 25% of DSA members used the MLM business model in 1990. By 1999, this figure had risen to 77.3%. By 2009, MLM was used by 94.2% of DSA members, accounting for 99.6% of sellers and 97.1% of sales. Avon, Electrolux, Tupperware, and Kirby were all once single-level marketing organizations that sold their products using the typical and uncontroversial direct-selling business model. However, they then implemented multilevel compensation systems, transforming themselves into MLMs. At the same time, it is estimated that over 1,000 businesses in the United States alone use multilevel marketing.

History

The origin of multilevel marketing is often disputed, but multilevel marketing style businesses existed in the 1920s and 1930s California Vitamin Company or California Perfume Company.

Setup 

Distributors are non-salaried independent participants authorized to distribute the company's products or services. Through a multilevel marketing compensation plan based on the volume of products sold through their own sales efforts and that of their downline organization, they are awarded their immediate retail profit from customers and commission from the company, not downlines.

Independent distributors grow their businesses by cultivating an active customer network that purchases directly from the firm or by recruiting a downline of independent distributors who also develop a consumer network, extending the entire organization. The number of recruits from these cycles is the sales force, referred to as the salesperson's "downline". This "downline" is the pyramid in MLM's multiple-level structure of compensation.

Income levels 

Many sources have commented on the income level of all MLMs distributors in general:

The Times: " According to the government inquiry, just 10% of Amway's agents in the UK earn a profit, with less than one in ten selling a single piece of the group's products."

Eric Scheibeler, a high-level "Emerald" Amway member: "In 2008, UK Justice Norris discovered that out of 33,000 IBOs, 'just approximately 90 produced adequate money to cover the costs of aggressively developing their firm." That equates to a 99.7% loss rate for investors."

Newsweek: based on Mona Vie's 2007 income disclosure statement, "fewer than 1 per cent qualified for commissions, and of those, only 10 per cent made more than the US $100 per week."

Business Students Focus on Ethics: "In USA, the average yearly income from MLM for 90 per cent MLM members is no more than US $5,000, which is far from being a sufficient means of making a living ".