What exactly is multilevel marketing?
Multilevel Marketing is a business strategy in which unsalaried, hierarchical sales teams sell products directly to consumers while also recruiting additional firm sales representatives. Referral marketing and network marketing are other terms for multilevel marketing.
Existing MLM firm members sell and promote products to a community of potential buyers. They are frequently required to bring in new individuals to join the company’s ever-expanding sales levels. A multilevel marketing company’s structure always includes a hierarchy of responsibilities, or levels, that can be ascended through successful sales or recruiting, and which are linked to awards and promotions for the associates.
What is the process of multilevel marketing?
A direct sales or B2C (business-to-consumer) organization offers items or services to individual sales representatives who frequently act as their own small business owners in multilevel marketing. As a result, these agents concentrate on selling a product or service directly to consumers, usually without the use of a storefront. The MLM structure’s independent distributors serve as sales representatives, brand ambassadors, or micro-influencers.
An MLM business structure may contain a flat hierarchy, which means there are only a few tiers between the top executives and the newest members. An MLM business model may contain roles such as CEO, distributor, sales representative, and sponsor or recruiter. There is usually a compensation mechanism in place. When a sales representative at the bottom level makes a sale, everyone above them usually receives a percentage of the profit. MLM sales reps are not paid hourly but rather receive set commissions at all levels. While the focus is on recruiting new distributors, the representatives also make money by selling the company’s items.
MLM sales teams frequently attract women, young mothers, and those looking for alternative work. MLM firms entice previously satisfied customers to sell by promising independence and new business chances. Customers may be more trusting of friends and acquaintances who act as representatives than strangers marketing the products, according to an MLM business plan. Representatives who use their communities as a customer base may find that their friends and family are eager to support their business endeavors.
MLM products are commonly sold in the following ways:
- Fairs and farmer’s markets
- internet gatherings
- social media communities
- house visits for social media marketing
- the power of word of mouth
- In-person or virtual parties for influencer marketing and viral marketing
Is network marketing legal?
Multilevel marketing is permitted in the United States and most other nations. It is prohibited in a few countries, including Bangladesh, China, and Saudi Arabia. While lawful in the United States, the MLM business practice is frequently regarded as contentious because of the use of predatory recruiting practices and unpaid work by its sales agents. According to critics, the MLM business technique is very similar to a pyramid scheme, which is prohibited in most countries.
What exactly is the distinction between multilevel marketing and a pyramid scheme?
The primary distinction between an MLM and a pyramid scam is whether it is classified as a lawful marketing approach. MLM tactics are lawful, however, pyramid scams are not.
The following are significant differences between MLM and criminal pyramid schemes:
- Pyramid schemes focus on personnel attempting to recruit new members of a sales team, whereas MLM tactics include recruitment as part of a larger business strategy that also includes product sales.
- A repurchase guarantee is required by MLM systems for any products that sales associates are unable to sell, however, a pyramid scheme does not have such an agreement.
- MLMs offer a genuine product or service that benefits the client, whereas a pyramid scheme encourages new service representative members to make constant investments and recruit more people into the organization.
- MLM tactics recruit as many people as possible into their sales teams in order to sell as many items as possible, whereas pyramid schemes recruit as many people as possible into their sales teams in order to profit off their newest associates’ investments.
- MLM techniques may require a minimum purchase of their items through a sales representative, while pyramid schemes need a very big investment before a business owner can even sign a contract to begin working for them.
- MLM business techniques include research and a strategy to focus on a target customer for representatives to market to, whereas pyramid schemes focus on the end user little or not at all.
- A sales representative may collect commissions for their own sales or the sales of their recruits in an MLM approach. In a pyramid scheme, on the other hand, the representative only receives rewards for recruiting more members beneath them.
While multilevel marketing organizations are legitimate, even the most successful and ethical companies cannot guarantee that their sales teams will earn any money.
How to Determine Whether a Multilevel Marketing Company Is a Pyramid Scheme
Anyone interested in knowing more about the ethics of a multilevel marketing company might use the Better Business Bureau (BBB) resources, a nonprofit organization that evaluates the legality and morality of enterprises. For anyone interested in MLM business methods, the Federal Trade Commission (FTC), the United States Consumer Product Safety Commission, and the National Labor Relations Board are all excellent resources.
According to the FTC, anyone can determine whether an MLM is a pyramid scheme by looking for the following indicators:
- Representatives must acquire a huge quantity of inventory.
- The quantity of persons recruited by representatives determines income, not the number of things sold to consumers.
- To maintain a specific level or a high rank in the organization, the representative must purchase things on their own.
People who want to avoid investing in an MLM should be careful, ask questions, and conduct research on the company’s reputation and business procedures.
Examples of multilevel marketing enterprises
MLM tactics are used by a number of well-known companies. Many of these companies are actual enterprises. Others, on the other hand, have faced criticism, including accusations of using pyramid schemes, fraud, class action lawsuits, and cases of securities fraud. Some have also been charged for marketing hazardous products or violating wage payment rules.
Despite the controversy, numerous MLM companies have proven to be extremely profitable. Amway, which was valued at $8.4 billion in 2020, is one of the most profitable MLM companies.
Another well-known company that uses multilevel marketing is:
- Mary Kay