Multi Level Marketing Explained

People ask me this question all the time. This is what the good people at Wikipedia have to say about it. Check out the full article here

Multi level marketing (MLM) is a marketing strategy in which the sales force is compensated not only for sales they personally 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.Other terms for MLM include pyramid selling,network marketing, and referral marketing.^[10]

Most commonly, the salespeople are expected to sell products directly to consumers by means of relationship referrals and word of mouth marketing. Some people use direct selling as a synonym for multi level marketing, although multi level marketing is only one type of direct selling, which started centuries ago with peddling.

Multi level marketing companies have been a frequent subject of criticism 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.

In contrast to multi level marketing is single-level marketing, where the salesperson is rewarded for selling the product directly to the consumer.

Direct selling, Network Marketing, and Multi Level Marketing

Network marketing and Multi level marketing have been described by author Dominique Xardel as being synonymous, and as methods of direct selling. According to Xardel, direct selling and network marketing refer to the distribution system, while the term “multi level marketing” describes the compensation plan. Other terms that are sometimes used to describe multi level marketing include “word-of-mouth marketing”, “interactive distribution”, and “relationship marketing”. Critics have argued that the use of different terms and “buzzwords” is an effort to distinguish multi level marketing from illegal Ponzi schemes, chain letters, and consumer fraud scams. Some sources classify multi level marketing as a form of direct selling rather than being direct selling.

The Direct Selling Association, a lobbying group for the multi level marketing industry, reported that in 1990 twenty-five percent of members used multi level marketing, growing to 77.3 percent in 1999. Companies such as Avon, Electrolux, Tupperware, and Kirby all originally used single level marketing to sell their goods and later introduced multi level compensation plans. By 2009, 94.2% of members were using multi level marketing, accounting for 99.6% of sellers, and 97.1% of sales. The DSA has approximately 200 members while it is estimated there are over 1,000 firms using multi level marketing in the United States alone.