IMPORTANT NOTES:-MLM: Multi-level marketing.DSA: Direct Selling Association.FTC : Federal Trade Commission. |
What is the MLM?
Multi-level marketing (MLM), (also called network marketing,direct selling,and referral marketing,) is a term that describes a marketing structure used by some companies as part of their overall marketing strategy.
What is the MLM Software?
Direct selling and Multi-level marketing.
It should be noted that some sources classify Multi-level marketing as a form of direct selling rather than being direct selling It must be also mentioned that Avon, Electrolux, Tupperware, and Kirby all originally used single level marketing to sell their goods and that multi-level marketing was used in 1945 to sell the vitamin supplement Nutrilite
''Michael L. Sheffield in a Feb/Mar 1999 article titled comp plan conversion,direct sales to MLM compensation plans in his Direct Sales Journal cited Neil Offen, president of the Direct Selling Association for the statement that MLM had gone from 25 percent of Direct Selling Association membership in 1990 to 77.3 percent in 1999''.
income levels comp plan conversion,direct sales to MLM compensation plans.
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."
- 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."
- News week: 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."
- 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)"
- 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." In a October 15, 2010 article it was stated that documents of a MLM called Fortune reveal that 30 percent of its representatives make no money and that 54 percent of the remaining 70 percent only make $93 a month. The article also states Fortune is under investigation by the Attorneys General of Texas, Kentucky, North Dakota, and North Carolina with Missouri, South Carolina, Illinois, and Florida following up complaints against the company.
Legality.
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.
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."
In a 2004 Staff Advisory letter to theDSA, 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.
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." 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 .
- 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
However, there are people who hold that all MLMs are essentially pyramid schemes even if they are legal, rendering the whole issue of a particular MLM being legal moo
Criticism of MLM.
The FTC issued a decision, in re AMWAY corp., in 1979 in which it indicated that multi-level marketing was not in the United States. However, Amway was found guilty of price fixing (by requiring "independent" distributors to sell at the low price) and making exaggerated income claims.
The FTC advises that multi-level marketing organizations with greater incentives for recruitment than product sales are to be viewed skeptically. The FTC also warns that the practice of getting commissions from recruiting new members is outlawed in most states as "pyramiding". In April 2006, it proposed a Business Opportunity Rule intended to require all sellers of business opportunities—including MLMs—to provide enough information to enable prospective buyers to make an informed decision about their probability of earning money. In March 2008, the FTC removed Network Marketing (MLM) companies from the proposed Business Opportunity Rule:
The revised proposal, however, would not reach multi-level marketing companies or certain companies that may have been swept inadvertently into scope of the April 2006 proposal.
Walter J. Carl stated in a 2004 Western Journal of Communication article that "MLM organizations have been described by some as cults (Butterfield, 1985), pyramid schemes (Fitzpatrick & Reynolds, 1997), or organizations rife with misleading, deceptive, and unethical behavior (Carter, 1999), such as the questionable use of evangelical discourse to promote the business (Hopfl & Maddrell, 1996), and the exploitation of personal relationships for financial gain (Fitzpatrick & Reynolds, 1997)".
MLM's are also criticized for being unable to fulfill their promises for the majority of participants due to basic conflicts with Western cultural norms. There are even claims that the success rate for breaking even or even making money are far worse than other types of businesses: "The vast majority of MLM’s are recruiting MLM’s, in which participants must recruit aggressively to profit. Based on available data from the companies themselves, the loss rate for recruiting MLM’s is approximately 99.9%; i.e., 99.9% of participants lose money after subtracting all expenses, including purchases from the company." In part, this is because encouraging recruits to further "recruit people to compete with [them]" leads to "market saturation."
Another criticism is that MLMs have effectively outlived their usefulness as a legitimate business practice. The argument is that, in the time when America was a series of relatively small, isolated towns and rural areas not easily accessible to small companies, MLM was an useful way to let people know of and buy products or services. But the advent of internet commerce, with its ability to advertise and sell directly to consumers, has rendered that model obsolete. So today nearly all modern MLMs ostensibly sell vastly overpriced goods and services (if there even is a real product or service involved at all) as a thin cloak of legitimacy, while their members are driven to recruit even more people into the MLM, effectively turning these programs into pyramid schemes.
It is because of this encouraging recruits to further recruit their competitors, some people have even gone so far as to say at best modern MLMs are nothing more than legalized pyramid schemes with one stating "Multi-level marketing companies have become an accepted and legally sanctioned form of pyramid scheme in the United States" while another states "Multi-Level Marketing, a form of Pyramid Scheme, is not necessarily fraudulen
Minimum "sales" requirement.
Some companies, many of them members of the DSA, require their distributors to make minimum purchases ("pay to play") in order to be eligible for commissions and advancement in the business. For example, Nefful has mandated a minimum "personal sales volume" each month of US$ 20 in order to receive commission. Such "incentives" are a "red flag" according to the Consumer Awareness Institute. WatchForScams.com also warns that such requirements which compel sellers to be "committed to a minimum sales volume per month" are a hallmark of potential scams.
Frequently such "sales" are not real sales, but rather the "seller" purchasing the minimum amount for themselves in order to fulfill the requirement for compensation. In fact, the Direct Selling Association's Code of Ethics states that qualifying sales may be "based on sales to individual direct sellers for their own actual use or consumption." The 2004 Staff Advisory letter to the DSA from the United States FTC notes that such minimum sales requirement may be used to "disguise these payments to appear as if they are based on the sale of goods or services"thus a direct sale company avoids being found as an illegal pyramid scheme on the technicality that pyramid schemes have to make no sales, as in the in re Amway corp.ruling.
