Multi-level marketing (MLM), also called network marketing
or pyramid selling,
is a controversial
marketing strategy
Marketing strategy allows organizations to focus limited resources on best opportunities to increase sales and achieve a competitive advantage in the market.
Strategic marketing emerged in the 1970s/80s as a distinct field of study, further build ...
for the
sale of products or services in which the
revenue
In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business.
Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...
of the MLM company is derived from a non-salaried
workforce
The workforce or labour force is a concept referring to the Pooling (resource management), pool of human beings either in employment or in unemployment. It is generally used to describe those working for a single types of companies, company or ...
selling the company's products or services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation
commission system.
In multi-level marketing, the compensation plan usually pays out to participants from two potential
revenue stream
A revenue stream is a source (or category of sources) of revenue of a company, other organization, or regional or national economy.
In business, a revenue stream is generally made up of either recurring revenue, transaction-based revenue, project ...
s. The first is based on a sales commission from directly selling the product or service; the second is paid out from commissions based upon the wholesale purchases made by other sellers whom the participant has recruited to also sell product. In the organizational hierarchy of MLM companies, recruited participants (as well as those whom the recruit recruits) are referred to as one's ''downline'' distributors.
MLM salespeople are, therefore, expected to sell products directly to end-user retail consumers by means of relationship referrals and
word of mouth
Word of mouth, or ''viva voce'', is the passing of information from person to person using oral communication, which could be as simple as telling someone the time of day. Storytelling is a common form of word-of-mouth communication where one pe ...
marketing, but more importantly they are incentivized to recruit others to join the company's distribution chain as fellow salespeople so that these can become downline distributors.
According to a report that studied the business models of 350 MLM companies in the United States, published on the Federal Trade Commission's website, at least 99% of people who join MLM companies lose money.
Nonetheless, MLM companies function because downline participants are encouraged to hold onto the belief that they can achieve large returns, while the statistical improbability of this is de-emphasized. MLM companies have been made illegal or otherwise strictly regulated in some jurisdictions as merely variations of the traditional
pyramid scheme
A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly im ...
.
Terminology
Multi-level marketing is also known as pyramid selling,
network marketing,
and referral marketing.
Business model
Setup
![Multi-level marketing tree diagram](https://upload.wikimedia.org/wikipedia/commons/2/21/Multi-level_marketing_tree_diagram.png)
Independent non-salaried participants, referred to as distributors (variously called "associates", "independent business owners", "independent agents", etc.), are authorized to distribute the company's products or services. They are awarded their own immediate retail profit from customers plus commission from the company, not downlines, through a multi-level marketing compensation plan, which is based upon the volume of products sold through their own sales efforts as well as that of their downline organization.
Independent distributors develop their organizations by either building an active
consumer network, who buy direct from the company, or by recruiting a ''downline'' of independent distributors who also build a consumer network base, thereby expanding the overall organization.
The combined number of recruits from these cycles are the sales force which is referred to as the salesperson's "downline". This "downline" is the
pyramid
A pyramid (from el, πυραμίς ') is a structure whose outer surfaces are triangular and converge to a single step at the top, making the shape roughly a pyramid in the geometric sense. The base of a pyramid can be trilateral, quadrilat ...
in MLM's multiple level structure of compensation.
Participants
The overwhelming majority of MLM participants participate at either an insignificant or nil net profit. A study of 27 MLM schemes found that on average, 99.6% of participants lost money.
Indeed, the largest proportion of participants must operate at a net loss (after expenses are deducted) so that the few individuals in the uppermost level of the MLM pyramid can derive their significant earnings. Said earnings are then emphasized by the MLM company to all other participants to encourage their continued participation at a continuing financial loss.
Companies
Many MLM companies generate billions of dollars in annual revenue and hundreds of millions of dollars in annual profit. However, profits accrue to the detriment of the majority of the company's constituent workforce (the MLM participants). Only some of the profits are then shared with individual participants at the top of the MLM distributorship pyramid. The earnings of those top few participants are emphasized and championed at company
seminars and
conferences
A conference is a meeting of two or more experts to discuss and exchange opinions or new information about a particular topic.
Conferences can be used as a form of group decision-making, although discussion, not always decisions, are the main ...
, thus creating the illusion that participants in the MLM can become financially successful. This is then advertised by the MLM company to recruit more distributors in the MLM with an unrealistic anticipation of earning margins which are in reality merely theoretical and statistically improbable.
Although an MLM company holds out those few top individual participants as evidence of how participation in the MLM could lead to success, the MLM business model depends on the failure of the overwhelming majority of all other participants, through the injecting of money from their own pockets, so that it can become the revenue and profit of the MLM company, of which the MLM company shares only a small proportion with a few individuals at the top of the MLM participant pyramid. Other than the few at the top, participants provide nothing more than their own financial loss for the company's own profit and the profit of the top few individual participants.
Financial independence
The main sales pitch of MLM companies to their participants and prospective participants is not the MLM company's products or services. The products or services are largely peripheral to the MLM model. Rather, the true sales pitch and emphasis is on a confidence given to participants of potential financial independence through participation in the MLM, luring with phrases like "the lifestyle you deserve" or "independent distributor." Erik German's memoir ''My Father's Dream'' documents the author's father's failures through "
get-rich-quick scheme
A get-rich-quick scheme is a plan to obtain high rates of return for a small investment. The term "get rich quick" has been used to describe shady investments since at least the early 20th century.
Most schemes create an impression that partic ...
s" such as
Amway
Amway (short for "American Way") is an American multi-level marketing (MLM) company that sells health, beauty, and home care products. The company was founded in 1959 by Jay Van Andel and Richard DeVos and is based in Ada, Michigan. Amway and it ...
. The memoir illustrates the multi-level marketing sales principle known as "selling the dream".
Although the emphasis is always made on the potential of success and the positive life change that "might" or "could" (not "will" or "can") result, disclosure statements include disclaimers that they, as participants, should not rely on the earning results of other participants in the highest levels of the MLM participant pyramid as an indication of what they should expect to earn. MLM companies rarely emphasize the extreme likelihood of failure, or the extreme likelihood of financial loss, from participation in MLM.
Comparisons to pyramid schemes
MLM companies have been made illegal in some jurisdictions as a mere variation of the traditional
pyramid scheme
A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly im ...
, including in
China
China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...
.
In jurisdictions where MLM companies have not been made illegal, many illegal pyramid schemes attempt to present themselves as MLM businesses.
Given that the overwhelming majority of MLM participants cannot realistically make a net profit, let alone a significant net profit, but instead overwhelmingly operate at net losses, some sources have defined all MLM companies as a type of pyramid scheme, even if they have not been made illegal like traditional pyramid schemes through
legislative statutes.
MLM companies are designed to make profit for the owners/shareholders of the company and a few individual participants at the top levels of the MLM pyramid of participants. According to the
U.S. Federal Trade Commission
The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction o ...
(FTC), some MLM companies already constitute illegal pyramid schemes even by the narrower existing legislation, exploiting members of the organization.
Lawsuits
Companies that use the MLM business model have been a frequent subject of criticism and lawsuits. Legal claims against MLM companies have included, among other things:
* Their similarity to traditional illegal pyramid schemes,
*
Price fixing
Price fixing is an anticompetitive agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given ...
of products or services,
*
Collusion
Collusion is a deceitful agreement or secret cooperation between two or more parties to limit open competition by deceiving, misleading or defrauding others of their legal right. Collusion is not always considered illegal. It can be used to att ...
and
racketeering
Racketeering is a type of organized crime in which the perpetrators set up a coercive, fraudulent, extortionary, or otherwise illegal coordinated scheme or operation (a "racket") to repeatedly or consistently collect a profit.
Originally and of ...
in backroom deals where secret compensation packages are created between the MLM company and a few individual participants, to the detriment of others,
* High initial entry costs (for marketing kit and first products),
* Emphasis on recruitment of others over actual sales (especially sales to non-participants).
* Encouraging if not requiring members to purchase and use the company's products,
* Exploitation of personal relationships as both sales and recruiting targets,
* Complex and exaggerated compensation schemes,
* False product claims,
* The company or leading distributors making major money off participant-attended conventions, training events and materials, advertising materials, and
*
Cult-like techniques which some groups use to enhance their members' enthusiasm and devotion.
Direct selling versus network marketing
"Network marketing" and "multi-level marketing" (MLM) have been described by author
Dominique Xardel
Dominique Xardel is an author and marketing professor in France.
From 1978–1988, Xardel was director of ESSEC Business School He was Editor in Chief of the ''Harvard L'Expansion'', the French version of the ''Harvard Business Review''. As of 200 ...
as being synonymous, with it being a type of
direct selling
Direct selling consists of single-level marketing (in which a direct seller makes money by buying products from a parent organization and selling them directly to customers) and multi-level marketing (in which the direct seller may earn money ...
.
Some sources emphasize that multi-level marketing is merely one form of direct selling, rather than ''being'' direct selling.
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 these and other different terms and "
buzzword
A buzzword is a word or phrase, new or already existing, that becomes popular for a period of time. Buzzwords often derive from technical terms yet often have much of the original technical meaning removed through fashionable use, being simply used ...
s" is an effort to draw distinctions between multi-level marketing and illegal
Ponzi scheme
A Ponzi scheme (, ) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian businessman Charles Ponzi, the scheme leads victims to believe that profits are comin ...
s,
chain letter
A chain letter is a message that attempts to convince the recipient to make a number of copies and pass them on to a certain number of recipients. The "chain" is an exponentially growing pyramid (a tree graph) that cannot be sustained indefinite ...
s, and consumer fraud scams—where none meaningfully exist.
The
Direct Selling Association
The Direct Selling Association (DSA) is a trade association in the United States that represents direct selling companies, primarily those that use multi-level marketing compensation plans. On behalf of its members' companies, the DSA engages in pu ...
(DSA), a
lobbying group
In politics, lobbying, persuasion or interest representation is the act of lawfully attempting to influence the actions, policies, or decisions of government officials, most often legislators or members of regulatory agencies. Lobbying, which ...
for the MLM industry, reported that in 1990 only 25% of DSA members used the MLM business model. By 1999, this had grown to 77.3%. By 2009, 94.2% of DSA members were using MLM, accounting for 99.6% of sellers, and 97.1% of sales.
Companies such as
Avon,
Electrolux
Electrolux AB () is a Swedish multinational home appliance manufacturer, headquartered in Stockholm. It is consistently ranked the world's second largest appliance maker by units sold, after Whirlpool.
Electrolux products sell under a variety ...
,
Tupperware
Tupperware is an American home products line that includes preparation, storage, and serving products for the kitchen and home. In 1942, Earl Tupper developed his first bell-shaped container; the brand products were introduced to the public in 1 ...
, and
Kirby
Kirby may refer to:
Buildings
* Kirby Building, a skyscraper in Dallas, Texas, United States
* Kirby Hall, an Elizabethan country house near Corby, Northamptonshire, England
* Kirby House (disambiguation), various houses in England and the Unit ...
were all originally single-level marketing companies, using that traditional and uncontroversial direct selling business model (distinct from MLM) to sell their goods. However, they later introduced multi-level compensation plans, becoming MLM companies.
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.
History
The origin of multi-level marketing is often disputed, but multi-level marketing style businesses existed in the 1920s and the 1930s, such as the California Vitamin Company (later named
Nutrilite
Nutrilite is a brand of mineral, vitamin, and dietary supplements developed in 1934 by Carl F. Rehnborg. Nutrilite products are currently manufactured by Access Business Group, a subsidiary of Alticor whose products are sold via Amway worldwide ...
) and the California Perfume Company (renamed "
Avon Products
Avon Products, Inc. or simply known as Avon, is an American-British multinational cosmetics, skin care, fragrance and personal care company, based in London. It sells directly to the public. Avon had annual sales of $9.1 billion worldwide in 2 ...
").
Income levels
Several sources have commented on the income level of specific MLM companies or MLM companies in general:
* ''
The Times
''The Times'' is a British daily national newspaper based in London. It began in 1785 under the title ''The Daily Universal Register'', adopting its current name on 1 January 1788. ''The Times'' and its sister paper ''The Sunday Times'' (fou ...
'': "The Government investigation claims to have revealed that just 10% of
Amway
Amway (short for "American Way") is an American multi-level marketing (MLM) company that sells health, beauty, and home care products. The company was founded in 1959 by Jay Van Andel and Richard DeVos and is based in Ada, Michigan. Amway and it ...
's agents in Britain make any profit, with less than one in ten selling a single item of the group's products."
* Eric Scheibeler, a high level "Emerald" Amway member: "UK Justice Norris found in 2008 that out of an IBO
ndependent Business Ownerspopulation 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."
* ''
Newsweek
''Newsweek'' is an American weekly online news magazine co-owned 50 percent each by Dev Pragad, its president and CEO, and Johnathan Davis (businessman), Johnathan Davis, who has no operational role at ''Newsweek''. Founded as a weekly print m ...
'': 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
''USA Today'' (stylized in all uppercase) is an American daily middle-market newspaper and news broadcasting company. Founded by Al Neuharth on September 15, 1982, the newspaper operates from Gannett's corporate headquarters in Tysons, Virgini ...
'' has had several articles:
:*"While earning potential varies by company and sales ability,
DSA says the median annual income for those in direct sales is $2,400."
:*In an October 15, 2010, article, it was stated that documents of a MLM called
Fortune Hi-Tech Marketing reveal that 30 percent of its representatives make no money and that 54 percent of the remaining 70 percent only make $93 a month, before costs. Fortune was 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. The FTC eventually stated that Fortune Hi-Tech Marketing was a pyramid scheme and that checks totaling more than $3.7 million were being mailed to the victims.
:*A February 10, 2011, article stated "It can be very difficult, if not impossible, for most individuals to make a lot of money through the direct sale of products to consumers. And big money is what recruiters often allude to in their pitches."
:*"Roland Whitsell, a former business professor who spent 40 years researching and teaching the pitfalls of multilevel marketing": "You'd be hard-pressed to find anyone making over $1.50 an hour, (t)he primary product is opportunity. The strongest, most powerful motivational force today is false hope."
* Based on the results of a 2018 poll conducted with 1,049 MLM sellers, the majority (60%) earned an average of less than $100 in sales over a five-year period, and 20% never made a single sale. The majority of sellers made less than 70 cents per hour.
Nearly 32 percent of those polled acquired credit card debt to finance their MLM involvement.
Legality and legitimacy
Bangladesh
In 2015, the
Government of Bangladesh
The Government of the People's Republic of Bangladesh ( bn, গণপ্রজাতন্ত্রী বাংলাদেশ সরকার — ) is the central executive government of Bangladesh. The government was constituted by the Con ...
banned all types of domestic and foreign MLM trade in Bangladesh.
China
Multi-level marketing () was first introduced to
mainland China
"Mainland China" is a geopolitical term defined as the territory governed by the People's Republic of China (including islands like Hainan or Chongming), excluding dependent territories of the PRC, and other territories within Greater China. ...
by American, Taiwanese, and Japanese companies following the
Chinese economic reform
The Chinese economic reform or reform and opening-up (), known in the West as the opening of China, is the program of economic reforms termed " Socialism with Chinese characteristics" and "socialist market economy" in the People's Republic of C ...
of 1978. This rise in multi-level marketing's popularity coincided with economic uncertainty and a new shift towards individual consumerism. Multi-level marketing was banned on the mainland by the government in 1998, citing social, economic, and taxation issues. Further regulation "Prohibition of ''Chuanxiao''" (where MLM is a type of Chuanxiao was enacted in 2005, clause 3 of Chapter 2 of the regulation states having downlines is illegal).
O'Regan wrote 'With this regulation China makes clear that while Direct Sales is permitted in the mainland, Multi-Level Marketing is not'.
MLM companies have been made illegal in China as a mere variation of the traditional
pyramid scheme
A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly im ...
.
MLM companies have been trying to find ways around China's prohibitions, or have been developing other methods, such as direct sales, to take their products to China through retail operations. The Direct Sales Regulations limit direct selling to cosmetics, health food, sanitary products, bodybuilding equipment and kitchen utensils, and they require Chinese or foreign companies ("FIEs") who intend to engage into direct sale business in mainland China to apply for and obtain direct selling license from the Ministry of Commerce ("MOFCOM"). In 2016, there are 73 companies, including domestic and foreign companies, that have obtained the direct selling license.
Some multi-level marketing sellers have circumvented this ban by establishing addresses and bank accounts in
Hong Kong
Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China ( abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delt ...
, where the practice is legal, while selling and recruiting on the mainland.
It was not until August 23, 2005, that the State Council promulgated rules that dealt specifically with direct sale operation- Administration of Direct Sales (entered into effect on December 1, 2005) and the Regulations for the Prohibition of ''Chuanxiao'' (entered into effect on November 1, 2005). When direct selling is allowed, it will only be permitted under the most stringent requirements, in order to ensure the operations are not pyramid schemes, MLM, or fly-by-night operations.
Saudi Arabia
MLM marketing is banned in Saudi Arabia by imposing religious
fatwa
A fatwā ( ; ar, فتوى; plural ''fatāwā'' ) is a legal ruling on a point of Islamic law (''sharia'') given by a qualified '' Faqih'' (Islamic jurist) in response to a question posed by a private individual, judge or government. A jurist i ...
nationally, for this reason MLM companies like
Amway
Amway (short for "American Way") is an American multi-level marketing (MLM) company that sells health, beauty, and home care products. The company was founded in 1959 by Jay Van Andel and Richard DeVos and is based in Ada, Michigan. Amway and it ...
,
Mary Kay
Mary Kay Inc. is an American privately owned multi-level marketing company. According to '' Direct Selling News'', Mary Kay was the sixth largest network marketing company in the world in 2018, with a wholesale volume of US$3.25 billion. ,
Oriflame
Oriflame Holding AG is a Swedish multinational multi-level marketing company that sells beauty and personal care products directly to consumers online through a network of independent sellers. Oriflame was founded on Jan 1, 1967 in Sweden by b ...
and
Herbalife
Herbalife Nutrition Ltd., also called Herbalife International, Inc. (with a U.S. subsidiary called Herbalife International of America) or simply Herbalife, is a global multi-level marketing (MLM) corporation that develops and sells dietary sup ...
sell their products by
online selling
Online shopping is a form of electronic commerce which allows consumers to directly buy good (economics), goods or Service (economics), services from a seller over the Internet using a web browser or a mobile app. Consumers find a product of in ...
method instead of MLM.
United States
MLM businesses operate in all 50 U.S. states. Businesses may use terms such as "
affiliate marketing
Affiliate marketing is a marketing arrangement in which affiliates receive a commission for each visit, signup or sale they generate for a merchant. This arrangement allows businesses to outsource part of the sales process. It is a form of p ...
" or "home-based business franchising". Some sources say that all MLM companies are essentially pyramid schemes, even if they are legal.
The
U.S. Federal Trade Commission
The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction o ...
(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 the Direct Selling Association, the 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 Federal Trade Commission 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."
''
In re Amway Corp.'' (1979), the Federal Trade Commission indicated that multi-level marketing was not
illegal ''per se'' in the United States. However,
Amway
Amway (short for "American Way") is an American multi-level marketing (MLM) company that sells health, beauty, and home care products. The company was founded in 1959 by Jay Van Andel and Richard DeVos and is based in Ada, Michigan. Amway and it ...
was found guilty of
price fixing
Price fixing is an anticompetitive agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given ...
(by effectively requiring "independent" distributors to sell at the same fixed 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".
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),
[; Robert L. FitzPatrick & Joyce K. Reynolds, ''False Profits: Seeking Financial and Spiritual Deliverance in Multi-Level Marketing and Pyramid Schemes'' (Herald Pr, 1997).] or organizations rife with misleading, deceptive, and unethical behavior (Carter, 1999), such as the questionable use of evangelical discourse to promote the business (Höpfl & Maddrell, 1996), and the exploitation of personal relationships for financial gain (Fitzpatrick & Reynolds, 1997)".
In China, volunteers working to rescue people from the schemes have been physically attacked.
MLM companies 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 companies are recruiting MLM companies, in which participants must recruit aggressively to profit. Based on available data from the companies themselves, the loss rate for recruiting MLM companies is approximately 99.9%; i.e., 99.9% of participants lose money after subtracting all expenses, including purchases from the company."
(By comparison, skeptic
Brian Dunning points out that "only 97.14% of Las Vegas gamblers lose money .... .") In part, this is because encouraging recruits to further "recruit people to compete with
hem
A hem in sewing is a garment finishing method, where the edge of a piece of cloth is folded and sewn to prevent unravelling of the fabric and to adjust the length of the piece in garments, such as at the end of the sleeve or the bottom of the ga ...
leads to "market saturation."
It has also been claimed "(b)y its very nature, MLM is completely devoid of any scientific foundations."
Because of the encouraging of recruits to further recruit their competitors, some people have even gone so far as to say at best modern MLM companies are nothing more than legalized
pyramid scheme
A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly im ...
s
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 fraudulent."
In October 2010 it was reported that multi-level marketing companies were being investigated by a number of state attorneys general amid allegations that salespeople were primarily paid for recruiting and that more recent recruits cannot earn anything near what early entrants do. Industry critic
Robert L. FitzPatrick
Robert Lawrence FitzPatrick is an author. He serves as president of Pyramid Scheme Alert, a consumer organization to confront the abuses of pyramid schemes.
Biography
Early career
Fitzpatrick's interest in pyramid schemes was sparked in the 198 ...
has called multi-level marketing "the Main Street bubble" that will eventually burst.
Religious views
Islam
Many Islamic jurists and religious bodies, including
Permanent Committee for Scholarly Research and Ifta
The Permanent Committee for Scholarly Research and Ifta (also the General Presidency of Scholarly Research and Ifta, ar, اللجنة الدائمة للبحوث العلمية والإفتاء, al-Lajna ad-Dāʾima lil-Buḥūṯ al-ʿIlmiyya wa ...
of
Saudi Arabia
Saudi Arabia, officially the Kingdom of Saudi Arabia (KSA), is a country in Western Asia. It covers the bulk of the Arabian Peninsula, and has a land area of about , making it the fifth-largest country in Asia, the second-largest in the A ...
, have considered MLM trade to be prohibited (''
haram
''Haram'' (; ar, حَرَام, , ) is an Arabic term meaning 'Forbidden'. This may refer to either something sacred to which access is not allowed to the people who are not in a state of purity or who are not initiated into the sacred knowle ...
''). They argue that MLM trade involves deceiving others into participating, and the transaction bears resemblance to both ''
riba
The Royal Institute of British Architects (RIBA) is a professional body for architects primarily in the United Kingdom, but also internationally, founded for the advancement of architecture under its royal charter granted in 1837, three suppl ...
'' and ''
gharar
''Gharar'' ( ar, غرر) literally means uncertainty, hazard, chance or risk. It is a negative element in ''mu'amalat'' ''fiqh'' (transactional Islamic jurisprudence), like '' riba'' (usury) and '' maysir'' (gambling).
One Islamic dictionary (''A ...
''.
See also
*
Binary option
A binary option is a financial exotic option in which the payoff is either some fixed monetary amount or nothing at all.Breeden, D. T., & Litzenberger, R. H. (1978). "Prices of state-contingent claims implicit in option prices". ''Journal of Busin ...
*
Destiny Group
*
List of multi-level marketing companies
This is a list of companies which use multi-level marketing (also known as network marketing, direct selling, referral marketing, and pyramid selling) for most of their sales.
Active
* 5Linx
* ACN Inc.
* AdvoCare
* Ambit Energy
* America ...
*
Saradha Group financial scandal
The Saradha Group financial scandal was a major financial scam and alleged political scandal caused by the collapse of a Ponzi scheme run by Saradha Group, a consortium of over 200 private companies that was believed to be running collective i ...
*
Tiens
Tiens Group (, from ) is a Chinese multinational conglomerate and multi-level marketing company headquartered in Tianjin, China.
The company also operates a manufacturing facility in Vietnam.
History
Tiens Group was founded in 1995 by Li Ji ...
References
External links
Federal Trade Commission article
{{DEFAULTSORT:Multi-Level Marketing
Business models
Direct marketing
Direct selling
Types of marketing