The basic definition of multilevel marketing according to Statutes adopted in the 1980s and 1990s: Any person, firm, corporation or other business entity which sells, distributes or supplies for valuable consideration, goods or services through independent agents, contractors or distributors, at different levels wherein participants in the marketing program may recruit other participants, and wherein commissions, cross-commissions, bonuses, refunds, discounts, dividends or other considerations in the program are or may be paid as a result of the sale of such goods and services or the recruitment, actions or performances of additional participants.
For the purposes of this blog Multilevel marketing is one form of Direct Marketing that is often compared to Network Marketing. It is a kind of business where distributorships and direct selling are combined; the type of business that attracts independent-minded individuals (many entrepreneurs are direct marketers) based on the franchise-like structure common to this business-type; the type of business which offers products/services for sale at wholesale prices pursuant to "Independent Contractor" agreements or contracts. Individuals agreeing to do this kind of business are known as independent contractors or direct marketers and will resell the products/services to end users at retail prices which creates income through the profits generated.
Some criticism prior to the Statutes and Regulations which were adopted in the early 1980s led to major changes in the multi level marketing industry when many companies started to allow their members to concentrate only on recruit marketing and not on distributing or stocking the product. Most modern-day multi level marketing companies perform the administrative duties by undertaking the tasks of shipping the product, paying commissions and taking orders from their associates (direct marketers).
Many people who were victims of the illegal pyramid schemes being presented to the public as legitimate multi level marketing companies were required to buy expensive products under the guise of the cost of a business opportunity kit, but most of these schemes have not lasted because either the companies were closed down (voluntary or involuntary) based on the 1980s law; or most of the products were not easily resold and the market for that product or service brand dried up.
Interestingly enough the multilevel marketing companies that were legitimate and have demonstrated honesty and goodwill during the last two decades are still operating today and doing very well. Companies such as Amway, Pre-Paid Legal, Tupperware, Avon, Herbal Life, Medifast, Xango, Primerica, and Shaklee, among others are reporting profits and conducting their business pursuant to ethical business standards.
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Additional information relating to legitimate MLM companies can be found at the MLM Watch Dog website
A recent USA Today article features a MLM story in which a truck driver went from laid off to what he started as a temporary side part time MLM business while he sought employment and after two years stopped looking for a job because his part-time business which he did with his wife was now supporting the family. Part of the article headline "...recession-Proof jobs". Take a look!
Obviously those people left "holding the bag" (so to speak) with no opportunity to sell the stocked products or paid-for services were very upset and therefore were instrumental in creating a lot of the image problems suffered by the direct marketing industry. This fallout is a necessary consequence of corporate identity theft on a grand scale.
Although the image of Multilevel Marketing have in the past been tarnished as a result of shady outfits operating illegitimate and illegal “pyramid schemes” or Ponzi schemes, the MLM industry as a whole has managed to successfully rid itself of the negative image by educating the public and demonstrating to the government the legitimacy of direct marketing which today is a respectable business providing many of the products and services consumed on a daily basis, as well as affording many enterprising men and women a method of self-employment through "individual distributorship" businesses.
Refer to the above USA article or one of my early articles titled "Recession? Forget Recession" with the sub heading: "Diamond Rewards is Recession-Proof" The growth and popularity of “home based businesses” over the last decade is another positive result of the legitimacy and respectability of direct marketing as practiced through multilevel marketing systems.
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Commissions are earned by selling a particular product or service in a legitimate network marketing business. There can be no earnings in what is commonly referred to as a “sign up fee” or for self-recruitment. This kind of marketing is sometimes criticized because of the terrible image created by illegitimate scams or ponzi schemes that existed prior to governmental regulations that chased many (or most) of them from the industry. They are hopefully gone from the industry forever.
Additional MLM Reference Sources:
Direct Sales Misperceptions
MLM Legal Library