What Is MLM

What Is MLM




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 used for MLM include pyramid selling, network marketing and referral marketing.

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 MLM, although MLM is only one type of direct selling, which started centuries ago withpeddling.

Companies that use MLM models for compensation have been a frequent subject of criticism and lawsuits. Criticism has focused on their similarity to illegal pyramid schemes, price fixing of products, high initial entry costs (for marketing kit and first products), emphasis on recruitment of others over actual sales, 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 sometimes exaggerated compensation schemes, the company making major money off its training events and materials, and cult-like techniques which some groups use to enhance their members’ enthusiasm and devotion.

In contrast to MLM is single-level marketing, where the person is rewarded only for the immediate income between the exchange of a product and monetary benefit. 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 MLM, 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 MLM, 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.

History
There is a large amount of debate as to when multi-level marketing started; some say it started in the 1920s, 1930s with Nutrilite, 1940s with the California Vitamin Company, 1960s and even as late as the 1970s.