For the uninitiated, multi level marketing is not entirely new to the business. In fact, it has been around the industry for more than half a century ago when it was introduced in the United States by a company, which, at the time was marketing nutritional supplement via this strategy better known as the network marketing. The main concept is to combine direct selling and franchising in one marketing plan. All the participants are encouraged to do both tasks in order to earn more money than by merely selling the merchandise.
How Does It Work?
Basically, the participants need to recruit additional members at the same time as they need to supply the products. By doing so, they earn commissions on top of the sale price. But multi-level marketing does not promise big profit from merely selling the products as members have the potentials to earn more from encouraging other people to sign-up and work hard to recruit others too until a pyramid-like group is formed. They are typically required to buy the products or services but they have to recruit at least two members to earn commissions from their purchased products.
The person on top earns commissions from their down lines the same way as the second, third, and so on and forth, from their down lines. Obviously, people who join this marketing group have high chances of earning larger profit if they have recruits or down lines or the latter continues to recruit new members too. Existing and the new members are considered the distributors and end users of the products or services.
Criticisms and Issues
Because of the rampant cases of business scams, the true essence of multi level marketing business model has been ignored as a true legitimate and significant marketing plan not only in the United States but in the global economy. The scheme was criticized due to the questionable process of recruitment where the members acquire their profit and revenue. It was in the 1980s when it further built a negative reputation when various companies allowed members to focus on marketing and neglected the need to distribute or stock the products.
It has resulted to the illegal pyramid scams, which resemble the legitimate multi level marketing concept, minus the product. While legitimate multi level marketing strategy has genuine scheme, pyramid schemes often are too good to be true that they inevitably collapse in the end because the company has become unable to compensate the exponential growth of newer investors.
Because of the increase of the people becoming victims to illegal multi level marketing schemes, a major change was seen in the 1980s, when companies have begun performing the marketing strategy in a different way. Nowadays, they do it by recruiting new members, taking their orders, shipping the goods, paying the earned commissions, and then taking orders again from their members or clients.
If you have the intention to be involved in a multi-level marketing business to earn huge sum of compensation, it is vital that you know what company you are trying to become a member of. It would be a wise move to investigate the background and the capability of that company to pay the members. Doing the necessary measures is imperative to avoid you from becoming one of the unfortunate victims of pyramid scams.
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Reviewed February 2, 2012, Edited August 31, 2014
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