Multilevel Marketing: Though Appearing Harmless, Still Controversial

“According to the Federal Trade Commission (FTC), multi-level marketing, also called network marketing or direct selling, involves selling products to the public often by word-of-mouth and direct sales.”

Photo courtesy of Shutterstock.

Written by Joanne Jang, Class of 2020

Most have heard of Amway. If not, they probably have heard of either Herbalife or Nuskin. Though these companies’ products are consumed throughout the world daily, it is unlikely that anyone has seen advertisements for their products. The reason is that these companies do not advertise through traditional mass media streams. Instead, they use multi-level marketing, a special form of marketing and communication, to push their products.

According to the Federal Trade Commission (FTC), multi-level marketing, also called network marketing or direct selling, involves selling products to the public often by word-of-mouth and direct sales. Profit is derived as distributors earn commissions, not only for their own sales but also for sales made by a salesforce and the subsequent salespeople they recruit. Since distributors earn fees from the salespeople they recruit, they are continuously incentivized to invite more individuals to join. This mode of marketing has been continuously growing throughout years. In 2014, the global sales through multilevel marketing reached $182 billion.

Although multilevel marketing may seem harmless due to its as a non-forceful tactics, it remains a controversial form of marketing, as not all multilevel marketing plans are deemed legitimate. According to the FTC, if money is made based on sales to the public, then the marketing plan is legitimate. However, if the money made is based on the number of recruits and sales to them, the marketing plan could easily fall into a pyramid scheme, which often results in participants losing money.

Companies that pursue multi-level marketing appeal to new recruits by touting their reputation and ease of turning personal profits. Most of the individuals who participate as salespeople in multilevel marketing plans consider the work as a supplementary source of income to their everyday lives. Thus, distributors lure in new people by telling them the firm does not expect them to devote a lot of time and efforts for the work.

Though multi-level marketing may seem attractive, many recruited salespeople have stated that the work ends up not as they had expected. Usually new salespeople are required to pay an upfront fee when getting into the business, which is often criticized for being too expensive. In addition, salespeople are pressured to sell products through personal connections in order to meet quotas. In terms of law, multi-level marketing is sometimes seen as closely related to a pyramid scheme, an illegal marketing structure. In a pyramid scheme, profits are built on new recruits rather than selling products or services.

Companies that exercise multilevel marketing, however, are not necessarily all harmful. For example, Amway still possesses a lot of loyal consumers. Meanwhile, Bill Gates said in the past that “if I would be given a chance to start all over again, I would choose network marketing.” At the same time, not all companies that exercise multi-level marketing are sound either, which is why a potential recruit should be cautious of the responsibilities required before getting involved. Though multi-level marketing is currently allowed in the US, many argue that such incentivized recruiting is an ethical violation and urge the FTC to take actions against it. While the government has some regulatory infrastructure in place, whether the government will impose even more regulation in hopes of catching multilevel marketing schemes that become illegal is yet to be seen.

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Photo courtesy of Shutterstock.

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