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 others they recruit, creating a downline of distributors and a hierarchy of multiple levels of compensation. Other terms for MLM include network marketing, direct selling, and referral marketing.
Multi-level marketing (MLM) was first officially used in 1945 to sell the vitamin supplement Nutrilite, a leading brand of Vitamins & Supplements, Sports Nutrition and Weight Management products.
Nutrilite was created in 1934 by Dr. Carl F. Rehnborg. In 1945, he invented the multi-level marketing, door-to-door, selling system to distribute his vitamins. The founders of Amway Corporation (established in 1963, based in Ada, Michigan, USA), Jay Van Andel and Rich DeVos, began distribution of Nutrilite products in 1949.
Amway is the first and still successfully MLM using company. In 2009 they made $8.4 billion revenue having 13,000 employees. Other successful MLM using companies are- Avon, Pampered Chef, Scentsy, Mary Kay Cosmetics, Lia Sophia, Tupperware, and Tastefully Simple.
MLM companies have been a frequent subject of criticism on their similarity to illegal pyramid schemes, price-fixing of products, high initial start-up costs, emphasis on recruitment of lower-tiered salespeople over actual sales, encouraging if not requiring salespeople to purchase and use the company's products, potential exploitation of personal relationships which are used as new sales and recruiting targets, complex and sometimes exaggerated compensation schemes, and cult-like techniques which some groups use to enhance their members' enthusiasm and devotion. Not all MLM companies operate the same way, and MLM groups have persistently denied that their techniques are anything but genuine business practices.
MLM's are also criticized for being unable to fulfill their promises for the majority of participants. Sometimes this MLM method abused as business scams, called the Pyramid Scheme. Pyramid schemes are a type of phony investment scam in which individuals are enticed to invest based on the promise of huge returns from the payment of future investments. In reality, it is simply the moving of money from the hands of one person and spreading it to others. It is assured that the person at the top of the pyramid gets a piece of it all. In this system the victims are who stay in the bottom level of that company when closing. The pyramid scheme is often called a “Ponzi” scheme after the late Charles Ponzi who made millions off of investors using this method.
One of the biggest signs that a particular investment deal is a pyramid scheme is the lack of one very important feature which is an actual product. You can see, the only product in a pyramid scheme is the money that changes hands. There is nothing being sold and nothing of intrinsic value to be invested in. It is just a way of passing around money in which the person who started the pyramid gets paid each time.
Being a very successful marketing concept many people have abused the MLM system. Many fake MLM using companies are unstoppable even by the government due to addiction of many people (also involvement of powerfully influenced person) and lack of actual evidence.
In this world every system has a positive and negative impact, and MLM is not an exception.
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