Multi-Level Marketing Plan$ "Sister Wives"

Multi-Level Marketing Plan$

If you follow the Brown family, you have heard a lot about multi-level marketing plans over the last two days.  Do you know what a multi-level marketing plan (MLM) is?  I decided to do some investigative reporting and went to the heart of my hometown financial district (the Frostbite Falls combination Money Mart and Tattoo Parlor) to find out about MLMs.

Multi-level marketing (MLM) is a marketing strategy where the sales force is compensated for the sales they generate AND for the sales of other salespeople that they recruit, creating a hierarchy of multiple levels of compensation.  Other terms for multi-level marketing include network marketing, pyramid selling, and referral marketing. 

Usually, the salespeople sell directly to customers through relationship referrals and word-of-mouth marketing.  Some people use “direct selling” as a name for MLM, but it isn’t really because MLM always involves multiple layers of sales people who receive differing levels of compensation and lots of types of direct selling does not involve this.  MLMs are contrasted with a single level marketing network where there is 1 level of salespeople selling directly to the customer.

MLMs have been the subject of criticism and even lawsuits.  The criticism focuses on the similarity of MLMs to illegal pyramid schemes, product price-fixing, high initial start-up costs, emphasis on recruiting new (lower) levels of salespeople over actual product sales, requiring product use by salespeople, exploiting personal relationships to develop sales and recruit new salespeople, overly complex compensation schemes, and cultish motivation techniques.  There are claims that the success rate for breaking even or making money are far worse than with other types of businesses.

Many illegal pyramid schemes try to pass themselves off as legitimate MLMs.  The U.S. Federal Trade Commission says that pyramid schemes are dangerous because plans that pay commissions to recruit new levels of salespeople (or members, distributors, associates, consultants, or whatever they may be called) collapse when no new salespeople can be found.  When such a plan collapses most people end up empty handed – except, perhaps for those at the very top of the pyramid. 

Here are a couple of quick tests to differentiate between a legal MLM and an illegal pyramid scheme.  Check with the experts if you need to know more:

·      Is there more emphasis on recruiting new members than on selling the product or service?  If so it might be a pyramid scheme.

·      Is the plan designed so that more money is made by recruiting new members than by selling the product or service?  If so it might be a pyramid scheme.

We should also remember, however, that many long-standing successful companies such as Avon, Mary Kay, and Tupperware use this sales method.

Resources:

http://en.wikipedia.org/wiki/Multi-level_marketin

 WRITTEN BY TERRASOLA

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