Multi-level marketing (MLM) is a controversial marketing strategy in which the sales force is compensated not only for sales they 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. Many pyramid schemes attempt to present themselves as legitimate MLM businesses. Some sources define all MLMs as pyramid schemes, even if they are legal. MLM is illegal in mainland China. According to the U.S. Federal Trade Commission (FTC), some MLM companies constitute illegal pyramid schemes which exploit members of the organization.
MLM is one type of direct selling. Most commonly, the salespeople are expected to sell products directly to consumers by means of relationship referrals and word of mouth marketing. MLM salespeople not only sell the company’s products but also encourage others to join the company as a distributor.
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 exaggerated compensation schemes, the company andor leading distributors making major money off training events and materials, and cult-like techniques which some groups use to enhance their members’ enthusiasm and devotion.
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