Multi-level Marketing and
Networking as a Subset of
Reported by: Freneil I.Reyes
What is Direct Selling?
refers primarily to the distribution
It is the marketing and selling products
directly to consumers away from a fixed
Modern direct selling includes sales made
through the party plan, one-on-one
demonstrations, and other personal
contact arrangements as well as internet
Two types of Direct Selling
Single Level Marketing
Multi Level Marketing
Single Level Marketing
Rewards the sellers for their personal
sales activity. They cannot sponsor any
other distributorship or sales personnel.
Income comes only in the form of
commission or bonus.
Single Level Marketing
It 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.
In this strategy, the seller recruits other distributors
or sales people, and also receives commissions and
bonuses on the sales they make. Downliners are
necessary to increase the sales force, and thus
generate a huge number of sales.
The term "multi-level marketing" emphasizes the
Is Network Marketing and Multi-level
Network Marketing and Multi-level
Marketing are generally considered to be
synonyms, and a subset of direct selling.
Network Marketing tends to be modern
Other terms are also used, including
word-of-mouth marketing, interactive
distribution, relationship marketing and
Multi-level Marketing Setup
Independent, unsalaried salespeople of multi-level
marketing, referred to as distributors (or associates,
independent business owners, dealers, franchise
owners, sales consultants, consultants, independent
agents, etc.), represent the company that produces
the products or provides the services they sell. They
are awarded a commission based upon the volume of
product sold through their own sales efforts as well
as that of their downline organization.
Independent distributors develop their organizations
by either building an active customer base, who buy
direct from the company, or by recruiting
a downline of independent distributors who also build
a customer base, thereby expanding the overall
organization. Additionally, distributors can also earn a
profit by retailing products they purchased from the
company at wholesale price.
Multi-level/Direct Selling Companies
Common types of direct selling
Telemarketing - This
is one of the chief
direct sales tactics
prevalent today. There
are different methods
used to get your sales
flowing and also make
customers happy to
take your calls.You
should be very pleasant
and stay on the point
while making your sales
This is marketing conducted E-mail
exclusively through mail. Direct
mail may vary in format, but usually Sales letters
conforms to standard mailing
requirements. A direct mail package Postcards
includes a letter, brochure or even
Direct Response - This is an advertising
technique that urges consumers to
respond in a certain manner, usually to
buy a product, and also provides them the
means to do so. A business reply card is a
direct response tool.
Is Network Marketing a
Pyramid Scheme (illegal scam)
◦ A pyramid scheme can be defined as a fraudulent
money-making scheme that is based on a non-
sustainable business model that involves the
exchange of money primarily for enrolling other
people into the scheme without a legitimate
product or service being delivered. Eventually the
number of new recruits fails to sustain the
payment structure and the scheme collapses with
most people losing the money they paid in.
In a more practical sense, probably the easiest
way to identify pyramid schemes is firstly there is
no legitimate product or service involved (ie you
do not get a legitimate product in return for your
initial investment). The second way to identify
pyramid schemes is that you do not get a financial
return unless you have successfully introduced a
number of new recruits into the pyramid.
Basically, pyramid schemes concentrate on the
money that you could earn by recruiting new
people into the pyramid and generally ignore the
marketing and selling of any products or services.
What is a pyramid scheme?
•Of course, we are not talking about building structures, but
about people participating in a program who are grouped in
the shape of a pyramid, with a few on the top and many on
Five red flags of a product-based
unlimited in an
of empowered and
Advancement in a
multiple levels of
rather than by
by distributors are
in order for them to
be eligible for
commissions and to
advance in the
business (“pay to
to more than five
For each sale, company
payout for each upline
participant equals or
exceeds that for the
person actually selling
This creates an
inadequate incentive to
sell products and an
excessive incentive to
recruit a huge
Network Marketing (legitimate,
legal business model)
The concept behind network marketing is a
distribution model that allows a company to sell their
products directly to the consumer. Choosing to use a
word of mouth approach (networking) instead of
advertising through traditional streams (eg media).
Therefore instead of paying the media for advertising,
network marketing companies are structured to
reward distributors through commission in return for
selling their products and finding new customers.
Therefore the main focus of a network marketing
company is product distribution. In fact, in a legitimate
network marketing company, distributors
are not required to recruit new distributors in order
to earn a commission, they can earn money purely by
selling the company’s product.
Although distributors can choose to sell
the company’s products to earn their
commissions, not everybody wants to be
a sales person and therefore choose to
recruit more distributors into their
organization as a means to build their
referral base. Not only does this create a
group of loyal customers, it also allows
you to leverage the efforts of others to
create a residual stream of income.
Pyramid Scheme Legitimate Direct Selling
Why victims of recruiting MLM’s
They have been conditioned to blame
themselves for failing to “work the system.”
They fear consequences from or to their upline
(who may be a close friend or relative)
“I won’t tell!”
Lack of enforcement leads to the belief:
“They must be legal or they’d have been stopped by
Why People Should Not Join Multilevel Marketing?
Highly difficult to make a profit Lack of management control
(less than 1% make a profit). systems with sales territory.
Image problems with public. Enormous strain on resources:
High level of rejection and time and money travel (fuel costs)
resistance from the public. Strains personal relationships;
Time and labor intensive. leverages personal relationships
Market saturation of
products/services; products are Pyramid infrastructure: does
commodity-based. not work.
Attrition Rate. Extremely high
Deception. Uses deceptive
practices to recruit individuals.
Constant meetings ad nausea.
MLM’ers must constantly drag
people to meetings against
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Pyramid Schemes vs. Multilevel Marketing
Pyramid Scheme MLM Characteristics:
Characteristics: The revenue is split between those at
All the money goes to the top the top and to the MLM company.
person in the pyramid. A direct descendant of pyramid
Focus on growth through schemes.
recruitment of people. Focus on growth through
“Robbing Peter to pay Paul.” Pays recruitment of people.
initial investors with incoming Recruitment-centered rather than
recruits investment. product-centered.
Recruitment-centered rather than Monitor performance of independent
Require substantial upfront fees Have buy-back policies in place so
from people who are recruited. agents do not get stuck with excess
Pressure recruits to purchase inventory.
corporate products for their own Low upfront fees to get in.
consumption or stockpile large
Incessant meetings to attend.
amounts of inventory.