Multi-level marketing (MLM), otherwise known as network or referral marketing, is a strategy in which businesses sell their products through person-to-person sales. When consumers join MLM programs, they act as distributors. Distributors make money by selling the product directly to other consumers. They earn a small percentage of sales from those that they recruit to do the same – often referred to as their “downline.”
Aspect
Explanation
Definition
Multi-level Marketing (MLM), also known as network marketing or direct selling, is a business model where individuals (distributors or affiliates) earn income through selling products or services and recruiting others into their downline organization. It typically involves a hierarchy of distributors with commissions earned at multiple levels.
Key Concepts
– Distributors: Individuals who join the MLM company to sell products and recruit new distributors. – Downline: The network of distributors recruited by a distributor, often with multiple levels. – Upline: Distributors above in the hierarchy who recruit and support those in their downline. – Compensation Plan: The structure and rules governing how commissions and bonuses are earned and distributed.
Characteristics
– Recruitment Focus: Emphasizes recruiting new distributors as a primary means of earning income. – Hierarchical Structure: Distributors are organized into levels, with each level having its own earning potential. – Sales Commissions: Distributors earn commissions on their sales and the sales of their downline. – Products or Services: Typically, MLM companies offer products or services that distributors promote and sell.
Examples
– Distributors selling health and wellness products to their social networks. – Distributors recruiting friends and family to join their downline. – Earning commissions on the sales of recruited distributors. – MLM companies promoting beauty and skincare products through a network of affiliates.
Advantages
– Flexible Business: Offers flexibility in terms of working hours and locations. – Income Potential: Provides the opportunity to earn commissions not only on personal sales but also on downline sales. – Entrepreneurial Opportunity: Allows individuals to start their own businesses with low startup costs.
Challenges
– Recruitment Pressure: MLMs often require continuous recruitment, which can strain personal relationships. – High Attrition Rate: Many individuals drop out without achieving significant income. – Regulatory Scrutiny: MLMs are subject to regulatory scrutiny to prevent pyramid schemes and ensure fairness. – Market Saturation: Some markets may become saturated with distributors, making it challenging to recruit new members.
Adoption Trends
MLM remains a popular business model in various industries, including health and wellness, beauty, and lifestyle products. However, it has also faced criticism and regulatory challenges in some regions due to concerns about its business practices.
Conclusion
Multi-level Marketing is a business model that combines direct selling of products or services with a recruitment-focused structure. While it offers flexibility and income potential, it is important for individuals to thoroughly research MLM opportunities and be aware of the challenges, regulations, and potential risks associated with this model. Careful consideration is necessary before participating in an MLM program.
Table of Contents
The difference between multi-level marketing and pyramid schemes
Many equate multi-level marketing with sometimes fraudulent and often illegal pyramid schemes.
However, individuals who invest in MLM can make money through sales alone without the need to recruit others.
Multi-level marketing also incorporates high-quality products that serve a purpose – the classic examples being Avon and Tupperware.
Pyramid schemes, on the other hand, rely on income being derived by recruiting as many people as possible.
The quality of the product is also low, overpriced, or simply doesn’t work.
Furthermore, pyramid schemes do not offer the possibility of inventory buy-backs and are not backed by research into consumer demand.
Whatever the marketing strategy, it is important to understand that the presence of a pyramid selling structure does not automatically make it illegal.
The reality is that MLM businesses are the same as any other; their success or failure is dependent upon finding, attracting, and then selling to a target market.
Examples of successful multi-level marketing businesses
Home, health, and beauty company Amway is the largest MLM company in the world, with close to $9 billion in annual revenue.
A landmark ruling in 1979 confirmed that Amway was a legitimate business and not a pyramid scheme.
The aforementioned Tupperware is perhaps the most well-known example of a successful MLM company.
With annual revenue of $2.26 billion and almost 3 million distributors, their line of durable kitchen products are synonymous with food storage and are much sought after.
Companies such as Digital Altitude and Tecademics are also using multi-level marketing.
They sell business systems to entrepreneurs that teach them how to market their own companies while also receiving income from referrals.
Advantages and disadvantages of multi-level marketing
Advantages
Multi-level marketing is well placed to take advantage of the surge in popularity of freelancing and the gig economy.
If businesses do their product research properly, then MLM can also leverage word-of-mouth advertising and increase recruitment levels.
Multi-level marketing also gives each distributor the flexibility and empowerment of growing their own “business” as they recruit more and more people in their downline.
Disadvantages
Because of the association with pyramid schemes, businesses that employ multi-level marketing strategies should expect closer scrutiny from regulatory bodies.
The stigma that still surrounds multi-level marketing amongst consumers also means that businesses might find it difficult to sell their products.
Resistance might also be met when businesses ask their distributors to buy large amounts of a product without the guarantee that it will be sold.
Furthermore, the freelance nature of MLM means few entitlements such as insurance or paid vacations.
These factors mean that, to some extent, MLM businesses are at the mercy of their distributors to make a profit.
Case Studies
Herbalife:
Herbalife is a global nutrition company that employs MLM to sell a range of health and wellness products, including supplements and meal replacement shakes.
Distributors, known as Herbalife Independent Members, earn commissions on product sales and can build teams of distributors beneath them.
Herbalife has faced legal challenges and regulatory scrutiny regarding its MLM practices.
Mary Kay:
Mary Kay is a well-known cosmetics and skincare company that operates through MLM.
Independent Beauty Consultants sell Mary Kay products and can recruit others to become consultants as well.
The company is famous for its pink Cadillac incentive program for top-performing consultants.
Nu Skin:
Nu Skin specializes in personal care and anti-aging products, employing MLM to market its offerings.
Distributors are compensated through product sales and can earn bonuses by building and leading sales teams.
Nu Skin has faced legal issues related to its MLM practices in the past.
Young Living:
Young Living is a prominent MLM company in the essential oils and wellness industry.
Distributors, called Young Living members, sell essential oils and related products, earning commissions on sales.
The company emphasizes the benefits of essential oils for health and well-being.
Usana:
Usana Health Sciences focuses on nutritional supplements and personal care products.
Independent Associates sell Usana products and can recruit others to join the MLM network.
The company emphasizes science-based nutrition and quality products.
Advocare:
Advocare offers nutritional and wellness products through MLM.
Distributors, known as Advocare Independent Distributors, sell products and can earn commissions by building a downline organization.
Advocare has gone through significant restructuring and legal issues related to its MLM model.
Oriflame:
Oriflame is a cosmetics and beauty company operating in more than 60 countries.
Consultants, or Oriflame Brand Partners, promote and sell beauty products and can sponsor others into the business.
The company places a strong emphasis on natural ingredients and eco-friendly practices.
Scentsy:
Scentsy specializes in fragrance products, particularly wax warmers and scented wax bars.
Independent Scentsy Consultants sell products and can recruit others to become consultants.
Scentsy’s MLM model centers around home fragrance and personalization.
Key takeaways
Multi-level marketing involves an individual consumer deriving an income from selling a company’s products. The consumer also derives a percentage of the sales income from consumers who they manage to recruit in their downline.
Multi-level marketing is not a pyramid scheme if it features high-quality products and doesn’t rely on recruiting others to make money.
Multi-level marketing gives consumers the freedom and autonomy of running their own business, but it comes with attached stigmas and extra scrutiny.
Key Highlights of Multi-Level Marketing (MLM):
Definition: Multi-Level Marketing (MLM), also known as network or referral marketing, is a sales strategy where businesses distribute their products through person-to-person sales by individuals who act as distributors. Distributors earn income by selling products directly to consumers and receiving a percentage of sales from those they recruit into their “downline.”
Differentiation from Pyramid Schemes:
MLM allows distributors to earn money through product sales without solely relying on recruiting others.
Quality products are a hallmark of legitimate MLM companies, whereas pyramid schemes often involve low-quality or non-existent products.
Pyramid schemes focus on income generation through recruiting, while MLM emphasizes selling actual products.
Successful MLM Examples:
Amway is the largest MLM company globally, with nearly $9 billion in annual revenue, and has been recognized as a legitimate business.
Tupperware, a well-known MLM company, generates annual revenue of $2.26 billion and boasts millions of distributors.
Companies like Digital Altitude and Tecademics use MLM to sell business systems to entrepreneurs and generate income from referrals.
Advantages:
MLM aligns with the gig economy and freelancing trends.
It leverages word-of-mouth advertising and encourages recruitment.
Distributors have the flexibility to grow their own “business” by recruiting others.
Disadvantages:
MLM businesses may face closer regulatory scrutiny due to associations with pyramid schemes.
Stigma around MLM can make product sales challenging.
Distributors may be required to purchase significant amounts of inventory with no guaranteed sales.
MLM lacks certain entitlements like insurance and paid vacations, relying on distributors for profitability.
Is MLM a pyramid scheme?
Multi-level marketing is a form that follows a pyramidal structure, where people at the top bring in more affiliates, which might also affiliate others.
Multi-level marketing can effectively outsource a salesforce, one of the most expensive cost centers for most companies.
However, when the multi-level scheme’s main aim is to bring more affiliates in, you get illegal schemes rather than enable the underlying product to find more distribution.
In short, the main distinction between legal and illegal multi-level marketing is whether there is a foundational product that gets sold or if the scheme becomes the main product.
In the latter case, changes are the multi-level marketing scheme might be illegal.
What is an example of multi-level marketing?
Take the case of a software company that invites other affiliates to sell its software and gain a percentage of the sales as a result.
These affiliates are incentivized to build their affiliates’ teams which can distribute the product in a much broader market. One example is Herbalife.
For a multi-level marketing scheme to work and be legal, it needs to emphasize creating an affiliates’ team to sell the underlying product to potential customers.
When affiliates are prompted to be the primary customers purchasing the underlying product, multi-level marketing can turn awry and into illegal schemes.
Account-based marketing (ABM) is a strategy where the marketing and sales departments come together to create personalized buying experiences for high-value accounts. Account-based marketing is a business-to-business (B2B) approach in which marketing and sales teams work together to target high-value accounts and turn them into customers.
Ad Ops – also known as Digital Ad Operations – refers to systems and processes that support digital advertisements’ delivery and management. The concept describes any process that helps a marketing team manage, run, or optimize ad campaigns, making them an integrating part of the business operations.
Venture capitalist, Dave McClure, coined the acronym AARRR which is a simplified model that enables to understand what metrics and channels to look at, at each stage for the users’ path toward becoming customers and referrers of a brand.
Affinity marketing involves a partnership between two or more businesses to sell more products. Note that this is a mutually beneficial arrangement where one brand can extend its reach and enhance its credibility in association with the other.
As the name suggests, ambush marketing raises awareness for brands at events in a covert and unexpected fashion. Ambush marketing takes many forms, one common element, the brand advertising their products or services has not paid for the right to do so. Thus, the business doing the ambushing attempts to capitalize on the efforts made by the business sponsoring the event.
Affiliate marketing describes the process whereby an affiliate earns a commission for selling the products of another person or company. Here, the affiliate is simply an individual who is motivated to promote a particular product through incentivization. The business whose product is being promoted will gain in terms of sales and marketing from affiliates.
The bullseye framework is a simple method that enables you to prioritize the marketing channels that will make your company gain traction. The main logic of the bullseye framework is to find the marketing channels that work and prioritize them.
Brand building is the set of activities that help companies to build an identity that can be recognized by its audience. Thus, it works as a mechanism of identification through core values that signal trust and that help build long-term relationships between the brand and its key stakeholders.
According to inbound marketing platform HubSpot, brand dilution occurs “when a company’s brand equity diminishes due to an unsuccessful brand extension, which is a new product the company develops in an industry that they don’t have any market share in.” Brand dilution, therefore, occurs when a brand decreases in value after the company releases a product that does not align with its vision, mission, or skillset.
The brand essence wheel is a templated approach businesses can use to better understand their brand. The brand essence wheel has obvious implications for external brand strategy. However, it is equally important in simplifying brand strategy for employees without a strong marketing background. Although many variations of the brand essence wheel exist, a comprehensive wheel incorporates information from five categories: attributes, benefits, values, personality, brand essence.
The brand equity is the premium that a customer is willing to pay for a product that has all the objective characteristics of existing alternatives, thus, making it different in terms of perception. The premium on seemingly equal products and quality is attributable to its brand equity.
Brand positioning is about creating a mental real estate in the mind of the target market. If successful, brand positioning allows a business to gain a competitive advantage. And it also works as a switching cost in favor of the brand. Consumers recognizing a brand might be less prone to switch to another brand.
Business storytelling is a critical part of developing a business model. Indeed, the way you frame the story of your organization will influence its brand in the long-term. That’s because your brand story is tied to your brand identity, and it enables people to identify with a company.
Content marketing is one of the most powerful commercial activities which focuses on leveraging content production (text, audio, video, or other formats) to attract a targeted audience. Content marketing focuses on building a strong brand, but also to convert part of that targeted audience into potential customers.
One of the first mentions of customer lifetime value was in the 1988 book Database Marketing: Strategy and Implementation written by Robert Shaw and Merlin Stone. Customer lifetime value (CLV) represents the value of a customer to a company over a period of time. It represents a critical business metric, especially for SaaS or recurring revenue-based businesses.
Customer segmentation is a marketing method that divides the customers in sub-groups, that share similar characteristics. Thus, product, marketing and engineering teams can center the strategy from go-to-market to product development and communication around each sub-group. Customer segments can be broken down is several ways, such as demographics, geography, psychographics and more.
Developer marketing encompasses tactics designed to grow awareness and adopt software tools, solutions, and SaaS platforms. Developer marketing has become the standard among software companies with a platform component, where developers can build applications on top of the core software or open software. Therefore, engaging developer communities has become a key element of marketing for many digital businesses.
A digital channel is a marketing channel, part of a distribution strategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.
Field marketing is a general term that encompasses face-to-face marketing activities carried out in the field. These activities may include street promotions, conferences, sales, and various forms of experiential marketing. Field marketing, therefore, refers to any marketing activity that is performed in the field.
interaction with a brand until they become a paid customer and beyond.
Funnel marketing is modeled after the marketing funnel, a concept that tells the company how it should market to consumers based on their position in the funnel itself. The notion of a customer embarking on a journey when interacting with a brand was first proposed by Elias St. Elmo Lewis in 1898.
Funnel marketing typically considers three stages of a non-linear marketing funnel. These are top of the funnel (TOFU), middle of the funnel (MOFU), and bottom of the funnel (BOFU). Particular marketing strategies at each stage are adapted to the level of familiarity the consumer has with a brand.
A go-to-market strategy represents how companies market their new products to reach target customers in a scalable and repeatable way. It starts with how new products/services get developed to how these organizations target potential customers (via sales and marketing models) to enable their value proposition to be delivered to create a competitive advantage.
The term “greenwashing” was first coined by environmentalist Jay Westerveld in 1986 at a time when most consumers received their news from television, radio, and print media. Some companies took advantage of limited public access to information by portraying themselves as environmental stewards – even when their actions proved otherwise. Greenwashing is a deceptive marketing practice where a company makes unsubstantiated claims about an environmentally-friendly product or service.
Grassroots marketing involves a brand creating highly targeted content for a particular niche or audience. When an organization engages in grassroots marketing, it focuses on a small group of people with the hope that its marketing message is shared with a progressively larger audience.
Growth marketing is a process of rapid experimentation, which in a way has to be “scientific” by keeping in mind that it is used by startups to grow, quickly. Thus, the “scientific” here is not meant in the academic sense. Growth marketing is expected to unlock growth, quickly and with an often limited budget.
Guerrilla marketing is an advertising strategy that seeks to utilize low-cost and sometimes unconventional tactics that are high impact. First coined by Jay Conrad Levinson in his 1984 book of the same title, guerrilla marketing works best on existing customers who are familiar with a brand or product and its particular characteristics.
Hunger marketing is a marketing strategy focused on manipulating consumer emotions. By bringing products to market with an attractive price point and restricted supply, consumers have a stronger desire to make a purchase.
Integrated marketing communication (IMC) is an approach used by businesses to coordinate and brand their communication strategies. Integrated marketing communication takes separate marketing functions and combines them into one, interconnected approach with a core brand message that is consistent across various channels. These encompass owned, earned, and paid media. Integrated marketing communication has been used to great effect by companies such as Snapchat, Snickers, and Domino’s.
Inbound marketing is a marketing strategy designed to attract customers to a brand with content and experiences that they derive value from. Inbound marketing utilizes blogs, events, SEO, and social media to create brand awareness and attract targeted consumers. By attracting or “drawing in” a targeted audience, inbound marketing differs from outbound marketing which actively pushes a brand onto consumers who may have no interest in what is being offered.
Integrated marketing describes the process of delivering consistent and relevant content to a target audience across all marketing channels. It is a cohesive, unified, and immersive marketing strategy that is cost-effective and relies on brand identity and storytelling to amplify the brand to a wider and wider audience.
The marketing mix is a term to describe the multi-faceted approach to a complete and effective marketing plan. Traditionally, this plan included the four Ps of marketing: price, product, promotion, and place. But the exact makeup of a marketing mix has undergone various changes in response to new technologies and ways of thinking. Additions to the four Ps include physical evidence, people, process, and even politics.
Marketing myopia is the nearsighted focus on selling goods and services at the expense of consumer needs. Marketing myopia was coined by Harvard Business School professor Theodore Levitt in 1960. Originally, Levitt described the concept in the context of organizations in high-growth industries that become complacent in their belief that such industries never fail.
Marketing personas give businesses a general overview of key segments of their target audience and how these segments interact with their brand. Marketing personas are based on the data of an ideal, fictional customer whose characteristics, needs, and motivations are representative of a broader market segment.
Meme marketing is any marketing strategy that uses memes to promote a brand. The term “meme” itself was popularized by author Richard Dawkins over 50 years later in his 1976 book The Selfish Gene. In the book, Dawkins described how ideas evolved and were shared across different cultures. The internet has enabled this exchange to occur at an exponential rate, with the first modern memes emerging in the late 1990s and early 2000s.
Microtargeting is a marketing strategy that utilizes consumer demographic data to identify the interests of a very specific group of individuals. Like most marketing strategies, the goal of microtargeting is to positively influence consumer behavior.
Multichannel marketing executes a marketing strategy across multiple platforms to reach as many consumers as possible. Here, a platform may refer to product packaging, word-of-mouth advertising, mobile apps, email, websites, or promotional events, and all the other channels that can help amplify the brand to reach as many consumers as possible.
Multi-level marketing (MLM), otherwise known as network or referral marketing, is a strategy in which businesses sell their products through person-to-person sales. When consumers join MLM programs, they act as distributors. Distributors make money by selling the product directly to other consumers. They earn a small percentage of sales from those that they recruit to do the same – often referred to as their “downline”.
The Net Promoter Score (NPS) is a measure of the ability of a product or service to attract word-of-mouth advertising. NPS is a crucial part of any marketing strategy since attracting and then retaining customers means they are more likely to recommend a business to others.
Neuromarketing information is collected by measuring brain activity related to specific brain functions using sophisticated and expensive technology such as MRI machines. Some businesses also choose to make inferences of neurological responses by analyzing biometric and heart-rate data.
Neuromarketing is the domain of large companies with similarly large budgets or subsidies. These include Frito-Lay, Google, and The Weather Channel.
Newsjacking as a marketing strategy was popularised by David Meerman Scott in his book Newsjacking: How to Inject Your Ideas into a Breaking News Story and Generate Tons of Media Coverage. Newsjacking describes the practice of aligning a brand with a current event to generate media attention and increase brand exposure.
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.
We can define pull and push marketing from the perspective of the target audience or customers. In push marketing, as the name suggests, you’re promoting a product so that consumers can see it. In a pull strategy, consumers might look for your product or service drawn by its brand.
Real-time marketing is as exactly as it sounds. It involves in-the-moment marketing to customers across any channel based on how that customer is interacting with the brand.
Relationship marketing involves businesses and their brands forming long-term relationships with customers. The focus of relationship marketing is to increase customer loyalty and engagement through high-quality products and services. It differs from short-term processes focused solely on customer acquisition and individual sales.
Reverse marketing describes any marketing strategy that encourages consumers to seek out a product or company on their own. This approach differs from a traditional marketing strategy where marketers seek out the consumer.
Remarketing involves the creation of personalized and targeted ads for consumers who have already visited a company’s website. The process works in this way: as users visit a brand’s website, they are tagged with cookies that follow the users, and as they land on advertising platforms where retargeting is an option (like social media platforms) they get served ads based on their navigation.
Sensory marketing describes any marketing campaign designed to appeal to the five human senses of touch, taste, smell, sight, and sound. Technologies such as artificial intelligence, virtual reality, and the Internet of Things (IoT) are enabling marketers to design fun, interactive, and immersive sensory marketing brand experiences. Long term, businesses must develop sensory marketing campaigns that are relevant and effective in eCommerce.
Services marketing originated as a separate field of study during the 1980s. Researchers realized that the unique characteristics of services required different marketing strategies to those used in the promotion of physical goods. Services marketing is a specialized branch of marketing that promotes the intangible benefits delivered by a company to create customer value.
Sustainable marketing describes how a business will invest in social and environmental initiatives as part of its marketing strategy. Also known as green marketing, it is often used to counteract public criticism around wastage, misleading advertising, and poor quality or unsafe products.
Word-of-mouth marketing is a marketing strategy skewed toward offering a great experience to existing customers and incentivizing them to share it with other potential customers. That is one of the most effective forms of marketing as it enables a company to gain traction based on existing customers’ referrals. When repeat customers become a key enabler for the brand this is one of the best organic and sustainable growth marketing strategies.
360 marketing is a marketing campaign that utilizes all available mediums, channels, and consumer touchpoints. 360 marketing requires the business to maintain a consistent presence across multiple online and offline channels. This ensures it does not miss potentially lucrative customer segments. By its very nature, 360 marketing describes any number of different marketing strategies. However, a broad and holistic marketing strategy should incorporate a website, SEO, PPC, email marketing, social media, public relations, in-store relations, and traditional forms of advertising such as television.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
