View source for Multi-level marketing

{{short description|Controversial marketing strategy}}
{{Use mdy dates|date=December 2021}}
{{Marketing}}
'''Multi-level marketing''' ('''MLM'''), also called '''network marketing'''<ref name= "Vandernat" >{{cite journal |author=Vander Nat, Peter J. |author2=Keep, William W. |year=2002 |title=Marketing Fraud: An Approach for Differentiating Multilevel Marketing from Pyramid Schemes |journal=Journal of Public Policy & Marketing |volume=21 |issue=1 |pages=139–151 |doi=10.1509/jppm.21.1.139.17603 |s2cid=154490614}}</ref> or '''pyramid selling''',<ref name= ":0" >{{cite book|author=Clegg, Brian|title=The invisible customer: strategies for successive customer service down the wire|publisher=Kogan Page|year=2000|page=112|isbn=0-7494-3144-X}}</ref><ref name= "autogenerated4" >{{cite book|author= Kitching, Trevor|title=Purchasing scams and how to avoid them|publisher=Gower Publishing Company|year=2001|page=4|isbn=0-566-08281-0}}<br />{{cite book|author=Mendelsohn, Martin|title=The guide to franchising |publisher = Cengage Learning Business Press|year=2004 |page=36|isbn=1-84480-162-4}}</ref><ref name= "Chicago Tribune" >{{cite news |last=Karp |first=Gregory |url=https://www.chicagotribune.com/2013/02/10/the-fine-line-between-legitimate-businesses-and-pyramid-schemes/ |title=The fine line between legitimate businesses and pyramid schemes |publisher=[[Chicago Tribune]] |orig-date=February 10, 2013 |date=August 24, 2021 |archive-url=https://web.archive.org/web/20240510235540/https://www.chicagotribune.com/2013/02/10/the-fine-line-between-legitimate-businesses-and-pyramid-schemes/ |archive-date=May 10, 2024 |url-status=live}}</ref> is a controversial<ref name= "Chicago Tribune" /> and sometimes illegal [[marketing strategy]] for the [[Sales|sale]] of products or services in which the [[revenue]] of the MLM company is derived from a non-salaried [[workforce]] selling the company's products or services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation [[commission (remuneration)|commission]] system.<ref>{{cite web|title=Multilevel Marketing|date=May 18, 2021|publisher=FTC|url=http://www.consumer.ftc.gov/articles/0065-multilevel-marketing}}<br />{{cite web|title=Multi-Level Marketing Businesses and Pyramid Schemes|date=January 4, 2018|publisher=FTC, Bureau of Consumer Protection|url=http://www.business.ftc.gov/documents/inv08-bottom-line-about-multi-level-marketing-plans|access-date=October 16, 2020}}</ref>

In multi-level marketing, the compensation plan usually pays out to participants from two potential [[revenue stream]]s. The first is based on a sales commission from directly selling the product or service; the second is paid out from commissions based upon the wholesale purchases made by other sellers whom the participant has recruited to also sell product. In the [[organizational hierarchy]] of MLM companies, recruited participants (as well as those whom the recruit recruits) are referred to as one's ''downline'' distributors.<ref name= "DuBoff2004" >{{cite book|author=DuBoff, Leonard D.|title=The Law (in Plain English) for Small Business|url=https://archive.org/details/lawinplainenglis0000dubo_w4q0|url-access=registration|year=2004|publisher=Sphinx Pub.|isbn=978-1-57248-377-4|pages=[https://archive.org/details/lawinplainenglis0000dubo_w4q0/page/285 285]–286}}</ref>

MLM salespeople are, therefore, expected to sell products directly to end-user retail consumers by means of relationship [[Referral marketing|referrals]] and [[word of mouth]] marketing, but more importantly they are incentivized to recruit others to join the company's [[distribution chain]] as fellow salespeople so that these can become downline distributors.<ref name=Vandernat /><ref name= "Xardel" /> According to a report that studied the business models of 350 MLM companies in the [[United States]], published on the Federal Trade Commission's website, at least 99% of people who join MLM companies lose money.<ref name= "TPR1" >{{cite news|title=The Perils Of Multi-Level Marketing Programs|url=http://tpr.org/post/perils-multi-level-marketing-programs|access-date=February 16, 2018|publisher=Texas Public Radio|date=October 4, 2017}}</ref><ref>{{cite web |last1=Taylor |first1=Jon |title=Chapter 7: MLM’s Abysmal Numbers |url=https://www.ftc.gov/sites/default/files/documents/public_comments/trade-regulation-rule-disclosure-requirements-and-prohibitions-concerning-business-opportunities-ftc.r511993-00008%C2%A0/00008-57281.pdf |website=FTC |publisher=FTC |access-date=April 28, 2024}}</ref><ref name= "ValleyNews" >{{cite news|title=Legging company, LuLaRoe accused of misleading consultants|url=http://www.valleynewslive.com/content/news/LuLaRoe-439236993.html|access-date=February 16, 2018|publisher=[[Valley News]]}}</ref> Nonetheless, MLM companies function because downline participants are encouraged to hold onto the belief that they can achieve large returns, while the [[Statistics|statistical]] improbability of this is de-emphasized. MLM companies have been made illegal or otherwise strictly regulated in some jurisdictions as merely variations of the traditional [[pyramid scheme]].<ref name=china-briefing /><ref name='china-MLM-law' />

==Terminology==

Multi-level marketing is also known as "pyramid selling",<ref name= ":0" /><ref name= "autogenerated4" /> "network marketing",<ref name= "autogenerated4" /><ref name= "Vandernat" /> and "referral marketing".<ref name= "skepdic" />

==Business model==
===Setup===
[[File:Airplane game.svg|thumb|right|A typical multi-level marketing [[binary tree]] structure. The blue individual at the top will receive compensation from the sales of the downline red members.]]
Independent non-salaried participants, referred to as distributors (variously called "associates", "independent business owners", "independent agents", "[[affiliates]]", etc.), are authorized to distribute the company's products or services. They are awarded their own immediate retail profit from customers plus commission from the company, not downlines, through a multi-level marketing compensation plan, which is based upon the volume of products sold through their own sales efforts as well as that of their downline organization.

Independent distributors develop their organizations by either building an active [[consumer network]], who buy direct from the company, or by recruiting a ''downline'' of independent distributors who also build a consumer network base, thereby expanding the overall organization.{{citation needed|date=June 2019}}

The combined number of recruits from these cycles is the sales force, called the salesperson's "downline". This "downline" is the [[Pyramid (geometry)|pyramid]] in MLM's multiple-level structure of compensation.<ref name= "Xardel" >{{cite book|author=Xardel, Dominique |author-link=Dominique Xardel|title=The Direct Selling Revolution. Understanding the Growth of the Amway Corporation|publisher=[[Blackwell Publishing]]|year=1993|isbn=978-0-631-19229-9|pages=1–4}}</ref>

===Participants===
The overwhelming majority of MLM participants participate at either an insignificant or nil net profit. A study of 27 MLM schemes found that on average, 99.6% of participants lost money.<ref name= "auto" >{{cite web|url=https://www.ftc.gov/sites/default/files/documents/public_comments/trade-regulation-rule-disclosure-requirements-and-prohibitions-concerning-business-opportunities-ftc.r511993-00008%C2%A0/00008-57281.pdf|title=Public Comments regarding proposed Trade Regulation Rule (16 CFR Part 436)|author=Taylor, Jon M.|publisher=Consumer Awareness Institute}}</ref> Indeed, the largest proportion of participants must operate at a net loss (after expenses are deducted) so that the few individuals in the uppermost level of the MLM pyramid can derive their significant earnings. Said earnings are then emphasized by the MLM company to all other participants to encourage their continued participation at a continuing financial loss.<ref name= "auto" />

===Companies===
Many MLM companies generate billions of dollars in annual revenue and hundreds of millions of dollars in annual profit. However, profits accrue to the detriment of most of the company's constituent workforce (the MLM participants). Only some of the profits are then shared with individual participants at the top of the MLM distributorship pyramid. The earnings of those top few participants are emphasized and championed at company [[seminars]] and [[conferences]], thus creating the illusion that participants in the MLM can become financially successful. This is then advertised by the MLM company to recruit more distributors in the MLM with an unrealistic anticipation of earning margins which are in reality merely theoretical and statistically improbable.<ref>{{cite news|url=https://www.news.com.au/finance/business/travel/worldventures-multilevel-marketing-business-claims-to-have-10000-australian-members/news-story/139decd1762d3cfbdfc4114e696b049a|title=WorldVentures multi-level marketing business claims to have 10,000 Australian members|website=[[News.com.au]]|author=Chung, Frank|date=March 1, 2017|access-date=September 19, 2018}}</ref>

Although an MLM company holds out those few top individual participants as evidence of how participation in the MLM could lead to success, the MLM business model depends on the failure of the overwhelming majority of all other participants, through the injecting of money from their own pockets, so that it can become the revenue and profit of the MLM company, of which the MLM company shares only a small proportion with a few individuals at the top of the MLM participant pyramid. Other than the few at the top, participants provide nothing more than their own financial loss for the company's own profit and the profit of the top few individual participants.<ref>{{cite news|url=https://www.cnbc.com/2013/01/09/from-high-energy-clubs-to-dashed-dreams-herbalife-tales.html|title=From High Energy Clubs to Dashed Dreams: Herbalife Tales|publisher=[[CNBC]]|date=January 17, 2013|author=Herb, Greenberg|access-date=September 19, 2018}}</ref>

===Financial independence===
The main sales pitch of MLM companies to their participants and prospective participants is not the MLM company's products or services. The products or services are largely peripheral to the MLM model. {{Citation needed|date=October 2022}} Rather, the true sales pitch and emphasis is on a confidence given to participants of potential financial independence through participation in the MLM, luring with phrases like "the lifestyle you deserve" or "independent distributor".<ref>{{cite web|url=http://knowledge.wharton.upenn.edu/article/amway-selling-the-dream-of-financial-freedom/|title=Amway: Selling the Dream of Financial Freedom |website=Knowledge@Wharton|date=May 5, 2011|access-date=September 19, 2018}}</ref> Erik German's memoir ''My Father's Dream'' documents the author's father's failures through "[[get-rich-quick scheme]]s" such as [[Amway]].<ref>{{cite news|url=https://www.denverpost.com/2013/01/08/lewis-herbalife-selling-dreams-and-stories/|title=Lewis: Herbalife selling 'dreams' and 'stories'|date=January 8, 2013|work=The Denver Post|access-date=September 19, 2018}}</ref> The memoir illustrates the multi-level marketing sales principle known as "selling the dream".<ref>{{cite news|url=https://www.cnbc.com/selling-the-american-dream/|title=Selling the American Dream|publisher=CNBC|access-date=September 19, 2018}}</ref>

Although the emphasis is always made on the potential of success and the positive life change that "might" or "could" (not "will" or "can" ) result, disclosure statements include disclaimers that they, as participants, should not rely on the earning results of other participants in the highest levels of the MLM participant pyramid as an indication of what they should expect to earn. MLM companies rarely emphasize the extreme likelihood of failure, or the extreme likelihood of financial loss, from participation in MLM. {{Citation needed|date=October 2022}}

==Comparisons to pyramid schemes==
MLM companies have been made illegal in some jurisdictions as a mere variation of the traditional [[pyramid scheme]], including in [[China]].<ref name=china-briefing /><ref name='china-MLM-law' /> In jurisdictions where MLM companies have not been made illegal, many illegal pyramid schemes attempt to present themselves as MLM businesses.<ref name= "FTCstatement" >{{cite web|title=Pyramid Schemes|url=https://www.ftc.gov/public-statements/1998/05/pyramid-schemes|publisher=FTC|date=May 13, 1998|access-date=September 19, 2018|author=Valentine, Debra A.}}</ref> Given that the overwhelming majority of MLM participants cannot realistically make a net profit, let alone a significant net profit, but instead overwhelmingly operate at net losses, some sources have defined all MLM companies as a type of pyramid scheme, even if they have not been made illegal like traditional pyramid schemes through [[statute|legislative statutes]].<ref name=skepdic /><ref name= "autogenerated168" >{{cite book|author=Coenen, Tracy|title=Expert Fraud Investigation: A Step-by-Step Guide|publisher=Wiley|year=2009|page=168|isbn=978-0-470-38796-2}}</ref><ref name= "autogenerated880" >{{cite book|editor=[[Lawrence M. Salinger|Salinger, Lawrence M.]]|title=Encyclopedia of White-Collar & Corporate Crime|publisher=Sage Publishing|year=2005|volume=2|page=880|isbn=0-7619-3004-3|url=https://books.google.com/books?id=0f7yTNb_V3QC&pg=PA880}}</ref>

MLM companies are designed to make profit for the owners/shareholders of the company and a few individual participants at the top levels of the MLM pyramid of participants. According to the [[U.S. Federal Trade Commission]] (FTC), some MLM companies already constitute illegal pyramid schemes even by the narrower existing legislation, exploiting members of the organization.<ref name=ftc>{{cite web|title=The Bottom Line About Multilevel Marketing Plans and Pyramid Schemes|publisher=FTC|url=https://assets.factsaboutherbalife.com/content/uploads/2012/12/17195913/The-Bottom-Line-About-Multilevel-Marketing-Plans-and-Pyramid-Schemes.pdf|date=December 2012|quote=Not all multilevel marketing plans are legitimate. Some are pyramid schemes.|access-date=September 19, 2018|archive-url=https://web.archive.org/web/20180920011158/https://assets.factsaboutherbalife.com/content/uploads/2012/12/17195913/The-Bottom-Line-About-Multilevel-Marketing-Plans-and-Pyramid-Schemes.pdf|archive-date=September 20, 2018|url-status=dead}}<br />{{cite web|title=Multilevel Marketing|date=May 18, 2021|publisher=FTC|url=http://www.consumer.ftc.gov/articles/0065-multilevel-marketing}}<br />{{cite web|title=Multilevel Marketing|date=January 4, 2018|publisher=FTC, Bureau of Consumer Protection|url=http://www.business.ftc.gov/documents/inv08-bottom-line-about-multi-level-marketing-plans|access-date=September 19, 2018}}</ref>

===Lawsuits===
Companies that employ the MLM business model have often faced criticism and lawsuits. Legal claims against MLM companies cover a wide range of issues, including accusations that their operations closely resemble illegal [[Pyramid scheme|pyramid schemes]]. Additionally, MLM companies have been accused of engaging in [[price fixing]] and participating in [[collusion]] and [[racketeering]], often involving secret compensation deals that favor a few participants at the expense of others. Critics also point to the high initial costs for new members, such as purchasing a marketing kit and initial products, as a barrier to entry. Many MLMs emphasize the recruitment of new members over actual sales, particularly sales to individuals outside of the MLM. This focus on recruitment often pressures participants to buy and use the company's products themselves, and exploit their personal relationships for sales and recruiting.

Furthermore, MLMs are often scrutinized for having complex and exaggerated compensation schemes, making it difficult for most participants to earn significant income. False claims about the effectiveness of products are also commonly reported. Major revenue for the company, or its leading distributors, often comes from participant-attended conventions, training sessions, and sales of promotional materials, adding another layer of financial burden on members. Some MLM organizations have also been accused of using [[Cult|cult-like]] techniques to build enthusiasm and loyalty among their members, which has raised additional ethical concerns.<ref name= "skepdic" /><ref name= "vandruff" />

==Direct selling versus network marketing==
"Network marketing" and "multi-level marketing" (MLM) have been described by author [[Dominique Xardel]] as being synonymous, with it being a type of [[direct selling]].<ref name= "Xardel" /> Some sources emphasize that multi-level marketing is merely one form of direct selling, rather than ''being'' direct selling.<ref name= "for Dummies" >{{cite book|author=Edwards, Paul|author2=Edwards, Sarah|author3=Economy, Peter|year=2009|title=Home-Based Business for Dummies|edition=3rd|publisher=Wiley|isbn=978-0-470-53805-0|pages=38–39}}</ref><ref>{{cite magazine|magazine=[[Life (magazine)|Life]]|date=February 27, 1970|title='Person to person' sales plans... "dream" opportunity or business nightmare? [Amway Ad]|volume=68|issue=7|pages=51|url=https://books.google.com/books?id=6lAEAAAAMBAJ&pg=PA51}}<br />{{cite journal|author=Brown, Caryne|journal=[[Black Enterprise]]|date=December 1992|title=Door-to-door Selling Grows Up|volume=23|issue=5|pages=76}}</ref> Other terms that are sometimes used to describe multi-level marketing include "word-of-mouth marketing", "interactive distribution", and "[[relationship marketing]]". Critics have argued that the use of these and other different terms and "[[buzzword]]s" is an effort to draw distinctions between multi-level marketing and illegal [[Ponzi scheme]]s, [[chain letter]]s, and consumer fraud scams—where none meaningfully exist.<ref name= "NewPros" >{{cite book|title=The New Professionals|author1=Charles W. King|author2=James W. Robinson|publisher=Prima Publishing|year=2000|page=80|isbn=0-7615-1966-1}}</ref>

The [[Direct Selling Association]] (DSA), a [[lobbying group]] for the MLM industry, reported that in 1990 only 25% of DSA members used the MLM business model. By 1999, this had grown to 77.3%.<ref>{{cite journal|author=Sheffield, Michael L.|journal=Direct Sales Journal|date=Feb–Mar 1999|title=Comp Plan Conversion:Direct Sales to MLM Compensation Plans|url=http://www.sheffieldnet.com/compensation-plan-conversion-direct-sales-to-mlm-compensation-plan/|access-date=September 19, 2018}} (citing Neil Offen, president of the Direct Selling Association)</ref> By 2009, 94.2% of DSA members were using MLM, accounting for 99.6% of sellers, and 97.1% of sales.<ref name= "DSA2009" >{{cite web|title=US Direct Selling in 2009|publisher=Direct Selling Association|year=2010|url=http://www.dsa.org/files/GO2009FactSheet.pdf|access-date=September 19, 2018}}</ref> Companies such as [[Avon Products, Inc.|Avon]], Aerus (formerly Electrolux USA), [[Tupperware]], and [[Kirby Company|Kirby]] were all originally single-level marketing companies, using that traditional and uncontroversial direct selling business model (distinct from MLM) to sell their goods. However, they later introduced multi-level compensation plans, becoming MLM companies.<ref name= "for Dummies" /> The DSA has approximately 200 members<ref name= "DSA" >{{cite web|url=http://www.dsa.org/forms/CompanyFormPublicMembers/search?action=find|title=Direct Selling Organization Membership|publisher=Direct Selling Association|access-date=September 19, 2018}}</ref> while it is estimated there are over 1,000 firms using multi-level marketing in the United States alone.<ref name= "Ziglar" >{{cite book|title=Network Marketing for Dummies|author=Ziglar, Zig|author2=Hayes, John P. PhD|publisher=Hungry Minds|year=2001|isbn=0-7645-5292-9}}</ref>

==History==
{{expand section|date=June 2020}}
The origin of multi-level marketing is often disputed, but multi-level marketing style businesses existed in the 1920s<ref>{{cite journal|author= Pareja, Sergio|title=Sales Gone Wild: Will the FTC's Business Opportunity Rule Put an End to Pyramid Marketing Schemes?|journal=McGeorge Law Review |volume=39|issue=83|year=2008}}</ref> and the 1930s, such as the California Vitamin Company<ref>{{cite journal|author=Attri, Rekha|title=A Study of Consumer Perceptions of the Products Sold Through Multilevel Marketing|journal=Management Research Journal|publisher=Prabandhan & Taqniki|volume=39|issue=83|pages=97–103|year=2011}}</ref> (later named [[Nutrilite]]) and the California Perfume Company (renamed "[[Avon Products]]" ).<ref>{{cite web|date=January 24, 2014|url=http://network-experience.com/en/multi-level-marketing/mlm-history.php|title=MLM History| publisher=network-experience.net|access-date=September 19, 2018}}</ref>

==Income levels==
{{Prose|section|date=April 2021}}
Several sources have commented on the income level of specific MLM companies or MLM companies in general:
* ''[[The Times]]'': "The Government investigation claims to have revealed that just 10% of [[Amway]]'s agents in Britain make any profit, with less than one in ten selling a single item of the group's products." <ref>{{cite news|author=Brown, David|title=Marketing group merely 'selling a dream' |work=The Times|date=November 27, 2007|url=http://www.timesplus.co.uk/tto/news/?login=false&url=http://www.thetimes.co.uk/tto/business/industries/media|access-date=September 19, 2018}}</ref>
* Eric Scheibeler, a high level "Emerald" Amway member: "UK Justice Norris found in 2008 that out of an IBO [Independent Business Owners] population of 33,000, 'only about 90 made sufficient incomes to cover the costs of actively building their business.' That's a 99.7 percent loss rate for investors." <ref>{{cite news|author=Berkowitz, Bill|title=Republican Benefactor Launches Comeback|publisher=Inter press service|date=January 28, 2009|url=http://www.ipsnews.net/2009/01/politics-us-republican-benefactor-launches-comeback/|access-date=September 19, 2018}} (in reference to BERR vs Amway (Case No:2651, 2652 and 2653 of 2007) in point of objectionability "c" )</ref>
* ''[[Newsweek]]'': based on [[MonaVie|Mona Vie]]'s own 2007 income disclosure statement "fewer than 1 percent qualified for commissions and of those, only 10 percent made more than $100 a week." <ref>{{cite journal|title=A Drink's Purple Reign|author=Dokoupil, Tony|journal=[[Newsweek]]|date=August 2, 2008|volume=152 |issue=6 |page=45 |pmid=18831083 }}</ref>
* Business Students Focus on Ethics: "In the USA, the average annual income from MLM for 90% MLM members is no more than US $5,000, which is far from being a sufficient means of making a living (''San Lian Life Weekly'' 1998)" <ref>{{cite book|editor=Ryan, Leo|editor2=Wojciech, Gasparski|editor3=Georges, Enderle|title=Business Students Focus on Ethics (Praxiology): The international Annual of Practical Philosophy and Methodology|volume=8|publisher=[[Transaction Publishers]]|year=2000|location=New Jersey|page=75|isbn=0-7658-0037-3}}</ref>
* ''[[USA Today]]'' has had several articles:
:* "While earning potential varies by company and sales ability, [[Direct Selling Association|DSA]] says the median annual income for those in direct sales is $2,400." <ref>{{cite news|author=Peterecca, Laura|title=What kind of business do you want to start?|newspaper=USA Today|pages=4B|date=September 14, 2009|url=https://www.usatoday.com/printedition/money/20090914/smallbizweek114_st.art.htm|access-date=September 19, 2018}}</ref>
:*In an October 15, 2010, article, it was stated that documents of a MLM called [[Fortune Hi-Tech Marketing]] reveal that 30 percent of its representatives make no money and that 54 percent of the remaining 70 percent only make $93 a month, before costs. Fortune was under investigation by the Attorneys General of Texas, Kentucky, North Dakota, and North Carolina with Missouri, South Carolina, Illinois, and Florida following up complaints against the company.<ref>{{cite news|author=O'Donnell, Jayne|title=Fortune Hi-Tech: American dream or pyramid scheme?|newspaper=USA Today|pages=6B|date=October 15, 2010|url=https://www.usatoday.com/money/companies/2010-10-15-multilevelmarketing14_CV_N.htm|access-date=September 19, 2018}}</ref> The FTC eventually stated that Fortune Hi-Tech Marketing was a pyramid scheme and that checks totaling more than $3.7 million were being mailed to the victims.<ref>FTC (November 8, 2016) "[https://www.ftc.gov/news-events/press-releases/2016/11/ftc-returns-more-37-million-people-harmed-pyramid-scheme FTC Returns More Than $3.7 Million to People Harmed by Pyramid Scheme]" </ref>
:*A February 10, 2011, article stated "It can be very difficult, if not impossible, for most individuals to make a lot of money through the direct sale of products to consumers. And big money is what recruiters often allude to in their pitches." <ref name=usatjod>{{cite news|author=O'Donnell, Jayne|title=Multilevel marketing or 'pyramid?' Sales people find it hard to earn much|newspaper=USA Today|date=February 10, 2011|url=https://www.usatoday.com/money/industries/retail/2011-02-07-multilevelmarketing03_CV_N.htm|access-date=September 19, 2018}}</ref>
:* "Roland Whitsell, a former business professor who spent 40 years researching and teaching the pitfalls of multilevel marketing": "You'd be hard-pressed to find anyone making over $1.50 an hour, (t)he primary product is opportunity. The strongest, most powerful motivational force today is false hope." <ref name=usatjod />
* Based on the results of a 2018 poll conducted with 1,049 MLM sellers, the majority (60%) earned an average of less than $100 in sales over a five-year period, and 20% never made a single sale. The majority of sellers made less than 70 cents per hour.<ref name= "Vox101518" >{{cite web |last1=Del Valle |first1=Gaby |title=Multilevel marketing companies say they can make you rich. Here's how much 7 sellers actually earned. |url=https://www.vox.com/the-goods/2018/10/15/17971410/lularoe-lipsense-amway-itworks-mary-kay-mlm-multilevel-marketing |access-date=October 15, 2018 |website=[[Vox (website)|Vox]] |date=October 15, 2018}}</ref> Nearly 32 percent of those polled acquired credit card debt to finance their MLM involvement.<ref>{{cite news |last1=Singletary |first1=Michelle |title=Why multilevel marketing won't make you rich |url=https://www.washingtonpost.com/business/2018/09/27/why-that-multilevel-marketing-business-is-probably-not-going-pay-off/?noredirect=on |newspaper=The Washington Post |access-date=October 22, 2018}}</ref>

==Legality and legitimacy==
===Bangladesh===
In 2015, the [[Government of Bangladesh]] banned all types of domestic and foreign MLM trade in Bangladesh.<ref>{{cite news |author1=ফখরুল ইসলাম (Fakhrul Islam) |title=সব এমএলএম অবৈধ (All MLMs are illegal.) |url=https://www.prothomalo.com/amp/economy/article/500242/%25E0%25A6%25B8%25E0%25A6%25AC-%25E0%25A6%258F%25E0%25A6%25AE%25E0%25A6%258F%25E0%25A6%25B2%25E0%25A6%258F%25E0%25A6%25AE-%25E0%25A6%2585%25E0%25A6%25AC%25E0%25A7%2588%25E0%25A6%25A7 |access-date=May 29, 2020 |work=[[Prothom Alo]] |date=April 11, 2015}}</ref>

===China===
Multi-level marketing ({{zh|s={{linktext| truyện tiêu }}|t= truyện tiêu |p=chuán xiāo |l=spread selling}}) was first introduced to [[mainland China]] by American, Taiwanese, and Japanese companies following the [[Chinese economic reform]] of 1978. This rise in multi-level marketing's popularity coincided with economic uncertainty and a new shift towards individual [[consumerism]]. Multi-level marketing was banned on the mainland by the government in 1998, citing social, economic, and taxation issues.<ref>{{cite book|author=Jeffery, Lyn|editor=Chen, Nancy N.|title=China Urban: Ethnographies of Contemporary Culture|date=March 21, 2001|publisher=Duke University Press|isbn=978-0822326403|pages=23–42|chapter-url=https://books.google.com/books?id=5pYsBLZdAIIC&pg=PA25|chapter=Placing Practices: Transnational Network Marketing in Mainland China}}</ref> Further regulation "Prohibition of ''Chuanxiao''" (where MLM is a type of Chuanxiao was enacted in 2005, clause 3 of Chapter 2 of the regulation states having downlines is illegal).<ref name='china-MLM-law'>{{cite web|title=MLM law of China 'Prohibition of Chuanxiao'|url=http://www.gov.cn/zwgk/2005-09/03/content_28808.htm|date=September 3, 2005|work=gov.cn|access-date=September 19, 2018}}</ref> O'Regan wrote 'With this regulation China makes clear that while Direct Sales is permitted in the mainland, Multi-Level Marketing is not'.<ref name=china-briefing />

MLM companies have been made illegal in China as a mere variation of the traditional [[pyramid scheme]] and as disruptive to social and economic order.<ref name=china-briefing /><ref name= ":8" >{{Cite book |last=Lin |first=Chunfeng |title=Red Tourism in China: Commodification of Propaganda |publisher=[[Routledge]] |year=2023 |isbn=9781032139609 |pages=31}}</ref> MLM companies have been trying to find ways around China's prohibitions, or have been developing other methods, such as direct sales, to take their products to China through retail operations. The Direct Sales Regulations limit direct selling to cosmetics, health food, sanitary products, bodybuilding equipment and kitchen utensils, and they require Chinese or foreign companies ( "FIEs" ) who intend to engage into direct sale business in mainland China to apply for and obtain direct selling license from the Ministry of Commerce ( "MOFCOM" ).<ref>{{cite web|url=http://www.lehmanlaw.com/practices/direct-sale.html|archive-url=https://archive.today/20150121025519/http://www.lehmanlaw.com/practices/direct-sale.html|url-status=dead|archive-date=January 21, 2015|title=Chinese Law {{!}} China: Direct Sale|author=Xu, Lehman Lee|website=www.lehmanlaw.com|access-date=September 19, 2018}}</ref> In 2016, there are&nbsp;73 companies, including domestic and foreign companies, that have obtained the direct selling license.<ref>{{cite web|url=http://zxjg.saic.gov.cn/saicmrktout/etpsPublish.do?method=toEtpsList|script-title=zh: Trực tiêu xí nghiệp tín tức phi lộ võng trạm |website=zxjg.saic.gov.cn|publisher=[[State Administration for Industry and Commerce]]|access-date=September 19, 2018|archive-date=April 28, 2016|archive-url=https://web.archive.org/web/20160428051217/http://zxjg.saic.gov.cn/saicmrktout/etpsPublish.do?method=toEtpsList|url-status=dead}}</ref>
Some multi-level marketing sellers have circumvented this ban by establishing addresses and bank accounts in [[Hong Kong]], where the practice is legal, while selling and recruiting on the mainland.<ref name=china-briefing>{{cite news|author=O'Regan, Stephen|title=Multi-Level Marketing: China Isn't Buying It|url=http://www.china-briefing.com/news/2015/07/16/multi-level-marketing-china-isnt-buying.html|work=China Briefing|agency=Dezan Shira & Associates|date=July 16, 2015|access-date=September 19, 2018}}</ref><ref>{{cite news|title=Hong Kong multi-level marketing plan needs closer look (editorial)|url=http://www.scmp.com/comment/insight-opinion/article/1343994/hong-kong-multi-level-marketing-plan-needs-closer-look|work=South China Morning Post|date=October 31, 2013|access-date=September 19, 2018}}</ref>

It was not until August 23, 2005, that the State Council promulgated rules that dealt specifically with direct sale operation- Administration of Direct Sales (entered into effect on December 1, 2005) and the Regulations for the Prohibition of ''Chuanxiao'' (entered into effect on November 1, 2005). When direct selling is allowed, it will only be permitted under the most stringent requirements, in order to ensure the operations are not pyramid schemes, MLM, or fly-by-night operations.

===Saudi Arabia===
MLM marketing is banned in Saudi Arabia by imposing religious [[fatwa]] nationally, for this reason MLM companies like [[Amway]], [[Mary Kay]], [[Oriflame]] and [[Herbalife]] sell their products by [[online selling]] method instead of MLM.<ref>{{cite book |last1=Nestorović |first1=Čedomir |title=Islamic Marketing: Understanding the Socio-Economic, Cultural, and Politico-Legal Environment |date=2016 |publisher=Springer |isbn=978-3-319-32754-9 |page=242 |url=https://books.google.com/books?id=LXJBDAAAQBAJ&q=mlm+in+saudi+arabia&pg=PA242 |access-date=June 20, 2020 |language=en}}</ref>

===United States===
MLM businesses operate in all 50 U.S. states. Businesses may use terms such as "[[affiliate marketing]]" or "home-based business franchising". Some sources say that all MLM companies are essentially pyramid schemes, even if they are legal.<ref name=skepdic /><ref name= "autogenerated168" /><ref name= "autogenerated880" /> [[Utah]] has been named the "unofficial world capital of multi-level marketing and direct sales companies" and is home to at least 15 major MLMs, more MLMs per capita than any other state.<ref>{{cite news |last1=Lindsey |first1=Daryl |title=Follow the Profit: How Mormon Culture Made Utah a Hotbed for Multi-Level Marketers |url=https://kutv.com/news/local/follow-the-profit-how-mormon-culture-made-utah-a-hotbed-for-multi-level-marketers |publisher=[[KUTV]] |access-date=28 March 2023 |date=September 8, 2016}}</ref>

The [[Federal Trade Commission|U.S. Federal Trade Commission]] (FTC) states: "Steer clear of multilevel marketing plans that pay commissions for recruiting new distributors. They're actually illegal pyramid schemes. Why is ''pyramiding'' dangerous? Because plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited. And when a plan collapses, most people—except perhaps those at the very top of the pyramid—end up empty-handed." <ref>{{cite web|title=FTC Consumer Alert; Lotions and Potions: The Bottom Line About Multilevel Marketing Plans|url=http://www.ftc.gov/bcp/conline/pubs/alerts/lotionalrt.pdf|archive-url=https://webharvest.gov/peth04/20041019082120/http://www.ftc.gov/bcp/conline/pubs/alerts/lotionalrt.pdf|url-status=dead|archive-date=2004-10-19|publisher=FTC|date=January 2000|access-date=September 19, 2018}}</ref>

In a 2004 Staff Advisory letter to the Direct Selling Association, the FTC states:<blockquote>Much has been made of the personal, or internal, consumption issue in recent years. In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme. The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture.<ref name=ftcadvisory2004>{{cite web|author=Kohm, James A.|title=RE: Staff Advisory Opinion – Pyramid Scheme Analysis|publisher=Federal Trade Commission|date=14 January 2004|url=http://www.mlmwatchdog.com/files/FTC_Letter.pdf|format=reprint|archive-url=https://web.archive.org/web/20170703094557/http://www.mlmwatchdog.com/files/FTC_Letter.pdf|archive-date=3 July 2017|url-status=dead}}</ref>
</blockquote>

The Federal Trade Commission warns {{quote|Not all multilevel marketing plans are legitimate. Some are pyramid schemes. It's best not to get involved in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products.<ref name=ftc />}}

''[[In re Amway Corp.]]'' (1979), the Federal Trade Commission indicated that multi-level marketing was not [[illegal per se|illegal ''per se'']] in the United States. However, [[Amway]] was found guilty of [[price fixing]] (by effectively requiring "independent" distributors to sell at the same fixed price) and making exaggerated income claims.<ref>{{cite news|author=Eisenberg, Richard|agency=[[CNN]]|date=June 1, 1987|title=The Mess Called Multi-Level Marketing With celebrities etting the bait, hundreds of pyramid-style sales companies are raking in millions, often taking in the gullible|url=https://money.cnn.com/magazines/moneymag/moneymag_archive/1987/06/01/83883/index.htm|access-date=September 19, 2018}}</ref><ref name=inreAmway>{{cite court|litigants=In re Amway Corp.|volume=93|reporter=F.T.C.|docket=9023|year=1979 |url=https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-93/ftc_volume_decision_93_january_-_june_1979pages_618-738.pdf}}</ref> The FTC advises that multi-level marketing organizations with greater incentives for recruitment than product sales are to be viewed skeptically. The FTC also warns that the practice of getting commissions from recruiting new members is outlawed in most states as "pyramiding".<ref name=FTC>{{cite web|title=Multilevel Marketing Plans|publisher=FTC Consumer Alert|url=https://www.ftc.gov/tips-advice/business-center/guidance/multilevel-marketing|date=November 1996|access-date=September 19, 2018}}</ref>

Walter J. Carl stated in a 2004 ''Western Journal of Communication'' article that "MLM organizations have been described by some as cults (Butterfield, 1985),<ref>Stephen Butterfield, ''Amway, the Cult of Free Enterprise'' (Boston: South End Press, 1985).</ref> pyramid schemes (Fitzpatrick & Reynolds, 1997),<ref name=falseprofits>{{cite web|url=http://www.falseprofits.com/|title=FalseProfitsHomePage |publisher=Falseprofits.com|access-date=19 September 2018}}; Robert L. FitzPatrick & Joyce K. Reynolds, ''False Profits: Seeking Financial and Spiritual Deliverance in Multi-Level Marketing and Pyramid Schemes'' (Herald Pr, 1997).</ref> or organizations rife with misleading, deceptive, and unethical behavior (Carter, 1999),<ref>Ruth Carter, ''Amway Motivational Organizations: Behind the Smoke and Mirrors'' (Winter Park, Fla.: Backstreet Publishing, 1999).</ref> such as the questionable use of evangelical discourse to promote the business (Höpfl & Maddrell, 1996),<ref>H. Höpfl & J. Maddrell," Can You Resist a Dream? Evangelical Metaphors and the Appropriation of Emotion ", ''Metaphor and Organizations'', eds. D. Grant & C. Oswick (Thousand Oaks, Cal.: Sage, 1996), 200–212.</ref> and the exploitation of personal relationships for financial gain (Fitzpatrick & Reynolds, 1997)".<ref name=falseprofits /><ref>{{cite journal|author=Carl, Walter J.|s2cid=151564237|title=The Interactional Business of Doing Business: Managing Legitimacy and Co-constructing Entrepreneurial Identities in E-Commerce Multilevel Marketing Discourse|journal=Western Journal of Communication|volume=68|issue=1|year=2004|pages=92–119|doi=10.1080/10570310409374790}}</ref> In China, volunteers working to rescue people from the schemes have been physically attacked.<ref>{{cite news|url=http://www.chinadaily.com.cn/cndy/2010-07/29/content_11063919.htm|title=Going against the slippery slope of a pyramid scheme|author=Hu Yongqi|work=[[China Daily]]|date=July 29, 2010|access-date=September 19, 2018}}</ref>

MLM companies are also criticized for being unable to fulfill their promises for the majority of participants due to basic conflicts with Western cultural norms.<ref>{{cite journal|author=Bloch, Brian|title=Multilevel marketing: what's the catch?|journal=Journal of Consumer Marketing|volume=13|issue=4|doi=10.1108/07363769610124519|year=1996|pages=18–26}}</ref> There are even claims that the success rate for breaking even or even making money are far worse than other types of businesses:<ref name= "taylor2002" >{{cite web|last=Taylor|first=Jon M.|title=Comparing Recruiting MLMs with No-product Pyramid Schemes, and with Gambling|url=http://www.mlm-thetruth.com/shocking-statistics-mlm-vs-classic-pyramid-schemes-gambling/|archive-url=https://web.archive.org/web/20180827065417/http://www.mlm-thetruth.com/shocking-statistics-mlm-vs-classic-pyramid-schemes-gambling/|archive-date=August 27, 2018|publisher=Consumers Awareness Institute|year=2002|access-date=October 15, 2018}}<br />{{cite web|author=Cruz, Joan Paola|author2=Camilo, Olaya|title=A System Dynamics Model for Studying the Structure of Network Marketing Organizations [Peer reviewed paper that refers uses Taylor as references]|year=2008|url=https://www.systemdynamics.org/assets/conferences/2008/proceed/papers/OLAYA411.pdf}}{{Dead link|date=March 2022 |bot=InternetArchiveBot |fix-attempted=yes }}</ref> "The vast majority of MLM companies are recruiting MLM companies, in which participants must recruit aggressively to profit. Based on available data from the companies themselves, the loss rate for recruiting MLM companies is approximately 99.9%; i.e., 99.9% of participants lose money after subtracting all expenses, including purchases from the company." <ref name= "taylor2002" /> (By comparison, skeptic [[Brian Dunning (author)|Brian Dunning]] points out that "only 97.14% of Las Vegas gamblers lose money....." <ref>{{Skeptoid|id=4176|number=176|title= Network Marketing |access-date=October 24, 2020|date=October 20, 2009|quote=}}</ref>) In part, this is because encouraging recruits to further "recruit people to compete with [them]" <ref name=skepdic /> leads to "market saturation." <ref name=vandruff>{{cite web|url=http://www.vandruff.com/mlm.html|title=What's Wrong With Multi-Level Marketing? |publisher=Vandruff.com|access-date=September 19, 2018}}</ref> It has also been claimed "(b)y its very nature, MLM is completely devoid of any scientific foundations." <ref>{{cite web|author=Sandbek, Terry|title=Brain Typing: The Pseudoscience of Cold Reading|url=https://dykaandrian.blogspot.com/2015/02/brain-typing-pseudoscience-of-cold.html|publisher=American Board of Sport Psychology|access-date=September 19, 2018}}</ref>

Because of the encouraging of recruits to further recruit their competitors, some people have even gone so far as to say at best modern MLM companies are nothing more than legalized [[pyramid scheme]]s<ref name=skepdic>{{cite book|author=Carroll, Robert Todd|title=The Skeptic's Dictionary: A Collection of Strange Beliefs, Amusing Deceptions, and Dangerous Delusions|url=http://www.skepdic.com/mlm.html|publisher=[[John Wiley & Sons]]|year=2003|pages=235–236|author-link=Robert Todd Carroll|isbn=0-471-27242-6}}</ref><ref name= "autogenerated168" /><ref name= "autogenerated880" /> with one stating "Multi-level marketing companies have become an accepted and legally sanctioned form of pyramid scheme in the United States" <ref name= "autogenerated168" /> while another states "Multi-Level Marketing, a form of Pyramid Scheme, is not necessarily fraudulent." <ref name= "autogenerated880" /> In October 2010 it was reported that multi-level marketing companies were being investigated by a number of state attorneys general amid allegations that salespeople were primarily paid for recruiting and that more recent recruits cannot earn anything near what early entrants do.<ref>{{cite news|title=Multilevel marketing or 'pyramid?' Sales people find it hard to earn much|url=https://www.usatoday.com/money/industries/retail/2011-02-07-multilevelmarketing03_CV_N.htm|work=USA Today|date=February 10, 2011|access-date=September 19, 2018}}</ref> Industry critic [[Robert L. FitzPatrick]] has called multi-level marketing "the Main Street bubble" that will eventually burst.<ref>{{cite news|author=Greenberg, Herb|title=Multi-Level Marketing Critic: Beware 'Main Street Bubble'|url=https://www.cnbc.com/2013/01/09/multilevel-marketing-critic-beware-main-street-bubble.html|publisher=CNBC|date=January 9, 2013|access-date=September 19, 2018}}</ref>

==Religious views==
===Islam===
Many Islamic jurists and religious bodies, including [[Permanent Committee for Scholarly Research and Ifta]]<ref>{{cite web |title=فتوى اللجنة الدائمة بشأن التسويق الشبكي – إسلام ويب – مركز الفتوى |url=http://fatwa.islamweb.net/fatwa/index.php?page=showfatwa&Option=FatwaId&Id=203089 |website=www.islamweb.net |access-date=July 14, 2020 |language=ar}}</ref> of [[Saudi Arabia]], have considered MLM trade to be prohibited (''[[haram]]''). They argue that MLM trade involves deceiving others into participating, and the transaction bears resemblance to both ''[[riba]]'' and ''[[gharar]]''.<ref>{{cite book |last1=Abdul-Rahman |first1=Muhammad Saed |title=Islam: Questions and Answers – Jurisprudence and Islamic Rulings: Transactions – Part 7 |date=2004 |publisher=MSA Publication Limited |isbn=978-1-86179-461-1 |url=https://books.google.com/books?id=6PcRwB0Kx6IC&q=It+involves+riba+of+two+types,+riba+al-fadl+(involving+exchange+of+goods+of+the+same+type+but+of+different+quantity)+and+riba+al-nasi’ah+(involving+deferred+payment+of+a+larger+amount+than+would+be+paid+if+it+were+paid+immediately).+The+participant+pays+a+small+amount+of+money+in+order+to+gain+a+lot+of+money,+in+other+words+he+pays+cash+for+cash+of+a+different+amount+and+with+deferred+payment.+This+is+the+kind+of+riba+that+is+forbidden+according+to+the+texts+and+to+scholarly+consensus.&pg=PA39 |access-date=June 8, 2020 |language=en}}</ref><ref>{{cite web |last1=Manjur Elahi |first1=Muhammad |last2=Tajul Islam |first2=Muhammad |last3=Muhammad Zakaria |first3=Abu Bakr |title=The provisions of network marketing in Islamic jurisprudence – Bengali – Muhammad Manjur Elahi |url=https://islamhouse.com/bn/articles/344613 |website=IslamHouse.com |access-date=June 8, 2020 |language=bn |date=May 18, 2011}}</ref>

==See also==
* [[Binary option]]
* [[Destiny Group]]
* [[List of multi-level marketing companies]]
* [[Saradha Group financial scandal]]
* [[Tiens]]

==References==
{{reflist|30em}}

== External links ==
<!--- WARNING TO ALL - Please do not add your MLM club/system/spam links to specific MLMs or directories in this section, or it WILL be deleted. Anon IP's, you have been warned--->
*{{cite web |url=http://ftc.gov/bcp/edu/pubs/consumer/alerts/alt057.shtm
| title=Federal Trade Commission article - Lotions and Potions: The Bottom Line About Multilevel Marketing Plans
| date=January 2000 | archive-url=https://web.archive.org/web/20090118151624/http://ftc.gov/bcp/edu/pubs/consumer/alerts/alt057.shtm
| access-date=January 18, 2009| archive-date=January 18, 2009
}} (archived version)
*{{cite web |url=https://consumer.ftc.gov/search/site-cfg?items_per_page=20&search_api_fulltext=Multi-level+Marketing
| title=Index of multi-level marketing articles on the Federal Trade Commission website| date=March 18, 2024}}
*{{cite web |url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4686468
|title=Multi-Level Lies
|last=Roberts |first=Alexandra J.
|date=January 7, 2024 |website=SSRN |publisher=(Social Science Research Network) |ssrn=4686468
|access-date= |quote=}}
*[https://www.c-span.org/video/?533864-1/after-words-jane-marie ''After Words'' interview with Jane Marie on ''Selling the Dream: The Billion Dollar Industry Bankrupting Americans'', March 15, 2024], [[C-SPAN]]

{{Multi-level marketing}}
{{Authority control}}

{{DEFAULTSORT:Multi-Level Marketing}}
[[Category:Multi-level marketing| ]]
[[Category:Business models]]
[[Category:Direct marketing]]
[[Category:Direct selling]]
[[Category:Types of marketing]]