Business Models
Multi-Level Marketing
Also Known As Network Marketing
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A controversial marketing strategy in which a non-salaried workforce sells a company's products and earns commissions both on direct sales and on the sales of recruits in their downline. MLM-style businesses emerged in the 1920s-1930s (the California Vitamin Company, later Nutrilite, and the California Perfume Company, renamed Avon Products). Whether a given MLM constitutes a legitimate business or functions as an illegal pyramid scheme has been repeatedly litigated; In re Amway Corp. (1979) held MLM is not illegal per se in the United States, though Amway was found guilty of price fixing and making exaggerated income claims, and later FTC actions (Vemma, 2016; Fortune Hi-Tech Marketing, found to be an outright pyramid scheme with $3.7 million returned to victims) show the boundary is still actively enforced case by case. Independent studies cited on this dispute are captured through this atlas's dissent mechanism rather than resolved here.
Facts
Partially Attested
Origin YearSources place multi-level-marketing-style businesses in the 1920s and the 1930s, such as the California Vitamin Company (later Nutrilite) and the California Perfume Company (renamed Avon Products), but do not give a single founding year for the compensation model itself; 1930 is used here as an approximate midpoint of that documented decade range, the same imprecise-but-citable-year convention already used on this atlas's Razor-and-Blades Model (1920) and Vertical Integration (1920) entities. Core MechanismRevenue is derived from a non-salaried workforce selling the company's products; participants earn from their own direct sales and from commissions on sales made by distributors they recruit into their downline, forming a pyramid-shaped or binary compensation structure. 1 Cross-Tradition Connections
Associated With
Amway, founded in 1959, is multi-level marketing's most commonly cited real-world example and was the subject of the 1979 FTC case In re Amway Corp., which held MLM structures are not illegal in themselves though it found Amway guilty of price fixing and exaggerated income claims.
Multi-level marketing applies marketing's customer-acquisition and distribution practice through a commissioned, non-salaried sales force in place of conventional retail channels.
Sources
1. Wikipedia, Multi-Level Marketing
Wikipedialead sectionQuote, lead section
also called network marketing or pyramid selling
1. Wikipedia, Multi-Level Marketing
Wikipedialead section, LegalityQuote, lead section, Legality
the overwhelming majority of MLM participants, 99.6% of participants according to one study, lose money
1. Wikipedia, Multi-Level Marketing
WikipediaHistory sectionQuote, History section
Multi-level marketing style businesses existed in the 1920s and the 1930s, such as the California Vitamin Company (later named Nutrilite) and the California Perfume Company (renamed Avon Products).
Wikipedia, Amway Corp
Frequently Asked Questions
Is multi-level marketing the same thing as a pyramid scheme?
They are related but not identical: MLM pays participants mainly for real product sales with recruitment commissions layered on top, a pyramid scheme pays earlier participants mainly from newer recruits' money with little or no real product sold. Whether a specific company is one or the other depends on its actual compensation structure, which is why the distinction is genuinely disputed case by case.
The two are related but not defined the same way. In a genuine multi-level-marketing (MLM) plan, participants earn primarily from selling an actual product or service to real customers outside the network, with commissions on a downline as a secondary layer on top of that; in a pure pyramid scheme, the money paid in by newer recruits is what pays off earlier participants, with no substantial outside product sale involved at all. In practice the line between the two is genuinely disputed: sources describe MLM as a marketing strategy that is itself controversial and, in some documented cases, illegal precisely because a given company's plan turns out to reward recruitment over retail sale in a way that is functionally indistinguishable from a pyramid scheme. Regulators in several countries evaluate each MLM company's actual compensation structure rather than accepting the MLM label at face value.
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