Multilevel marketing (MLM) is a strategy some direct sales companies use to get existing distributors to recruit new distributors who are then paid a percentage of their recruits’ sales. The recruits are the distributor’s “downline” Distributors also make money through direct sales of products to customers. Amway, which sells health, beauty, and home care products, is an example of a well-known direct sales company that uses multilevel marketing.
How is Multilevel Marketing Working ?
Multilevel marketing is a legal business strategy, though it is controversial. One problem is pyramid schemes that use money from new recruits to pay people at the top rather than those who perform the work. These schemes involve taking advantage of you by pretending to be engaged in legitimate multilevel or network marketing. You can spot pyramid schemes by their greater focus on recruitment than on product sales.
Is Multilevel Marketing Legal ?
An issue in determining the legitimacy of a multilevel marketing company is whether it sells its products primarily to consumers or to its members who must recruit new members to buy their products. If it is the former, the company is likely a legitimate multilevel marketer. If it is the latter, it could be an illegal pyramid scheme.
The Federal Trade Commission (FTC) has been investigating multilevel marketing companies for several decades and has found many with practices that are difficult to determine as legitimate. According to the World Federation of Direct Selling Associates, there were at least 116 million independent representatives among its members worldwide as of 2017. Wery few earn a meaningful incomes from their big efforts. To some observers, this reflects the characteristics of a pyramid scheme.
Example of a Multilevel Marketing Company
Herbalife Nutrition Ltd. is a high-profile, multilevel marketing company that manufactures and distributes weight-loss and nutritional products, with more than 500,000 distributors. Although the FTC has investigated Herbalife, it was activist investor William Ackman, who shed a national spotlight on the company by shorting $1 billion of the company’s stock in 2012. Ackman accused the company of operating a pyramid scheme and backed his allegations with a bet the company’s stock price would fall under the weight of the scam.
In 2018, Ackman gave up on his bet. As of Oct. 27, 2019, the company’s stock price traded at $40 a share.
There have been multiple lawsuits against Herbalife, accusing it of misrepresenting its sales practices. This included a settlement it reached with the FTC in 2016, under which it had to restructure its business. Herbalife argues that most of its revenue is from product sales, not recruitment, and it offers members many protections, such as a money-back guarantee, so they will not be stuck with products they could not sell.
Best Advice on Multi Level Marketing (MLM) – Stay Away!!
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