Introduction
The idea of multi-level Marketing involves the recruitment of salespersons who will buy the product to sell at the same time recruit more members to the team. In most cases, this system is viewed as flawed as it emphasizes recruiting more members than selling the product. Thus, Companies that use multi-level Marketing techniques are frequently under criticism and lawsuits. These companies insist that their marketing strategy is legitimate and legal. On the other hand, analysts point out that such a strategy is doomed by design and these companies will collapse in the end causing financial, relationship, and emotional damage to the majority of the participants (Fitzpatrick, 2).
Many business experts note out that most if not all multi-level Marketing are just pyramid schemes. The pyramid scheme is illegal and banned in most countries, but multi-level marketing is not. There is doubt about the value of multi-level Marketing contributes to the real economy. There are also many questions about the ethics of the founders of such companies, their history which usually contains criminal records. Not to mention the quick rich dreams advertisements they use to recruit independent dealers. The multi-level marketing industry has escaped proper governments’ regulations and there is pressure from many economists for Proper government policies to protect the people who involve in multi-level Marketing.
Definition of terms
- Multi-level Marketing: is a system of marketing where distributors are networked with a promise of making money just by recruiting members into a team. The company makes money by collecting the fees for the entrance of new members as well as selling some products.
- Pyramid Scheme: where people make money by recruiting others to the team but there is no serious product on sale. The member ends up losing their money.
- Distributors: the agents recruited as salespeople.
- Independent dealers: dealers who are not associated terms financial or directional support from the company. They take responsibility for their actions.
- Ethics: actions that are morally right which can spell success and failure of the business
- Relationships: the friendship or network developed while recruiting more members.
- Amway: the first company to start multi-level marketing.
- DSA: Direct Selling Association.
Hypothesis
The research paper is going to review multi-level marketing techniques and find out if it is a legitimate marketing technique or not. The key areas of the study are going to verify whereas multi-level Marketing adds value to the real economy or, if it is a variation of pyramid scheme which is already illegal in most countries, review the multi-level. Marketing companies’ ethics and their advertisement techniques, find the main reason why individuals are motivated to join the schemes as independent distributors, check the way multi-level Marketing techniques have impacted individual relationships. Based on the above, the research is going to recommend whereas governments should allow multi-level marketing to continue as it is now or regulate it.
Are multi-level Marketing’s ethical about
Methods: The research theoretical part and findings are based on secondary data taken from other research projects about multi-level Marketing s, interviews of some multi-level Marketing scams victims, websites that are concerned about multi-level marketing companies, newspapers, magazines, and opinions of religious leaders about multi-level marketing’s when they asked about the legality of multi-level marketing. There are no primary data used in this research.
Findings
Multi-level marketing real start was in 1959 by Richard DeVos and Jay Van Andel the founders of Amway (Raven, 2). Multi-level marketing strategy depends on recruiting unsalaried individuals to promote its products; these independent distributors are awarded a commission for their sales and the sales of the downline level of distributers they build. Being a pioneer in this field enabled Amway to be profitable. Since then many companies in the United States and around the world used this strategy. At this point, it should be noted that companies that have embraced multi-level marketing are in a continuous process of recruitment of distributors. This geometric expansion situation creates a huge pyramid network in a very short time (Consumer Fraud, 1). The way multi-level marketing expands is the same as a pyramid scheme.
Despite the success of Amway, which is now, number 27 biggest private company in 2002, the majority of Amway independent distributors lose their money. Any multi-level marketing distributors will lose money:
“The loss rate for this recruitment-driven multi-level marketing was found to be 99.0 – 99.9%. The analysis of 350 leading multi-level marketing s was completed on January 11, 2010, and included all multi-level marketing members of the DSA” (Taylor, 2).
Until now, multi-level marketing has escaped being banned by authorities in many countries. It is because multi-level marketing offers a product or service.
Pyramid” scheme, participants attempt to make money solely by recruiting new participants into the program.
The MLM represents “fewer than 1% of all retail sales” (Fitzpatrick, 2), most of these sales are made to the distributors who are forced to make a minimum purchase to continue into the system.
Discussion
Based on the above findings; it is clear that multi-level marketing as a marketing strategy ignores supply and demand which is what the real economy is based on. They try to recruit independent distributors as much as they can without consideration for the actual or the forecasted demand of anticipated customers. This fact shows that multi-level marketing is interested in the wholesale of their products to the distributors. The higher number of distributors means a higher level of sale to them and this is why a company like Amway is still in business (Marcason, 78)
It is against logic that a distributor for a product that has a customer base would be interested in recruiting others to compete with him in his area and take away his customers. This proves that most independent distributors are lured by the commission they can make by recruiting a new downline of distributors and their sales to them instead of the sales to the people outside the plan
Usually, most Multi-level marketing try to sell products that are supposed to be unique, but in fact, they are not, despite that Multi-level marketing products have low quality, Multi-level marketing inflates the prices even at the wholesale price and this make it hard for distributors to build a loyal customer base. Multi-level marketing ends up using these products for themselves and their families.
Multi-level marketing’s huge failure rates mean that Multi-level marketing is not going to replace existing marketing approaches and this explains why Multi-level marketing as an industry represents less than 1% of direct selling. If we put into account that even with this one percent, most of it is made wholesale to the distributors.
Multi-level Marketing destroys the relationship between society individuals, distributors end up recruiting their family and friends as their down line. As has been statistically proven that more than 90% of distributors lose their money in multi-level Marketing, the distributor family and friends will blame him for misleading them about the opportunity to join the system when they lose their money (Clegg, 112).
Conclusion
Multi-level Marketing is legal and can be said to be a legal pyramid scheme. Salespeople benefit from recruiting other salespeople to the company. The company makes money from both the sale of products and the recruitment of more members to the group. Although
Multi-level Marketing is seen as bad as pyramid schemes, they have some benefits such as tax cut-offs, purchasing products at prices that are lower than market rates, and of benefit to the recruited to the salesperson. During the meeting of Multi-level Marketing, one can make friends who may last for a wrong period. The people who do not have hope in life will find some hope by being asked to think positively even though when lying to you (Orville and Mullins, 78).
Recommendation
Multi-level marketing with reverence to the Internet has been revealed to have some essential propositions for the worldwide marketing approaches of American organizations. Multi-level Marketing facilitates the massive potential for increasing consumer relationships and modifying the contribution to individual customers, with end-users achieving a leading position through these channels. Nevertheless, incorporated marketing strategies should unite elements of a different medium to increase their efficacy. With its exceptional development and its rising use as a marketing tool, organizations should be conscious of the difficulties connected with Multi-level Marketing while eliminating many of the obstructions to internationalization. Moreover, Multi-level Marketing has primarily amplified the complexity of sustaining a global reputation (Carl, 22).
Much the same as with conventional marketing, unconcealed perceptions will swiftly be observed and quoted as a reality. Owing to the global reach of Multi-level Marketing, any allegations could have more serious repercussions. Therefore, Multi-level Marketing should be implemented as an instrument of response and distribution of information about a product. In the longer term nonetheless, the center of attention turns to ascertaining that companies implement both ethically and fairly correct strategies in their actions. Thus, not only does Multi-level Marketing have basic allegations of being pyramid-like but also in its current form, it qualifies as a pyramid scheme (Higgs and Smith, 30).
Works Cited
Carl, Walter. “The Interactional Business of Doing Business: Managing Legitimacy and Co-constructing Entrepreneurial Identities in E-Commerce Multilevel Marketing Discourse.” Western Journal of Communication, 2004, Vol. 68.
Clegg, Brian. The invisible customer: strategies for successive customer service down the wire. New York: Kogan, 2000.
Consumer Fraud. Consumer Fraud Reporting MLM Pyramids. 2008. Web.
Fitzpatrick, Robert. Ten Big Lies of Multilevel Marketing. 2002. Web.
Higgs, Philip & Smith, Jane. Rethinking Our World. New York: Juta Academic.
Marcason, Wendy. “What Are the Facts and Myths about Mangosteen?” Journal of the American Dietetic Association, 2006 106 (6): 986.
Orville, Walker & Mullins, John. Marketing Strategy: A decision focused approach. New York: McGraw Hill, 2007.
Raven. “How Did Amway Get Started And What Is Amway Up To Now?” Articles bases. 2010. Web.
Taylor, Jon. “MLM -smoking-guns.” The truth about multi-level marketing. 2010. Web.