Network Marketing and Pyramid Selling - Are They The Same?

Multi Level Marketing and Network Marketing are essentially the same selling method used by many companies in their marketing strategy

. A large number of self employed agents earn a commission on sales they make, and on sales made by other agents that they recruit. The selling method has received criticism from regulators around the globe in the past. However, it is a legitimate marketing tool.Multi Level Marketing works by having a sales team consisting of a few promoters at the top of the chain that begin to recruit a team, or 'down line' of agents to sell the company's products. The down line's first level will in turn seek new agents who will also be tought to recruit more. Some down lines can reach many levels of agents, those at the top earning progressively more as they take a percentage of all revenue derived from their down line.The system has been criticised because there can be a tendency for the sales team to focus more on recruiting than on selling. Some marketing programs insist on new recruits buying a batch of stock at the start, which straight away earns commissions all the way up the line. There are tales of hundreds of agents with garages full of stock supporting the wealthy lifestyles of the promoters.US giant Amway decided to use Network Marketing to market its business over half a century ago. Now it employs over 3 million independent sales agents all over the globe and with a turnover of more than $8 billion in 2008 it is a highly profitable and successful business. However, even Amway has not escaped the United States Federal Trade Commission's attention in the past, leading to changes and strengthening of the whole industry framework such that currently this form of selling is a widely acceptable method.As is often the case, Network Marketing still suffers from the bad image it developed years ago. The past criticism of being like a 'cult' or a 'pyramid' scheme still lingers. There is no doubt that in the past there was much unethical behaviour and people were recruited into the programs amid a frenzy of near evangelical discourse. However, some of the criticism is still valid. Although it is possible for a very few people to make large sums from Multi Level Marketing, there are many more who only make a pittance.A Government investigation into Amway's agents in the United Kingdom revealed that only 10 per cent were making a profit. Other studies have revealed that far less than this make any profit after the cost of building the business is taken into account. There is other research that has been carried out in the United States that shows the average income of Network Marketers to be around $3,000 to $4,000. This is nowhere near a living wage in 2009.Network Marketing is different to pyramid selling schemes. The latter are illegal in most countries including the United States and the United Kingdom. A Pyramid operation depends on a continual flow of new entrants being recruited into the scheme to fund the payouts to those nearer the top. In principle it is not much different from a Ponzi style fraud! In the past, some Network Marketing schemes insisted on large stock purchases upfront by all new recruits, which emulated the pyramid's style.Today, Multi Level Marketing can be a highly respectable and profitable business. Companies such as Amway and Kleeneze will provide a valuable extra income for many, and substantial earnings for a few networking professionals. It goes without saying that not all organizations offering Network Marketing programs will be equal, and it pays to do your due diligence on any new business opportunity before parting with your money.


Network Marketing and Pyramid Selling - Are They The Same?

By: Mark Jenner

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