Multilevel marketing (MLM), also frequently known as network marketing and matrix marketing, is a nontraditional, dynamic, and highly controversial approach to product distribution. Essentially, MLM is a process of selling goods or services through distributors. MLM plans typically promise that a person who signs on as a distributor will receive commissions both for that person's own sales of the company's products and for the sales made by additional people recruited by that person to become distributors for the company. Multilevel marketing plans typically promise to pay commissions through two or more levels of recruits, a system that is known as the distributor's "downline."
The most controversial aspect of MLM, according to critics of the practice, is that the functioning of an MLM play appears quite similar to that of a pyramid scheme. A Federal Trade Commission (FTC) ruling in 1979, however, held that the largest of the MLM companies, Amway, was not a pyramid. This ruling was based on the fact that Amway distributors do not receive commissions for each new person they recruit as a distributor, but rather, receive commissions on any sales subsequently made by those recruits. In this same ruling, however, the FTC found that Amway was guilty of illegal misrepresentation of income to recruits and of price fixing.
More than seven million persons in the United States work as MLM distributors (sales persons). Critics continue to cite the unethical character of MLM. MLM companies, such as Amway, are the targets of hundreds of lawsuits each year. Most of these suits are filed by disillusioned distributors; however, some are filed by customers.
Considering all that has been studied and written about MLMs since their inception in 1945, a reader at this point might wonder how another major study can be justified. This study into MLM practices is justified by reframing the problem. Prior studies of MLM have focused on ...