Multi-level marketing (MLM) - Marketing Management

Like many innovative marketing systems, MLM was developed in the USA and exported to other parts of the world. Some suspicion surrounds MLM as there is confusion with pyramid selling. This was an unethical business practice that is banned in the UK. It is also referred to as network marketing, structured marketing or multi-level direct selling, and has proved to be a successful and effective method of compensating direct sellers for marketing and distributing products and services direct to consumers. Unlike ‘pyramid selling’ MLM is an ethical business practice that uses the principle of ‘team building’ in terms of stimulating salespeople to aspire to better levels of performance to sell products. Direct salespersons are usually self-employed people working on a freelance basis for commission on sales. However, as salespersons are self employed there is an obvious inducement on their part to sell, and enthusiastic salespeople will obviously tempted to use ‘high pressure’ sales techniques to obtain the sales upon which their commission and income depends.

Salespersons normally start by selling goods and services to the public, often in the first instance, to people they know such as friends and work colleagues. They then move up the hierarchy to not only sell products themselves, but to recruit other direct sellers to sell as part of their own team.

They not only receive commission on the goods they sell themselves, but also earn ‘downstream’ commission on products the people they have recruited have sold. Eventually they may move from selling direct themselves, and concentrate on managing others in their team. As the team grows so does the ‘downstream’ commission that accrues to the original team organizer. Eventually the team leader may have a network of many direct selling staff at different levels in the hierarchy. Some will be content to sell some products direct on a part-time basis. Some may want to recruit a small team. Some may want to be senior team leaders and put in effort to lead a whole networking team of direct personal selling staff and reap the rewards of commissions based on the selling effort of their team, combined with their own motivational, leadership and managerial skills.

Principles of multi-level marketing (MLM) showing team originator receiving downstream