Is Network Marketing Another Name For Pyramid Selling?

Network Marketing and Multi Level Marketing both describe a selling method used by many companies as their marketing strategy. Turnover is achieved by using a great many self employed sales persons who can earn a commission on sales they make and from sales made by agents they recruit. The method has received criticism and attention in the past from authorities and regulators worldwide, but is nevertheless 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. This first level of down line will begin to recruit further agents and those in turn will also 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. Many Network Marketing programs involve an agent buying a batch of opening stock, which instantly sends commission earnings to the levels above. 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. Today it sponsors more than 3 million sales agents around the world and with an annual income exceeding $8 billion it is a very profitable and resourceful 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. Criticisms of some organisations being like 'cults' and operating no better than their illegal 'pyramid selling scheme' counterparts have lingered. 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. It is just that parts of the criticism are 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.

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