What is multi-level Marketing’
Multilevel marketing is a strategy that some direct sales companies use to encourage their existing distributors to recruit new distributors by paying the existing distributors a percentage of the sales of their recruits; recruits know how a distributor “at home”. All distributors also make money through direct sales of products to customers. Amway is an example of a well-known direct sales company that uses multilevel marketing.
Breaking down the ‘multilevel Marketing’
Multilevel marketing is a legitimate business strategy though it is controversial. One problem is that pyramid schemes, which use money from new recruits to pay the people at the very top, are often used by people pretending to run a legitimate multi-level marketing. The financial pyramid can sometimes be spotted by their greater focus on recruitment than on product sales.
The legitimacy of multilevel Marketing
The problem in determining the legitimacy of the multilevel marketing company is whether its products are sold mainly to consumers or to its members, which needs to recruit new members to buy their products. If it is the former, the company is a legitimate multi-level marketing. If it is the latter, then it may be a pyramid scheme which is illegal. The Federal Trade Commission (ftc) is investigating multi-level companies for several decades and found many that blur the lines between the two. According to industry data, there are 90 million members worldwide, but relatively few earn meaningful income from their efforts. Some of the observers who reflect the characteristics of a financial pyramid.
An example of multi-level marketing company
Example of a high profile multi-level marketing companies to defend their practices of Herbalife Ltd. manufacturer and distributor of weight loss and nutritional products with more than 500,000 distributors. Although the FTC was investigating Herbalife, it was investor activist William Ekman, who has shed a national spotlight on the company through the sale of $1 billion of the company’s shares in 2013. Ekman accused the company of operating a pyramid and supported his assertions with bets the share price will fall under the weight of a Scam.
In 2018, Ekman threw in his bet. As of may 27, 2016, the company’s share price is trading at $59 per share. Two years later, the stock is now worth slightly more than $100 per share.
A lawsuit filed against herbalife, accusing him of misinterpreting their trading practices as legitimate and were dismissed. Herbalife was able to show their income was based more on selling their products not through recruitment, and it offers numerous remedies, such as money back guarantee, so that the members do not have to be stuck with products they could not sell.