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Empowerment & Opportunity for Direct Sales Professionals

Multi-Level Marketing

Introduction

Multilevel marketing, also known as "network marketing," relationship marketing” and "multilevel direct selling," is an important component of the Direct Selling industry. It has proven over many years to be a highly successful and effective method of compensation of the direct selling firms for distributing products and services directly to consumers, which compensates independent salespersons or distributors. The purpose of this paper is to explain and describe multilevel marketing, and the benefits it provides.

Founded in 1978, the WFDSA is a non-governmental, voluntary organization representing the direct selling industry globally as a federation of national Direct Selling Associations (DSA's). There are presently over 56 national DSAs represented in its membership, and in 2007 it is estimated that worldwide retail sales by its members accounted for more than US$105 Billion through the activities of more than 61 million independent sales represenatives.

The World Federation and its national DSA's have always understood the necessity for ethical conduct in the marketplace and as such the WFDSA has developed the World Codes of Conduct for Direct Selling, which all national DSA's have approved and implemented in their national codes. All member firms including those which may be described as multilevel or network marketing companies, agree to be bound by these codes as a condition of membership in a national DSA.

Direct Selling and “Multilevel Marketing”

Direct selling can best be described as the marketing of products and services directly to consumers in a face to face manner, generally in their homes or the homes of others, at their workplace and other places away from permanent retail locations, usually through explanation or personal demonstration by an independent direct salesperson.

“Multilevel marketing” is not truly marketing at all, instead it is simply one of a variety of methods of organizing and compensating salespeople in a direct selling business for their management, training, motivating and recruiting persons who will sell their companies’ products. Therefore, it may best be described as a direct selling compensation plan in which salespeople may receive compensation in two fundamental ways. First salespeople may earn compensation from their personal sales of goods and services to consumers. Second, they may earn compensation from the sales of those persons they have personally recruited or sponsored into the plan; and they may also earn compensation from the sales of the group or network recruited or sponsored into the plan by those they have personally recruited. Thus, multilevel marketing offers a direct seller the opportunity to build one's own independent business selling goods and services to consumers and developing and training an organization or network of direct sellers to do the same.

Direct selling through multilevel compensation brings significant substantive benefits to the marketplace. It affords opportunities to countless individuals who might be ignored or under-utilized in the employment market. It is a fairly simple and inexpensive way for individuals to learn basic business and management skills. It offers practically any individual a flexible schedule and means to supplement one's income. Additionally, it allows businesses with unique or innovative products or services to bring them to the market without the enormous expense of mass media advertising, and without having to compete for shelf space in retail stores. It is a popular method of retail distribution that has a vibrant presence in virtually every region of the world.

It is important to remember that compensation in a legitimate direct selling company which utilizes multilevel compensation is derived primarily from sales of goods and services to ultimate consumers and user and not from the mere act of recruiting. Ultimate consumers include those salespersons who purchase products for their personal or family use at a fair price and consume these products in a timely manner.

Unfortunately, some potentially fraudulent schemes will claim to offer a multilevel marketing opportunity, but in fact are simply recruiting schemes in which people must make substantial investments in order to participate.

There are certain features common to legitimate multilevel direct selling companies which are easily identifiable:

  1. The startup cost to participate in a multilevel direct selling company is generally very low. Usually, the only purchase required is for training materials, sales aids or a demonstration kit. Often companies offer such startup materials on a not-for-profit basis. These materials can be returned for the net cost to the distributor, when that distributor resigns from the sales organization.
  2. Multilevel direct selling companies strongly discourage overstocking of inventory and provide participants leaving the plan with an opportunity to return any unused, salable merchandise to the company for a refund of the salesperson's net cost.*
  3. The focus of multilevel direct selling companies is the sale of products to consumers. These companies are known and respected for the quality of their products the companies support their products with a satisfaction guarantee or right of cancellation which allows dissatisfied consumers to return the product for a commercially appropriate refund or credit.
  4. Multilevel direct selling companies avoid exaggerated earnings claims for salespersons participating in the plan. Any representations that are made with respect to the earnings opportunity should be based solely on documented facts.

* The percentage of refund is up to each national DSA to establish. Generally, it runs from 80% to 100% and covers products and sales aids purchased by the salespeople within the last three months to one year.

WFDSA Position

As evidenced by the WFDSA World Codes of Conduct, the WFDSA supports the ethical practices described above by mandating these practices in the WFDSA Codes. WFDSA believes that a legal and regulatory environment that allows small enterprises to grow is essential for bringing the benefits of all types of direct selling, including multilevel marketing, to individuals and to the marketplace.

The WFDSA strongly endorses legislation, consistent with the World Codes of Conduct, that clearly makes the distinction between legitimate multilevel direct selling opportunities and fraudulent schemes that attempt to masquerade as multilevel direct selling companies.

The WFDSA will support legislation which effectively prohibits inherently fraudulent pyramid schemes, chain sales schemes, and other such fraudulent schemes, while defining these schemes in a manner which allows law enforcement officials to properly distinguish them from legitimate multilevel direct selling opportunities. *

* Fraudulent schemes are sometimes called “Ponzi Schemes”, “Chain Letter Schemes”, “Referral Sales Schemes” and the like.