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IRJMSH

Vol 5 Issue 7 [Year 2014]

ISSN 2277 9809 (0nline)

23489359 (Print)

MULTI-LEVEL MARKETING: AN INSIGHT INTO NETWORK MARKETING


First Author: Ms. ANTRIKSHA NEGI
Designation: ASSISTANT PROFESSOR
Affiliation with full address, contact numbers & Pin Code:
INSTITUTE OF INFORMATION TECHNOLOGY AND MANAGEMENT
(ISO 9001-2008 CERTIFIED)
(Approved by AICTE, Ministry of HRD)
Affiliated to Guru Gobind Singh Indraprastha University, Delhi
D-29, Institutional Area, Janakpuri, New Delhi-110058.
Mailing Address: DA-12 C, HARI NAGAR, NEW DELHI -110064,
Email id: anti15390@gmail.com,

Second Author : Mr RAVINDER PANT


Designation: SENIOR ASSOCIATE
Affiliation with full address, contact numbers & Pin Code:
CVENT INC. (INDUSTRY LEADER IN EVENT MANAGEMENT SOFTWARE).
Mailing Address: Old No. C-18, New No. C-246, Street no. 4A,
WEST VINOD NAGAR DELHI, 110092.
Email id : ravinder7pant@gmail.com,

ABSTRACT
Direct selling industry in India is one of the fastest growing non-store retail formats.
Various store and non-store retail formats have evolved to cater to this growing market and
direct selling is one such non-store retail format. The growing Indian market has attracted a
large number of Indian and foreign direct selling companies. By 2014-15 direct selling business
in India would reach a size of Rs 10,843 crore on back of increased consumer spending. Multilevel marketing (MLM) also known as pyramid selling, network marketing, and referral
marketing is a marketing strategy in which the sales force is compensated not only for sales they
personally generate, but also for the sales of the other sales people that they recruit. This paper
attempts to focus on key aspects of MLM and also what further researcher can add on to the
existing literature.
KEYWORDS: Direct selling, Multi-level marketing, Network Marketing.
International Research Journal of Management Sociology & Humanity ( IRJMSH )
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IRJMSH

Vol 5 Issue 7 [Year 2014]

ISSN 2277 9809 (0nline)

23489359 (Print)

INTRODUCTION
Multi-level marketing (MLM) is a marketing strategy in which the sales force is
compensated not only for sales they personally generate, but also for the sales of the other sales
people that they recruit. This recruited sales force is referred to as the participant's "downline",
and can provide multiple levels of compensation. Other terms used for MLM include pyramid
selling, network marketing, and referral marketing. According to the US Federal Trade
Commission (FTC), some MLM plans get their benefit from exploiting other members of the
network, and they are illegal pyramid schemes. Most commonly, the sales people are expected to
sell products directly to consumers by means of relationship referrals and word of
mouth marketing. Some people use direct selling as a synonym for MLM, although MLM is only
one type of direct selling. Companies that use MLM models for compensation have been a
frequent subject of criticism and lawsuits. Criticism has focused on their similarity to
illegal pyramid schemes, cult-like behavior, price fixing of products, high initial entry costs (for
marketing kit and first products), emphasis on recruitment of others over actual sales,
encouraging if not requiring members to purchase and use the company's products, exploitation
of personal relationships as both sales and recruiting targets, complex and exaggerated
compensation schemes, the company and/or leading distributors making major money off
training events and materials, and cult-like techniques which some groups use to enhance their
members' enthusiasm and devotion.

HISTORY OF NETWORK MARKETING


The history of network marketing originates back to the 1940s where a company trading
under the name of California Vitamins discovered that they could make more sales when they
had a lot of sales representatives selling a small amount of product each, compared to the
traditional business model, of trying to have a few sales representatives selling a lot of products.
California Vitamins also discovered that most of their growing customer base was made up of
the friends and family of their existing sales representatives who had essentially referred them to
the company as they were impressed with their product line. New sales representatives were then
created from existing satisfied customers and a commission based system was developed. Both
teams and individuals were rewarded according to their sales efforts and as a result network

International Research Journal of Management Sociology & Humanity ( IRJMSH )


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IRJMSH

Vol 5 Issue 7 [Year 2014]

ISSN 2277 9809 (0nline)

23489359 (Print)

marketing was born. The same company later changed their trading name to Nutrilite Food
Supplement Corporation. In 1959 Richard DeVos and Jay Van Andel founded the company
Amway which was an abbreviation for the term - the American Way. Amway from day one was
based on the same network marketing concept. Almost 50 years later Amway is a well
established network marketing company operating in more than 80 countries around the world
and with more than 3 million business operators. Network marketing is basically just a different
way of selling products to the end user. In traditional business, products are made by the
manufacturer; they are then sold to a retail shop and then sold on again to the end user. Network
marketing is different as the product gets made by the manufacturer and then sent straight to the
end user cutting out the retail shops. The companies then use the money that would have been
spent on advertising on paying their customers for recommending the products. It is a much
cleaner way of doing business. The reason why network marketing is starting to explode is
because people are really starting to see that job security no longer exists and that the job market
is shrinking. Also world population is starting to explode. Network marketing is all about
building networks of people. As population explodes this is going to ideally suit this type of
business modal. Here is a visual of what is happening with population. This paper elaborates
various conceptual aspects related with network marketing by reviewing existing literature which
will further help the researchers in making study in various related fields.
MULTI LEVEL MARKETING: A VARIANT OF DIRECT SELLING
Direct Selling industry in India is one of the fastest growing non-store retail formats.
Recording a double-digit growth in the post-reform period, it offers self-employment
opportunities to a large number of people in the country. However, there is a lack of precision on
the legislations governing this vital sector. With economic development and growing
consumerism, the retail sector in India underwent significant changes. Various store and nonstore retail formats have evolved to cater to this growing market and direct selling is one such
non-store retail format. Direct selling refers to the selling of goods and services to the consumers
away from a fixed retail outlet, generally in their homes, workplace, etc through explanation and
demonstration of the product by direct sellers. With direct selling, distributors sell and encourage
their buyers to join the network to avail oneself of a commission based on the worth of a product
sold. The resultant cash flow enables an individual to break away from traditional incomeInternational Research Journal of Management Sociology & Humanity ( IRJMSH )
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IRJMSH

Vol 5 Issue 7 [Year 2014]

ISSN 2277 9809 (0nline)

23489359 (Print)

earning methods. Direct Selling has broadened its scope to not just cosmetics but also highquality-low-cost products like spices, stationery, sanitary napkins, garments, agricultural
additives, aphrodisiacs, weight loss supplements, home care etc. Globally, direct selling is a
labor intensive industry and has a positive socio-economic impact in terms of higher
employment, women empowerment and skill development.
GROWTH OF MLM IN INDIA
The growing Indian market has attracted a large number of Indian and foreign direct
selling companies. While direct selling is a relatively new industry in India, yet in just 16 years,
it has provided additional opportunity and livelihoods to over 4 million Indian households and
has crossed the revenue of Rs 5000 crores. Taxes to exchequer on account of direct selling
industry are in excess of Rs 600 crores. By 2014-15 direct selling business in India would reach a
size of Rs 10,843 crore on back of increased consumer spending. Direct selling also offers selfemployment opportunities to a large number of people, especially women in India. The number
of direct sellers in India has almost doubled between 2004 and 2009. In terms of the number of
direct sellers, India ranked 11th among the top direct selling countries in 2009-10. In future, this
sector is expected to offer employment opportunities not only in urban areas but also in rural
areas. The direct selling industry not only offers an alternative employment opportunity but has
also contributed in terms of increased incomes for those who have entered the industry as direct
sellers. However, since last 15 years there has been a lack of clarity on the legislations governing
this vital sector. An Inter Ministerial Committee was setup under the aegis of Ministry of
Consumer Affairs to understand and formulate the requisite legislation governing the direct
selling industry. Among other things, the committee is considering to enactment of legislation to
regulate the direct selling / multi-level marketing companies; formulate guidelines for these
companies; and promote and to some extent adopt International best practices to protect
consumers. FICCI FMCG divisions sub-group on direct selling aims to address the concerns &
issues regarding the direct selling industry. As per the sub-group, some of the parameters
identified governing the direct selling businesses are:

Company engaged in direct selling business must be registered under Companies Act;
These companies should have all necessary licenses and authorization;

International Research Journal of Management Sociology & Humanity ( IRJMSH )


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IRJMSH

Vol 5 Issue 7 [Year 2014]

ISSN 2277 9809 (0nline)

23489359 (Print)

Payments must tied directly to product sales;


Under direct selling new recruits must have the ability to move up in the sales system;
Companies must repurchase any unsold inventory; and
Customer should be given opportunity to return the product etc.

MLM AS A SUCCESSFUL BUSINESS MODEL


MLM is a business model in which a distributor network is needed to build the business.
Network marketing is a type of business opportunity that is very popular with people looking for
part-time, flexible businesses. Some of the best-known companies in America, including Mary
Kay Cosmetics, Tupperware, AdvoCare, Agel Enterprises, Ambit Energy, Amway, Amway
Global, previously known as Quixtar, Avon Products, Nu Skin Enterprises, Oriflame, Telecom
Plus etc. fall under the network marketing umbrella. Network marketing programs feature a low
upfront investment; usually only a few hundred dollars for the purchase of a product sample kit-and the opportunity to sell a product line directly to friend, family and other personal contacts.
Multilevel marketing (also called network marketing) is a form of direct sales in which
independent distributors sell products, usually in their customers' home or by telephone. In
theory, distributors can make money not only from their own sales but also from those of the
people they recruit.

LITERATURE REVIEW
Elina Oksanen (2000) provided a framework for examining organizational roles of the sales
people in network marketing context. Main purpose of the study was to understand and explain
sales people role behavior in a novel business context and to gain practitioners insights into
network marketing practices. The study presented a framework by empirically examining sales
people role behavior in the network marketing (NM) context. Research was conducted using
diverse empirical data (using both qualitative and quantitative methods) and previous studies
interactively along with the structured interviews. Study proposed a broad distributor role
categorization (or typology of distributor roles) based on researchers pre-knowledge of the
industry, written documents (handbooks, promotional material, and distributor contracts)
collected from several network marketing organizations operating in Finland, and eight expert
interviews conducted in autumn 1999. Network marketing companies explicitly offer several
International Research Journal of Management Sociology & Humanity ( IRJMSH )
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IRJMSH

Vol 5 Issue 7 [Year 2014]

ISSN 2277 9809 (0nline)

23489359 (Print)

organizational role opportunities for their distributors. These roles can be classified in term of
behaviors and intensity. Behaviors refer to product usage, direct selling and networking tasks,
which distributors may perform in the sales organization. Intensity, then, refers to the extent of
effort and importance distributors tap on their roles. Dai Fu (2012) in his thesis a model of
network marketing business entrepreneurial performance focused on investigating the
factors that determine immigrant network marketers performance in conducting their network
marketing business. The research integrated the literature on social cognitive theory, theory of
planned behavior, immigrant entrepreneurship and Network Marketing Organization (NMO)
studies, to develop a path model. Researcher tried to find out an answer to the core question what
factors determine immigrant network marketers performance in conducting their network
marketing business? The results obtained from examining the reflective constructs (desire for
opportunity and self-efficacy) showed that the measures for the desire for opportunity and selfefficacy were reliable and valid. With respect to the practical significance of this study, network
marketing firms can gain potential benefits in knowing the results of this study. The research also
found three characteristics of influence relative to the social environment in NMOs namely;
cohesion; social influence; and training. Future research may be considered by adding and
examining, moderating or mediating factors, such as interpersonal skills to extend the current
model, because interpersonal conflict is an essential, ubiquitous part of organizational life.

Hill Shawndra, Provost Foster and Volinsky Chris (2006) contributed towards finding
likely adopters through consumer networks. They surveyed the diverse literature on such
marketing with an emphasis on the statistical methods used and the data to which these methods
have been applied. Their paper made two contributions. First they surveyed the burgeoning
methodological research literature on network-based marketing, in particular on statistical
analyses for network-based marketing. Secondly they provided empirical support that network
based marketing indeed can improve on traditional marketing techniques. Econometric models
along with the network marketing models were used to draw the research structure. Since the
purpose of models built from survey data was description, simple statistical methods like logistic
regression or analysis of variance (ANOVA) was used. Their survey highlights the gap in the
literature. Because of inadequate data, prior studies have not been able to provide direct,
statistical support for the hypothesis that network linkage can directly affect product/service
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IRJMSH

Vol 5 Issue 7 [Year 2014]

ISSN 2277 9809 (0nline)

23489359 (Print)

adoption. Using a new data set that represents the adoption of a new telecommunications service,
they showed very strong support for the hypothesis. Specifically, three main results were shown:
-

Network neighborsthose consumers linked to a prior customeradopt the

service at a rate 35 times greater than baseline groups selected by the best practices of
the firms marketing team. In addition, analyzing the network allows the firm to acquire
new customers who otherwise would have fallen through the cracks, because they would
not have been identified based on traditional attributes.
-

Statistical models, built with a very large amount of geographic, demographic and

prior purchase data, are significantly and substantially improved by including network
information.
-

More detailed network information allows the ranking of the network neighbors

so as to permit the selection of small sets of individuals with very high probabilities of
adoption.
Tamang Bahadur Naina (2008) conducted a research entitled Role of Network Marketing
in Non Timber Forest Products (NTFPs) Promotion in selected companies and in its working
area in 7 major cities viz. Surkhet, Nepalgunj, Butwal, Pokhara, Kathmandu, Chitwan and
Hetauda from where the raw and extracts of Non Timber Forest Products (hereafter NTFPs)
purchased by EMI Herbal Udhyog (Industry), with an endeavor to assess the role of Network
Marketing in the promotion of NTFPs. Both primary and secondary data were collected from
questionnaire survey, interviews, group discussion, direct field visit and observation, and other
relevant literatures were processed, analyzed and tabulated by using simple statistical tools and
presented with the help of pie charts, bar-diagrams etc. can be concluded that network marketing
is taking lead in the promotion of NTFPs by exploring markets, cultivation, and quality upgrade
by processing. It was recommended that existing policy should be revised and network
marketing policy should be brought, provide trainings, awareness program, technical and
financial assistance for the proper management and cultivation of potential NTFPs. Network of
concerned stakeholder (public, private) is needed for promotion of NTFPs in local, national and
international level. The paper recommended technical and financial assistance should be given to
those farmers who want to cultivate NTFPs in their private land; professional competency of the
Farmer should be developed and enhanced, existing policy related to marketing should be
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IRJMSH

Vol 5 Issue 7 [Year 2014]

ISSN 2277 9809 (0nline)

23489359 (Print)

reviewed and the policy about network marketing should be brought in effect. Constantin
Cristinel (2009) aimed to analyze the opportunity of using multi-level marketing (MLM) as a
tool of relationship marketing. The need to adopt relationship marketing came as a result of
diversification in customers requirements, the companies being forced to establish strong
relationships with their customers, to maintain them and to create a basis of mutual cooperation
in the long term. The research was based; on an analysis regarding the issues about the legality of
MLM techniques in the context of EU and US regulation systems and on a case study at the level
of an insurance broker, which emphasized the benefits that all parties involved in a transaction
(broker, distributor and customer) could obtain by using an MLM scheme. The outcomes of this
research stressed the main characteristics of legal network marketing and how a person which
wants to become independent distributor could avoid the cooperation with an illegal pyramid
scheme. In conclusion, beyond the issues regarding the legality of MLM networks, both at the
level of the USA and the EU it is recognized that those plans managed according to business
ethics and respect regarding customers and members of the distribution network could be
considered correct and legal commercial practices.

CONCLUSION
Network Marketing, also known as Multi-Level Marketing (MLM), is a legitimate
business model that uses direct selling and relationship referrals as a method of selling a
companys products or services. In typical networking model, individual associates (often
referred to as distributors) essentially contract or act like a franchisee to the parent company and
are paid a commission based on the volume of product or services that are sold as a result of their
own organization's efforts. Although the history of network marketing dates back to the 1940s,
it is only now that the industry has come of age. Network marketing has now grown to the point
where it is creating more millionaires today than the dot com boom industry did before the
bubble burst. Instead of using the traditional method of manufacturing and delivering their
products, network marketing companies choose to bypass the middleman, selling direct to the
customer. They use referrals and a word-of-mouth approach to develop their customer base as
opposed to a large advertising budget and as such the money that would normally go to the
middleman and advertising can now be used to reward business operators (distributors) a

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Vol 5 Issue 7 [Year 2014]

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23489359 (Print)

commission for helping the company to make a sale. In order to have a successful model of
network marketing business below mentioned qualities are needed:

i)

Constant Improvement: By studying any successful network marketer it was


discovered that they are always trying to get better every single day. Their goal
is to be a little bit better today than they were yesterday. They know that small,
daily, incremental improvements add upto mega-improvements over a period
of months and years.

ii)

Mastermind : Successful network marketers have a group of mentors. They


know what Napoleon Hill was talking about when he taught the importance of
having a master mind team. Successful network marketers find someone
successful in their up line to teach them and help them. They also have mentors
outside of the industry that teach them about sales, marketing, entrepreneurship,
business planning, business financials and more.

iii)

All round acceptance : In MLM marketers must be open to new and innovative
ideas for better and improved ways to make MLM business more successful and
take it to the next level.

iv)

Strong Communication Skills: Successful network marketers have strong


communication skills. They understand the importance of effective verbal, nonverbal and written communication. They know how to articulate their message
to their prospects and team members and they are good at reading other
peoples body language. Successful network marketers are good at public
speaking at have no problem telling someone what they are thinking. They are
to the point, brief, and well spoken. They are polite with others, but arent
afraid to share what they are thinking.

v)

Specialized knowledge: MLM business owners must attain specialization by way


of attending workshops, reading books, etc in recruitment, targeting, motivating
sales persons for greater sales prospects.

REFERENCES / BIBLIOGRAPHY:
International Research Journal of Management Sociology & Humanity ( IRJMSH )
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IRJMSH

Vol 5 Issue 7 [Year 2014]

ISSN 2277 9809 (0nline)

23489359 (Print)

Tamang Bahadur Naina(2008). Role of Network Marketing In Non Timber Forest Products (NTFPs)
Promotion (A Case Study of Easy Multitrade International (P) Ltd, Nepal), A Project Paper Submitted for
Partial Fulfillment of the Requirements of Bachelor of Science in Forestry Researcher Tribhuvan

University Institute of Forestry, Hetauda Campus Hetauda, Nepal September, 2008


Dai Fu (2012). A Model of Network Marketing Business Entrepreneurial Performance, A thesis
Submitted to School of Management The University of Technology, Sydney in partial fulfillment of the

requirements for the degree of Doctor of Philosophy


Hill Shawndra, Provost Foster and VolinskyChris (2006). Network-Based Marketing: Identifying
Likely Adopters via Consumer Networks , Statistical Science, Vol. 21, No. 2, 256276 , DOI:

10.1214/088342306000000222
Constantin Cristinel (2009). Multi-Level Marketing - A Tool of Relationship Marketing, Bulletin of the
Transilvania University of Brasov, Vol. 2 (51), Series V: Economic Sciences, Pp. 31 36
https://www.google.co.in/?gfe_rd=cr&ei=h9C7U4C2FeeL8QfomoHgAQ&gws_rd=ssl#q=literature%

20review%20on%20multi%20level%20marketing

Retrieved online : http://impgroup.org/uploads/papers/103.pdf

Elina Oksanen (2000). Organizational Roles of Sales People In The Network Marketing Context,

http://en.wikipedia.org/wiki/Multi-level_marketing
http://blog.ficci.com/direct-selling-india/2891/
http://onlinemlmcommunity.com/top-21-qualities-of-successful-network-marketers-and-mlm-distributors/

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