INTRODUCTION. Network marketing originated from direct selling. It came to be recognized in the 1930s and early 1940s. After this period, there came a time when emerging companies hit the market though the early companies included Wachters Organic Sea Products, Fuller Brush and Stanley Home products to name but a few.


a) Direct Selling: sale of a computer product or service in a face to face manner away from a fixed retail location in the home or the office. b) Multilevel marketing: is a legal system of merchandising products through multiple levels of distribution. These distributors purchase at wholesale and act as the middlemen between manufacturer and consumer who pay retail.

Similarities Of Network Marketing And Direct Selling

1) They both use the face to face interpersonal communication process in transmitting ideas from person to person. 2) They both transmit information and demonstrate ideas about product services 3) Both operate from a fixed retail location. 4) Typically operate in an office or home.

Differences in Network marketing and direct selling

1) Direct selling focuses on closing the sale and getting the order while network marketing focuses on information sharing and creating a rapport with the buyer over time. 2) The network marketer is an independent contractor while the direct seller is not. 3) Network marketing offers a distributor a chance of growing his own industry while getting payment from the group he has helped develop. 4) In direct selling, commission is paid on individual sales transactions while in network marketing, every time a consumer you introduced makes a purchase, you get a commission. 5) The network marketing has different compensation formulas called the Market Plan. It is advisable to study an organizations market plan before you settle in it.


Network marketing took roots in early 80’s as companies began managing the stocking and distribution of products as well as commission payments to their members. Such companies operated legitmately in the United State in all 50 states and in more than 100 other countries. Its also believed that MLM companies had taken roots in 1975 when the United State Federation Trade Commission (FTC) accused Amway corporation of being illegal pyramid. However in 1979, a US Federation Judge determined that the networking marketing plan used by Amway was indeed a legitimate business model. Countries like Canada have network marketing regulations and companies contravening the regulations, its directors are imprisoned up to 5 years. In Kenya there are no similar regulations thus making the country vulnerable to fraudsters masquerading as network marketer. This calls for prudent to exercise maxmum caution. Some of well known network marketing companies worldwide include Amway corporation,Shaklee, Mary Kay, Tupperware , Avon , Tianshi wordwide , GoldBiz ltd ,Amega Global and Uganda GoldBiz among others.

The difference between network marketing and a pyramid scheme

To start with we will review the similarities and then work to distinguish the two. Generally, the initial concern for people when introduced to a network marketing opportunity is when they see the compensation plan which resembles a pyramid in shape. Instantly they fear the worst as they draw a resemblance to illegal pyramid schemes. The truth is that this pyramid structure is the same as every other sustainable business model across the world. This is best highlighted in the diagram below (figure 1.)

Pyramid Scheme A pyramid scheme can be defined as a fraudulent money-making scheme that is based on a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme without a legitimate product or service being

delivered. Eventually the number of new recruits fails to sustain the payment structure and the scheme collapses with most people losing the money they paid in. In a more practical sense, probably the easiest way to identify pyramid schemes is • there is no legitimate product or service involved (ie you do not get a legitimate product in return for your initial investment). • You do not get a financial return unless you have successfully introduced a number of new recruits into the pyramid. Basically, pyramid schemes is a non-sustainable business model that involves promising participants payment primarily for enrolling other people into the scheme, rather than from any real investment or sale of products or services to the public A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula which is used for profit. The essential idea is that a "con artist" Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the "business" expands. However, sometimes the "payment" itself may be a non-cash valuable. To enhance credibility, most such scams are well equipped with fake referrals, testimonials, and information. Only the originator (sometimes called the "pharaoh") and a very few at the top levels of the pyramid make significant amounts of money. Individuals at the bottom

of the pyramid (those who subscribed to the plan, but were not able to recruit any followers themselves) end up with a deficit.

Ponzi scheme A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going. The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, a Ponzi scheme deludes both individual and institutional investors as well as securities authorities for long periods: The scheme is named for Charles Ponzi,[1] who became notorious for using the technique in early 1920. He had emigrated from Italy to the United States in 1903. His operation took in so much money that it was the first to become known throughout the United

States. His original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted investors' money to support payments to earlier investors and Ponzi's personal wealth. Knowingly entering a Ponzi scheme, even at the last round of the scheme, can be rational economically if there is a reasonable expectation that government or other deep pockets will bail out those participating in the Ponzi scheme.[2]

Network Marketing The concept behind MLM, also known as Network Marketing is a distribution model that allows a company to sell their products directly to the consumer. Choosing to use a word of mouth approach (networking) instead of advertising through traditional streams (eg media). Therefore instead of paying the media for advertising, network marketing companies are structured to reward distributors through commission in return for selling their products and finding new customers. The way it basically works is this: a company sells products or services via a network of independent distributors who buy at wholesale prices from them, and then sell at retail prices. The distributor usually pays some sort of joining fee or has to buy X products to gain distributorship status. It sounds very much like a normal business. The company also urges distributors to bring in other people to act in the same capacity. The referring distributor then also earns commissions on the products that the referred distributor sells. If the distributor they referred also brings in other distributors, the

original distributor also receives commissions on those sales - and so on. This is the "Multi Level" component. I've seen some matrixes go to 15 levels (or tiers) deep. Although distributors can choose to sell the company’s products to earn their commissions, not everybody wants to be a sales person and therefore choose to recruit more distributors into their organisation as a means to build their referral base. Not only does this create a group of loyal customers, it also allows you to leverage the efforts of others to create a residual stream of income. The recruiting element of a network marketing business is merely a way of distributing more products and helping to build a leveraged income. Most products and services sold via MLM or network marketing aren't available in bricks and mortar stores, the whole model is built around independent distributors working via their network of family, friends and acquaintances. A whole social and business culture is built around the program with conferences, conventions and training products available at a price.

Limitations Of Network Marketing - The products, while of good quality could be obtained elsewhere under different brands at a substantially lower price. - The market is saturated with distributors, so only those who go in early really stand to generate much in terms of revenue.

- The distributor sponsor are usually more interested in getting one to purchase "how to sell" tapes and attending expensive conferences than he was in the actual products. - The people who go for the conferences get very hyped up; it was almost a religious fervor. Even with that level of motivation, it might seem to be way to get rich quickly but it requires dedication. Criticism of network marketing industry include; their similarity to illegal pyramid schemes; price-fixing of products; high initial start-up costs; emphasis on recruitment of lower-tiered salespeople over actual sales; encouraging if not requiring salespeople to purchase and use the company's products; potential exploitation of personal relationships which are used as new sales and recruiting targets; complex and sometimes exaggerated compensation schemes; and cult-like techniques which some groups use to enhance their members' enthusiasm and devotion. Not all MLM companies operate the same way, and MLM groups have persistently denied that their techniques are anything but legitimate business practices. Legality and Legitimacy According to the United States Federal Trade Commission (FTC) states: "Not all multilevel marketing plans are legitimate. Some are pyramid schemes. It's best not to get involved in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products."[28] and states that research is your best tool, giving eight steps to follow:

• • • • • •

1) Find — and study — the company’s track record 2) Learn about the product 3) Ask questions 4) Understand any restrictions 5) Talk to other distributors (beware of shills) 6) Consider using a friend or adviser as a neutral sounding board or for a gut check

• •

7) Take your time 8) Think about whether this plan suits your talents and goals[28]

MLM businesses operate in the United States in all 50 states and in more than 100 other countries, and new businesses may use terms like "affiliate marketing" or "home-based business franchising". However, many pyramid schemes try to present themselves as legitimate MLM businesses.

Because pyramiding (getting commissions from recruiting new members including "signup fees") is illegal in most states,[ to remain legitimate in the U.S. a company that uses multi-level marketing has to make sure commissions are earned only on sales of the company's products or services if they cross state boundaries. If participants are paid primarily from money received from new recruits, or if they are required to buy more

product than they are likely to sell, then the company may be a pyramid scheme, which is illegal in most countries.

The Federal Trade Commission of the United States of America cannot tell you whether a particular multilevel marketing plan is legal. Nor can it give you advice about whether to join such a plan. You must make that decision yourself. However, the FTC suggests that you use common sense in your decision making. THE MULTI-LEVEL MARKETING ASSOCIATION Founded and managed since 1985 by highly experienced and successful Networkers, THE MULTI-LEVEL MARKETING ASSOCIATION focuses its efforts specifically on the protection, support and promotion of the individual opportunites and entrepreneurial aspects of the Network Marketing - MultiLevel Marketing - Direct Sales industry. From ongoing networking opportunities to high-powered government affairs committees, MLMIA insures that its Members are represented by skilled, well connected professionals in the Network Marketing industry.

MLMIA has an active International Board of Directors comprised of a balanced crosssection of Corporate, Support and Distributor members from around the world whose collaboration guarantees all functions of the Network Marketing mix are represented and supported. In addition, associations established in the United States, Canada, England, Malaysia, Hong Kong, Japan, Singapore, Spain, and Australia may have their own boards and are a part of MLMIA's continued international expansion efforts.

A WEALTH OF KNOWLEDGE MLMIA has been and continues to be a major force in defining the Network Marketing industry its ethics, legalities and opportunities. Over the years, MLMIA has developed, facilitated and nurtured strong relationships between the industry and outside influences that affect its operations, including regulatory agencies, educators, the press and the general public. MLMIA is recognized as the leading source of unbiased Network Marketing industry data and information.

The multi-level marketing association, mlmia, is a non-profit professional trade organization uniquely representing all sectors of the network marketing industry on a worldwide basis. although the association recognizes all ethical companies and people in the industry, it strongly supports its members. however, neither the staff nor the board will endorse any individual, supplier or network marketing company.

MLMIA MISSION IS: To increase the credibility of the Industry through education To improve the professionalism of our Members by establishing and enforcing industry ethics and standards To make education an ongoing priority

We also offer a temporary Membership for those in a beginning or exploratory phase of

starting a MLM company that can be applied toward permanent membership when their first Distributors begin selling or sponsoring.

One of our goals is to provide a diversity of membership benefits and services. Updated information is available throughout this Web site or by getting in touch with us through the Contact Us button above or, if all else fails, try the old fashioned way and call us during our business hours. We're here to serve our members! For non-members, there is a slight fee for all services not supplied by this site or by email.

Identifying a Legal multi level marketing opportunity Gather as much information as possible before making any commitment. The easiest and most convenient source to locating legal industry multi level marketing is the Internet. Using a major search engine or information website, a person can look closely at the company's website to discern their intent, or call for more information

Asking around to see if people know someone who is a MLM distributor can be a helpful place to start searching as well. They may be able to recommend a good company. However, watch out for recruiters.

The company’s products or services and their uniqueness.

That is, they're not readily available elsewhere (especially at a discount) and they're not just another "me too" product that has loads of competition. Try out the products or recruit a friend or relative to try out the product or service people should watch out for miracle products that promise instant results when it comes to dieting, acne treatment

Once the person is confident that the product or service is what the company claims, they then can dig deeper to be sure it's not a pyramid scheme.

Get familiar with the MLM business and their practices

Take the time to understand the federal regulations and consumer rights as well Make sure that there are no complaints against the company If something sounds too good to be true, it most likely is. Avoid companies that pay for recruiting distributors. These companies are usually pyramid schemes and collapse when no more distributors can be recruited. People should stay away from those that require salespeople to purchase a large amount of inventory to get started.

Comfort to meet the expectations of the company Part of the job with legal industry multi level marketing companies will involve working with others one-on-one, as well as having to push a product or service in various settings. Therefore, marketers need to keep in mind that there will be some pressure both from the company to meet the minimum sales requirements and make commission. Take time reading over the proposed contract. Never sign on the dotted line under pressure. Insist on more time to make the decision about becoming involved as a distributor for a legal network marketing opportunity. If you can, talk to other MLM distributors and ask them about what to expect in the work. Who is your upline? Take it all the way to the top. What do you know about the person who introduced you to the opportunity? Can you trust what they tell you? Are they willing to divulge exactly how much they've been making? And what about the founders of the company (assuming it's a newer company)? Have they been successful and reputable in their previous businesses? Investigate your entire upline just like you would a business partner you'd never met before.

The recruitment Criteria

Were you recruited primarily as a customer, with just a mention of "income opportunity", or was the primary pitch about the business opportunity? The ethical way to build a downline is to sign people up as customers first, and then if they like the product,

they'll be drawn to become a rep. A hard-sell on signing up as a rep right at the outset should send up a red flag for you.

Has the company been around for at least 5 years?

If you want the efforts you put in today to pay off for many years in the future, choose a company that has proven that it will be around for the long term. 90% of all network marketing companies FAIL within their first 2 years. You don't want to invest your precious time and resources (not to mention your future) in something that may not be in business next month, do you?

The Company’s ability to pay.

In other words, does it have the cash that it will need to grow, to maintain a solid infrastructure, to attract talented management, to keep pace with technology — and, of course, to pay your commissions! (I prefer publicly traded companies because they're required to disclose their financial condition in DETAIL every 90 days to the SEC and other governmental agencies. You may not be able to obtain this information on a private company, so you'll be taking a risk on its financial condition.)

Genuine need for the product or service

You've probably heard horror stories about people ending up with a garage full of expensive water filters - the reason that happens is because only other distributors will

purchase the product at that price! Your product or service must fill a REAL need at a fair price - and there should be a large untapped market for it. In other words, it MUST provide tremendous value, so the customer is the biggest winner.

Is the product or service trendy or a fad?

You can't build long term residual income (i.e., your retirement!) if the product or service only has short term appeal (e.g., beany babies, etc.). Think long term instead. Is the product or service something that your customers will continue to use for a long time?

The marketing system embrace of technology.

Not everyone is a sales type, but ANYBODY can plug into a system and tools that do the selling and sorting for you!

Is there a way to build your business part-time without losing your full time income?

The company must have automated systems that can do the heavy lifting (i.e., selling and sorting) for you so that you can use your limited time efficiently.

Will you have FUN?

Although this may not be an element of your current JOB, we think it's important! You should have a lot of fun with your business partners while you work together to

build a long term business and your financial army. This is perhaps the most important question of all. If you're doing it because you think it's going to help you out of a cash crunch, forget it. If you're doing it because you think you're going to be rich in a year, well, it's fine to have a vision, but don't bank on it. On the other hand, if you really believe in the product, that gives you the best likelihood of success with it.

As soon as you have made your choice, concentrate on your method of lead generating. Have fewer quality downlines instead of trying to sell to everyone your MLM company. Avoid placing all your recruits in your first level. It is better to have only 3-5 quality first level downlines than 500 with no zero people in each leg. What Can We Learn from Network Marketing? By: David TetenMarch 7, 2005

Build a relationship first

"Internet marketers and network marketers share a common, terminal disease," Fogg says. "If you think of the whole process like dating, we bring someone to our Web site, and then we ask them to have sex immediately. There has to be some courtship first." One of the delicate aspects of network marketing is that people leverage their personal relationships to sell a product. Although that leverage makes some people queasy, the success of the network marketing model shows that many people do comfortably build

multiplex relationships: Their friends are their customers, and vice versa. With delicacy, you can do the same thing. • Not everyone is a prospect

One mistake some network marketers make, as do many other sales people and marketers, is thinking of everyone they meet as a prospect. In network marketing, this is known as the "Three-Foot Rule", i.e., anyone within three feet of you is a prospect. But top network marketers don't do this. Max Steingart, creator of the "Success Online" training course for network marketers, says that it's not just about figuring out when to make your pitch, but even if to make your pitch. "You just build relationships with a lot of people. Some will become prospects and some won't," he says. "There's no timetable. If the time is right, you'll know." • Use online networks

The network marketing industry is a particularly good industry for leveraging online networks. Steingart teaches people how to "make the world your warm market," specifically by using online networks. He reports that when he instant-messages someone to start a conversation about potentially joining his distribution network, 50% of the people he contacts will respond to the conversation. More and more sales and marketing professionals will use online networks to accelerate their sales.


At any given time there are several emerging business trends in society. In particular, if we were to single out one of the driving forces behind many of the economic trends over the past 60 years it would have to be that of the baby boomers. Since the time they were born they contributed to the rapid increase in sales of baby food and nappies back in the 50s, schools and education in 60s, car sales in the 70s, the real estate boom in the 80s and the fast food chains and mega supermarkets in the 90s. Leading economic forecasters have used these trends to predict where the baby boomers will spend their money next and in particular were able to forecast the current emerging business trends in the Health and Wellness and Financial Services industries. A new wave of entrepreneurs coupled with advances in technology has lead to a changing business environment. For example, the telephone has been a primary source of communication for over a century, but utilising our telephones to trade stocks, to send and receive photos and to surf the internet, is a new business trend that is a result of synergistic technologies. Although the elements of these trends have been around for years, the trends themselves emerge when the timing is right and when several factors come together. The health and wellness industry for example, has been with us for centuries, but it took the convergence of the aging baby boomers, with advancements in medical science, to create the critical mass of this emerging trend. Modern day consumers want speed, variety, quality, customerisation (tailored to the customer’s needs) and choice. As the products that we consume become more sophisticated and complex, consumers are demanding a quality relationship with the provider of these goods and services. They want the products to deliver what the

advertising promises. Educated consumers are now choosing to go direct, building a relationship directly with the parent company, which is fundamentally a different concept from the way we have done business in the past. Going direct through referrals is a concept that has been around for years, but the opportunity for financial advances through access to global networks is enormous and immediate and one that business-minded people should not miss out on. A number of young entrepreneurs have already spotted this trend. Michael Dell, founder and chairmen of 'Dell' computers is destined to become the new Bill Gates in the next decade, and is the richest person in the world under the age of forty today. One of the most admirable CEOs in America, Michael Dell, has a philosophy that is brilliant, uncomplicated and right online with this emerging economic business trend. He creates a relationship directly with the customer and sells high performance products. Using this direct, relationship model, 'Dell' sells approximately $25 million per day, directly to the consumer, by-passing the middleman, saving the consumer money and creating better customer loyalty. The going direct concept coupled with building relationships between manufactures and consumers is the essence of the principles of network marketing. More importantly, it is a natural thrust of today’s economy. Network marketing uses relationships to introduce new customers to a parent company so that they can buy direct from the manufacturer. Although this network marketing business environment is not yet so obvious and many will miss its significance, those people that adopt this system early will be rewarded handsomely.

“Unless you are networking, you will soon be not working” Not everyone will see the rise of network marketing as a main stream method of doing business, just like 50 years ago people dismissed the business concept of franchising. Not too long ago people use to laugh at franchises, just as some people shy away from network marketing. Congress almost outlawed franchises with a bill nearly making them illegal, falling short of passing by only 11 votes. Today this vehicle is responsible for over a third of retail sales in America. Of course franchising was not for everyone, but those people who were open and willing to consider new ideas and who had the courage to take action in a changing business environment profited handsomely. Today people are willing to risk hundreds of thousands, even millions of dollars to open franchises, hoping to capitalise on a business trend that if they acted on decades ago would have rewarded them enormously. Network marketing in the new millennium has entered the main stream and may become more prolific and popular than that of franchises. Unlike franchising however you are only risking your time and effort and not your fortune or a mountain of debt. With network marketing you don’t need inventories and you do not need to create and manufacture the goods and services yourself, you are simply the “direct” in going direct. Network marketing is not just becoming mainstream, it is starting to become the dominant market trend and one that cannot be stopped. The real question people should be asking is how can they benefit from it?

Network marketing is no longer something to joke about, it is creating more millionaires today than the dot com boom industry did before the bubble burst. As with any opportunity timing is half of the success and execution is the other half. You have no control over the former as the business trend will emerge without you. The jet is leaving the ramp, you can either be on it or miss out. The second half to capitalising on this trend is in the execution, by doing your homework and finding the right company, all you need then is commitment and the desire to learn from those who came before you.



Network marketing has developed a powerful distribution channel that is adaptive to the internet era. Clearly the marketing discipline needs an injection of communication effectiveness and distribution efficiency. Network marketing can accelerate the speed of product entry, rapid market trial and consumer acceptance. The channel can also provide more direct and lower cost distribution between the manufacturer and consumer. This has seen both rigid and traditional corporates in America and the world over adapting this means as a medium in marketing. Examples include Watkins, Fuller Bush and many more companies. Moving parallel with the growth in network marketing infrastructure, there has been strategic mergers, acquisitions, joint ventures and formation of alliances reported

across leading companies. The increasing number of merging networking companies and traditional business ventures spells a change in the networking culture as well.


Network companies are increasing their investment in professional management thus bringing a more business like demeanor to their organizations. Companies are adapting a more professional management style in their organizations. Leading network companies are investing in increasingly sophisticated strategic planning activities. The smaller firms are upgrading their management tools within their financial resources . GLOBAL EXPANSION

Network marketing companies and participants alike will look overseas for their greatest sales and recruiting opportunities, building exciting and lucrative multinational businesses from their headquarters. Opportunities for foreign travel, exposure to different cultures and sophisticated international commercial transactions will further enrich the network marketing experience. Economic insecurity traditionally spurs interest in network marketing opportunities.


Through the help of the internet, network marketing is helping people build home based industries that reach the international level. The internet has made businesses grow because payments are made with a click of the button. The internet is making the execution of the business more efficient and user friendly and thus more desirerable for new professionals. Orders and downline applications are done electronically thus making the manufacturer and consumer having an easier and direct link.


Network marketing is being increasingly accepted as a legitimate and promising part of the economic mainstream, as evidence by its growing recognition in the media and professional arena. Some schools have gone a notch higher by offering the course as a diploma, certificate or even full time career path in their academia. The subjects taught are engineered to fit with current trends in the network marketing field. The network market has three highly organized and well funded trade associations and support groups. They include:

The Direct Selling Association, (DSA)

The World Federation Of Direct Selling Associations (WFDSA)

The Multilevel Marketing Association International(MLMIA)


Network marketers have a fully developed infrastructure of support to help them succeed and to document the legitimacy of their industry. A growing number of companies are entering the financial market in pursuit of capital and market share. This not only pulls the industry from the shadow but gears some to even enlist in the stock market. The company going public must complete an arduous planning process though.


Network marketing companies are investing heavily iin research and development, enhancing product quality, pioneering new industries and contributing to significant medical, scientific and manufacturing breakthroughs. Network marketing firms are starting to play a major role in improving and increasing the line of products available to consumers.


We would like an intensive study to be done in this field because we have new trends that emerge in the market every day. It is a vast topic with a lot of information though what makes it problematic is that many companies do not make themselves public

and this may raise questions from potential investors who require to be furnished with all the information they may need for them to get involved in the business. Therefore we recommend more studies to be done in this business that is not known to many.


Network marketing’s greatest contribution to the world will be to spur the creation of a new business and professional model that will change the culture of commerce and work in companies that are both in and out of the industry. Network marketing is having a profound impact on the entire business world. Face to face marketing is ideally the best method of marketing products which is done in network marketing.


Charles W. King and James W. Robinson, The New Professionals, yr 2000

Dr Dennis Waitley, Trends in network marketing





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