Long before the Internet was anything but a tool for computer engineers, Amway claimed to be teaching ordinary people to become salespeople, and to bring others into the system. The creators of Amway developed the concept of multi-level marketing as a way to make salesmanship a co-operative venture and encourage people to teach one another sales techniques instead of regarding them as rivals.
Here's the theory: In multi-level marketing, you benefit not only from your own sales, but from those of the people you refer into the system. Therefore, it behooves you to equip them with as many useful selling techniques as possible.
This system, known as the downline, is what distinguishes a multi-level marketing system from a regular affiliate or associate program. It also has attracted the attention of government agencies who feared this may be a scam. Amway, the pioneer MLM, fought lengthy court battles to prove that they were indeed a legitimate business and not a pyramid scheme.
A genuine MLM has a real, useful product to sell, while a pyramid scheme is simply transferring money without giving anything in return. Fraudulent MLM's often charge high start-up fees and sell shoddy products, trapping their would-be businesspeople with large inventories of worthless goods.
If you are interested in becoming involved in an MLM, make sure you know exactly what product the company is selling. Do some research on the company and their product. Check how long the company has been in business and what kind of a record they have. Ask for names of customers and ask them whether they have been satisfied with their product. Buy some for yourself and see if this is something you will be proud to sell.
Look at how the product is promoted? Is deception involved? One well-known MLM encourages its members to avoid mentioning the company's name when contacting a prospective referral until after a rapport is developed. If deception is involved in recruitment, it is a strong indication of a pervasive attitude of untruthfulness.
Is there a heavy emphasis on referrals and downline income as opposed to direct sales and profits? Referrals and resultant income should be treated as a bonus, not the primary motivation to get involved in the system. The larger the proportion of emphasis on downline sales and referrals, the greater the danger signal.
How long is the downline? If people are receiving income on multiple levels of sales (the referrals of referrals of referrals), the cost of the goods has to be inflated proportionally in order to accomodate these layers of middlemen. Any more than one or two generations of referrals in the downline is another danger sign.
You may also want to take a look at another writer, who argues that all MLM's are by their nature pyramid schemes, even if they have a genuine product to sell, and as such will inevitably create an insiduous moral corrosion in those who become involved in them.
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