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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 that 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 start up 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 start up 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.

DSO
Direct selling is the marketing and selling of products directly to consumers away from a fixed retail location. Peddling is the oldest form of direct selling. Modern direct selling includes sales made through the party plan, one-on-one demonstrations, and other personal contact arrangements as well as internet sales. A textbook definition is: "The direct personal presentation, demonstration, and sale of products and services to consumers, usually in their homes or at their jobs." Industry representative, the World Federation of Direct Selling Associations (WFDSA), reports that its 59 regional member associations accounted for more than US$114 Billion in retail sales in 2007, through the activities of more than 62 million independent sales representatives. The United States Direct Selling Association (DSA) reported that in 2000, 55% of adult Americans had at some time purchased goods or services from a direct selling representative and 20% reported that they were currently(6%) or had been in the past(14%) a direct selling representative. According to the WFDSA, consumers benefit from direct selling because of the convenience and service it provides, including personal demonstration and explanation of products, home delivery, and generous satisfaction guarantees. In contrast to franchising, the cost for an individual to start an independent direct selling business is typically very low with little or no required inventory or other cash commitments to begin. Most direct selling associations, including the Bundesverband Direktvertrieb Deutschland, the direct selling association of Germany, and the WFDSA and DSA require their members to abide by a code of conduct towards a fair partnership both with customers and salesmen.

Most national direct selling associations are represented in the World Federation of Direct Selling Associations (WFDSA). Direct selling is distinct from direct marketing because it is about individual sales agents reaching and dealing directly with clients. Direct marketing is about business organizations seeking a relationship with their customers without going through an agent/consultant or retail outlet. Direct selling often, but not always, uses multi-level marketing (salesperson is paid for selling and for sales made by people he recruits or sponsors) rather than single-level marketing (salesperson is paid only for the sales he makes himself).

Largest direct selling companies

According to Direct Selling News, the largest direct selling companies, by revenue in 2010, were Company Name Avon Products Amway Natura Vorwerk Herbalife Mary Kay Tupperware Oriflame Year Founded 1886 1959 1969 1883 1980 1963 1946 1967

Forever Living Products 1978 Nu Skin Enterprises 1984