Network Marketing Azerbaycan [PORTABLE]

Multi-level marketing (MLM), also called network marketing[1] or pyramid selling,[2][3][4] is a controversial[5] marketing strategy for the sale of products or services in which the revenue of the MLM company is derived from a non-salaried workforce selling the company's products or services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system.[6]

In multi-level marketing, the compensation plan usually pays out to participants from two potential revenue streams. The first is based on a sales commission from directly selling the product or service; the second is paid out from commissions based upon the wholesale purchases made by other sellers whom the participant has recruited to also sell product. In the organizational hierarchy of MLM companies, recruited participants (as well as those whom the recruit recruits) are referred to as one's downline distributors.[7]

Network Marketing Azerbaycan

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MLM salespeople are, therefore, expected to sell products directly to end-user retail consumers by means of relationship referrals and word of mouth marketing, but more importantly they are incentivized to recruit others to join the company's distribution chain as fellow salespeople so that these can become downline distributors.[1][8] According to a report that studied the business models of 350 MLM companies in the United States, published on the Federal Trade Commission's website, at least 99% of people who join MLM companies lose money.[9][10] Nonetheless, MLM companies function because downline participants are encouraged to hold onto the belief that they can achieve large returns, while the statistical improbability of this is de-emphasized. MLM companies have been made illegal or otherwise strictly regulated in some jurisdictions as merely variations of the traditional pyramid scheme.[11][12]

Independent non-salaried participants, referred to as distributors (variously called "associates", "independent business owners", "independent agents", "affiliates", etc.), are authorized to distribute the company's products or services. They are awarded their own immediate retail profit from customers plus commission from the company, not downlines, through a multi-level marketing compensation plan, which is based upon the volume of products sold through their own sales efforts as well as that of their downline organization.

Independent distributors develop their organizations by either building an active consumer network, who buy direct from the company, or by recruiting a downline of independent distributors who also build a consumer network base, thereby expanding the overall organization.[citation needed]

The main sales pitch of MLM companies to their participants and prospective participants is not the MLM company's products or services. The products or services are largely peripheral to the MLM model.[citation needed] Rather, the true sales pitch and emphasis is on a confidence given to participants of potential financial independence through participation in the MLM, luring with phrases like "the lifestyle you deserve" or "independent distributor".[17] Erik German's memoir My Father's Dream documents the author's father's failures through "get-rich-quick schemes" such as Amway.[18] The memoir illustrates the multi-level marketing sales principle known as "selling the dream".[19]

The Direct Selling Association (DSA), a lobbying group for the MLM industry, reported that in 1990 only 25% of DSA members used the MLM business model. By 1999, this had grown to 77.3%.[28] By 2009, 94.2% of DSA members were using MLM, accounting for 99.6% of sellers, and 97.1% of sales.[29] Companies such as Avon, Electrolux, Tupperware, and Kirby were all originally single-level marketing companies, using that traditional and uncontroversial direct selling business model (distinct from MLM) to sell their goods. However, they later introduced multi-level compensation plans, becoming MLM companies.[25] The DSA has approximately 200 members[30] while it is estimated there are over 1,000 firms using multi-level marketing in the United States alone.[31]

The origin of multi-level marketing is often disputed, but multi-level marketing style businesses existed in the 1920s[32] and the 1930s, such as the California Vitamin Company[33] (later named Nutrilite) and the California Perfume Company (renamed "Avon Products").[34]

MLM companies have been made illegal in China as a mere variation of the traditional pyramid scheme.[11][12] MLM companies have been trying to find ways around China's prohibitions, or have been developing other methods, such as direct sales, to take their products to China through retail operations. The Direct Sales Regulations limit direct selling to cosmetics, health food, sanitary products, bodybuilding equipment and kitchen utensils, and they require Chinese or foreign companies ("FIEs") who intend to engage into direct sale business in mainland China to apply for and obtain direct selling license from the Ministry of Commerce ("MOFCOM").[47] In 2016, there are 73 companies, including domestic and foreign companies, that have obtained the direct selling license.[48]Some multi-level marketing sellers have circumvented this ban by establishing addresses and bank accounts in Hong Kong, where the practice is legal, while selling and recruiting on the mainland.[11][49]

MLM marketing is banned in Saudi Arabia by imposing religious fatwa nationally, for this reason MLM companies like Amway, Mary Kay, Oriflame and Herbalife sell their products by online selling method instead of MLM.[50]

MLM businesses operate in all 50 U.S. states. Businesses may use terms such as "affiliate marketing" or "home-based business franchising". Some sources say that all MLM companies are essentially pyramid schemes, even if they are legal.[13][21][22] Utah has been named the "unofficial world capital of multi-level marketing and direct sales companies" and is home to at least 15 major MLMs, more MLMs per capita than any other state.[51]

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.[23]

In re Amway Corp. (1979), the Federal Trade Commission indicated that multi-level marketing was not illegal per se in the United States. However, Amway was found guilty of price fixing (by effectively requiring "independent" distributors to sell at the same fixed price) and making exaggerated income claims.[54][55] The FTC advises that multi-level marketing organizations with greater incentives for recruitment than product sales are to be viewed skeptically. The FTC also warns that the practice of getting commissions from recruiting new members is outlawed in most states as "pyramiding".[56]

Because of the encouraging of recruits to further recruit their competitors, some people have even gone so far as to say at best modern MLM companies are nothing more than legalized pyramid schemes[13][21][22] with one stating "Multi-level marketing companies have become an accepted and legally sanctioned form of pyramid scheme in the United States"[21] while another states "Multi-Level Marketing, a form of Pyramid Scheme, is not necessarily fraudulent."[22] In October 2010 it was reported that multi-level marketing companies were being investigated by a number of state attorneys general amid allegations that salespeople were primarily paid for recruiting and that more recent recruits cannot earn anything near what early entrants do.[67] Industry critic Robert L. FitzPatrick has called multi-level marketing "the Main Street bubble" that will eventually burst.[68]

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