The following is based on a study done by a friend and his partners in the early 1990's; indeed, things advanced to such a stage that they actually got involved with one of the companies as full time distributors.
The principle, while economically sound, must have core strength at its base and not fall into a well documented type of business known as pyramid selling, which became popular in the late 1960's and early 1970's.
When I say core strength, I mean that at its foundation any business must have a product that sells!
This may sound ridiculously obvious however a major problem occurring with many of the products marketed through this method, in their experience, has been that the products simply did not penetrate into the market successfully.
When joining one of the companies that participate in MLM, one is generally pressed upon to purchase materials for personal use and to buy stock for distribution to further people.
Additionally, whilst the figures shown in the literature are very impressive, to attain these figures it is imperative to introduce other people to the business thereby gaining a percentage of their material sold.
As that person introduces further people to the business, one then gains a percentage of sales from that person also.
Depending on the company, the revenue continues for a certain amount of levels, hence the name multi level marketing.
The major drawback that they discovered was that to attain the desired figures, one had to concentrate on recruiting more and more people to the business with the result being that nobody was really concentrating on selling product.
This is why pyramid selling was made illegal - quite simply no product was moving at the bottom end and the only people making good money were on the top level and able to benefit from many peoples 'efforts, whether or not product was moving.
Unfortunately for the people on the lower levels they often parted with considerable sums of money unaware that the end product was either non-marketable or in some cases did not even exist! After this, the only way out for these people was to rope more people into the business on levels beneath them and thus recuperate some of their money.
Multi level marketing, while not crooked in this way or illegal, still carries with it the problem of having to recruit other people into the business to attain the dizzy financial heights projected by the companies.
I know several of the companies that we looked at in the early nineties, including the one they became involved with, have disappeared without trace and one never hears nor sees the products anywhere- is this coincidence? Since the companies were extremely well capitalised, did the owners realise that their products had a very short shelf-life and this was the best way to juice any profitability possible in a very short time?
Without sounding too sceptical, it does seem to me that this was the case since, as they mentioned earlier, the products are never seen and the company is never heard of.
You be the judge.
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