Ethical Issues on MLM
Introduction
Businesses were designed to provide value to society by meeting the needs of the people through the open marketplace. If a product or service did not provide enough value, naturally the business associated would need to change to fill such a void for fear of going bankrupt. Therefore, businesses must continually innovate or find areas in which they can create value for society and profit in a sustainable manner. A controversial issue facing the business world today is the use of a business framework known as Multi-level marketing. (MLM)
MLM is also known as network marketing and associated with direct sales in the sense that it uses various levels of independent distributors to sell directly to consumers. The compensation structure of a MLM company incentivizes current distributors also referred to as the ‘upline’ to recruit new distributors known as the ‘downline’, due to the fact that a percentage of the sales made by the downline is transferred to the upline through discounts, commissions, and bonuses. The strategy of selling directly to consumers has been around for ages, in its earliest form it is considered peddling or direct sales door-to-door, which has evolved to become more modernize through the use of the internet and mobile apps which provides further connectivity through engagement with distributors and potential leads. Commonly known MLM companies today include: Amway, Avon, Herbalife, Mary Kay, and Tupperware. Amway, Avon, Herbalife, Mary Kay, and Tupperware each offer different products such as household items, cosmetics, nutritional supplements, jewelry, and kitchenware respectively.
A predominant aspect of the controversy concerning MLM is the association with essentially being a pyramid scheme. Pyramid schemes are illegal for being unsustainable business models that require continuous recruitment of participants within the scheme to funnel money toward the previous levels. MLM is considered legitimate based off the current
Businesses were designed to provide value to society by meeting the needs of the people through the open marketplace. If a product or service did not provide enough value, naturally the business associated would need to change to fill such a void for fear of going bankrupt. Therefore, businesses must continually innovate or find areas in which they can create value for society and profit in a sustainable manner. A controversial issue facing the business world today is the use of a business framework known as Multi-level marketing. (MLM)
MLM is also known as network marketing and associated with direct sales in the sense that it uses various levels of independent distributors to sell directly to consumers. The compensation structure of a MLM company incentivizes current distributors also referred to as the ‘upline’ to recruit new distributors known as the ‘downline’, due to the fact that a percentage of the sales made by the downline is transferred to the upline through discounts, commissions, and bonuses. The strategy of selling directly to consumers has been around for ages, in its earliest form it is considered peddling or direct sales door-to-door, which has evolved to become more modernize through the use of the internet and mobile apps which provides further connectivity through engagement with distributors and potential leads. Commonly known MLM companies today include: Amway, Avon, Herbalife, Mary Kay, and Tupperware. Amway, Avon, Herbalife, Mary Kay, and Tupperware each offer different products such as household items, cosmetics, nutritional supplements, jewelry, and kitchenware respectively.
A predominant aspect of the controversy concerning MLM is the association with essentially being a pyramid scheme. Pyramid schemes are illegal for being unsustainable business models that require continuous recruitment of participants within the scheme to funnel money toward the previous levels. MLM is considered legitimate based off the current
References: Capital Management, Pershing Square (12/20/2012). Who wants to be a Millionaire?. retrieved 9/25/13, from factsaboutherbalife Web Site: http://factsaboutherbalife.com/wp-content/uploads/2013/01/Who-wants-to-be-a-Millionaire.pdf FTC (5/8/1979). In The Matter of Amway Corporation, Inc., ET AL. . retrieved 9/15/13, from Federal Trade Commission Web Site: http://www.ftc.gov/os/decisions/docs/vol93/FTC_VOLUME_DECISION_93_(JANUARY_-_JUNE_1979)PAGES_618-738.pdf Klein, Karen E. (04/16/2012). How Direct Sellers Dodged FTC Regulation. retrieved 9/30/2013, from Bloomberg Businessweek Web Site: http://www.businessweek.com/articles/2012-04-16/the-multibillion-dollar-direct-selling-industry-dodges-the-ftc Koen Daryl (2001). Ethical Issues Connected with Multi-Level Marketing Schemes . Journal of Business Ethics. 29, 1/2; ABI/INFORM Global, 153. Pratt Michael G. (2000). The Good, the Bad, and the Ambivalent: Managing Identification among Amway Distributors.. Administrative Science Quarterly. Business Insights: Essentials., 456. Pyramid Schemes. (n.d) retrieved 9/25/2013, from U.S. Securities and Exchange Commission Web Site: http://www.sec.gov/answers/pyramid.htm