The History of Network Marketing (Part 3)

Okay, so let's continue with our summary of the history of network marketing. This is the third and final part of this article.

Amway and its multi-level structure were targeted by the FTC partly in response to a proliferation of pyramid programs in the 1970s. In these illegal pyramids, money was the only commodity or “value” that moved through the program. There was no underlying product or service.

Schemes were developed whose only purpose was specifically to recruit others into the program. It was the emergence of several high profile schemes that led to a rash of regulatory requirements and the ultimate targeting of MLM as a structure. It also led to the clarification of speculative or fraudulent schemes and legitimate direct sales activities.

The Amway Safeguard Rule identifies three key points which ensure the validity of the opportunity. It was the existence of these three points as part of the Amway structure that led the court to conclude the business was not an illegal pyramid.

These therefore are important criteria with which to assess any network marketing or MLM opportunity and establish whether it is in fact legal as opposed to “one of those pyramid scams”.

1. Does the opportunity require the retail sale of products or services before one can qualify for any recruiting commissions or sales?
2. Does the opportunity have a mechanism in place to prevent the stockpiling of inventory of physical products with no intention of reselling?
3. Does the opportunity offer representatives who choose to leave a buy-back provision on unsold, unopened inventory or products?

The term “network marketing” became popular in the 1980s.

It was partly coined as a way of getting away from the stigma of MLM.

Ultimately, direct sales and multi-level marketing are distinct subsets within the overall network marketing industry. In simplistic terms, they can be defined this way:

Direct selling is where the profit or commission for a retail sale is paid to one person.

Multi-level marketing is where the profit or commission for a retail sale is shared with an up-line (or recruiter). Typically there are also bonuses paid based on recruiting activity, so long as the recruiting is accompanied with ongoing retail sales activity.

Finally, network marketing gained a strong degree of legitimacy in the 1990s and into the 21st century.

A number of very well known and respected authors and business people began to lend their public endorsement to the industry. People such as Brian Tracy, Robert Kiyosaki, Paul Zane Pilzer, Jim Rohn, and even Donald Trump began to openly talk about the merits of the industry and, in fact, encouraged people to consider it.

At the same time, network marketing morphed into a proven, preferred method of product distribution by some of the largest companies on the planet.

Corporations came to the conclusion that network marketing, as a distribution channel, offered many advantages, not the least of which is that it’s lower cost.

Commissions are only paid on the sale of product or services and the structure allows the companies to offload much of the time and training requirements onto its representatives, who are incented to train the new representative they recruit.

In particular for new product launches, network marketing distribution allowed companies to avoid costly traditional advertising campaigns.

Pretty soon telecommunications companies, travel companies, satellite providers, financial services companies, and many other industries joined the party. Today there are literally thousands upon thousands of network marketing based companies operating throughout the world.

Today, network marketing is a +$100 billion dollar industry.

So there you have it, we’ve come full circle. The history of network marketing in about 1700 words or so.

So now let me ask you this question. Do you still feel as though there is a reason to feel ashamed or embarrassed to admit you are involved in network marketing?

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