What are Multi Level Marketing (MLM) companies?

Multi Level Marketing companies are companies which do not have physical brick and mortar shops for sale of goods. Instead, they sell their products directly to the customers and increase the sales through word of mouth than following the formal modes of marketing like advertisements etc.

It works on referral model where one person buys a product from the company and then refers the product to his/her friends and relatives. If these referred friends and relatives too buy products from the company then the referrer gets a certain percentage of incentive for the referral. The new customers can further give references which if converted can help them too earn incentives. At every point of new link of people getting added, everybody in the hierarchy gets incentivized. This allows multiple levels of compensation and creates a huge base of sales force who are also the customers of the company.

Multi Level Marketing

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Top 5 Multi Level Marketing companies in India:

1. Tupperware

Established in 1987, its corporate office being in Orlando, USA. Running a business of Retail and MLM, it is existent in almost every large city or town in the country. Without the hassle of any major investment, it offers direct marketing opportunities. The products it has to offer range from Kitchen appliances to home appliances and food products.

2. Avon

Established in 1886, Avon ‘The Company for women’ is a company that deals solely with Multi Level Marketing. Its corporate Office is situated in New York, USA. Its product range consists of cosmetic, beauty and personal products. Internationally, the company has been a market leader for years and is presently strengthening its hold on the Indian market as well.

3. Amway

 An MLM and direct marketing company, Amway is an established brand dating back to 1959, having its footprint in more than 100 countries. Its corporate head office is situated in Michigan, USA. It is a global leader in health, cosmetics and beauty products.

4. Oriflame

Oriflame, is a cosmetic and MLM company based in Sweden. Presently selling their product in over 50 countries and had been established in 1967, Its corporate office being in Luxemborg.

5. RMP Infotec Private Limited

With its corporate office at Chennai, Tamil Nadu, RMP Infotec sells home, kitchen and cosmetic products since its establishment in 2001. Its MLM and distribution business has been achieving great heights and its stronghold as a market player is increasing by the day.

Is Multi Level Marketing Illegal?

Many people look at MLM companies as boons and methods to receive income. But income in MLM should be reliable, long term, leveraged residual income and not just one time sales made through close relationship tailored customers. In MLM there exists illegal pyramids in companies but all MLM companies are not illegal. This must be clarified.

Illegal MUlti Level Marketing Pyramid

Figure 1: Illegal Pyramid Structure

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Above Figure 1 explains the structure of an illegal MLM pyramid where there is no movement of goods or there is a movement of dummy products from one level to another with the sole purpose of creating fakes sales and payment is made not towards the value of the product but to tie up with more and more number of people and increase the chain link.

Legal Multi Level Marketing Pyramid

Figure 2: Legal Distribution Pyramid Structure

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Figure 2 is that of a legal distribution pyramid where the product moves from manufacturers to customers through the general channels. In both cases money flows from lower levels to higher levels. This isn’t the problem! In a legal distribution, value flows back to the customers and customers are willing to give money with a free will due to being a receiver of value.

How to check if the MLM Company is legal or illegal?

  • There must be customers in order for the company to be legal. If the company is dealing with real customers who purchase the product or service, and reorder even though they are not part of the company then it is a genuine company.
  • The number of distribution levels do not matter between the customers and the manufacturers, as long as there is value flowing to the customers and the customers are happy with the product.
  • It is also seen in illegal MLM companies that people who enter the company early receive the most amount of compensation money. But in a legal MLM company the compensation plan allows each person to make ample amount of money even with others being above you.

The noose on Multi Level Marketing companies is getting tighter everyday however the span of the illegal set up is so huge that it is not easy to bring the entire set up down. In many cases, the head quarters are based out of the country where the business is being carried out making it difficult for the regulators to catch the culprits. Best thing to do would be to stay vigilant and keep eyes and ears open before taking such a decision.

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