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Network marketing lucrative business or lucrative scam?

Updated on March 19, 2010
network marketing visual explanation
network marketing visual explanation
Multi-level marketing
Multi-level marketing

What is network marketing?

Network marketing (also known as multi-level marketing {MLM}, direct selling, referral marketing, and pyramid selling) is a marketing strategy used by companies to help increase their income, while having others get the opportunity of being able to take a piece of the pie as well. Its basically a partnership. The strategy relies on a hierarchy to generate sells. The promoter gets paid commissions from the sells she/he generates, but also gets compensated for the sales those they introduced to the company generate as well.

The potential earnings vary depending on the company and the amount of people within someone's downline. It all falls down to this; the more people working for you, the more money you will earn. In these types of programs, the best marketing strategies are referral relationships and word-of-mouth marketing.

Notice the images located to the right. These images give a visual explanation of what network marketing is. Network marketing is a plan built to establish businesses within businesses (if that makes sense). The more people working for you, the more money you will make. This means the more money the company you're working for will make. Many network marketing businesses offer high commission rates, while others pay the minimum amount.

Is multi-level marketing a scam?

Many network marketing companies have faced lawsuits and received controversial attention. Because some of these programs have been caught in illegal activity, some people believe all network marketing programs are scammed created to selfishly increase their own income. Network marketing has many similarities to illegal pyramid schemes.

Some companies claim to be multi-level marketing but utilize the tactics of pyramid schemes. These companies require high start-up costs, product price fixing, and more illegal acts. They also use cult-like methods to bring in more people to work for them. Compensation packages and rewards are sometimes overly exaggerated, and exploitation of personal relationships have been used by some companies to increase their signup rates.

Fortunately, not all companies use these methods to run a successful business. Unfortunately, many people aren't willing to take the chance of signing up for these type of companies in fear they may become victims of a scam. This means many multi-level marketing companies are constantly losing money because they are either not getting enough people to sign up, or they are losing workers to the hype.


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    • loamejan profile image

      Fel Amejan 5 years ago from Philippines

      I believe that a lot of MLM company are opportunist. However, if you decide to join a MLM copmpany make sure that you do your assignment, meaning make any necessary research and invistigation.

      One thing for sure that if join in any MLM(Legit) Company and you work for it and follow the system, you will surely make money.

      Very imformative hub..


    • Mardi profile image

      Mardi Winder-Adams 8 years ago from Western Canada and Texas

      My sister "invested" a relatively small amount of money in one of these many years ago. She had a very bad experience and they were considered to be a reputable company. I do understand that any business is a risk but these are riskier than most. Thanks for the info!

    • Silver Poet profile image

      Silver Poet 8 years ago from the computer of a midwestern American writer

      Thanks for sounding the alarm.

    • msorensson profile image

      msorensson 8 years ago

      I think people have to be aware of all the facts and make informed decisions when they join.

      Thank you for this informative hub. I enjoy your hubs, they are always informative.