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Pyramid Schemes vs. Multi-Level Marketing

Updated on February 28, 2013
Pyramid scheme vs Multilevel Marketing
Pyramid scheme vs Multilevel Marketing | Source

Pyramid scheme

Pyramid scheme as its name suggests is a scheme which starts with one person on top who is the primary recruiter. The primary recruiter recruits a few more under him and they recruit under them and so on a pyramid structure is formed. The size and structure of the pyramid scheme varies based on the number of appointments can be made by the person.

Pyramid scheme is a well known fraudulent scheme, the people recruited are promised that by a minuscule investment they'll make good fortune. And for every recruitment at the next level, the earning gets divided in a decided ratio till top. Their is no product involved in this scheme. Unfortunately the number off people are limited and scheme cannot go forever and hence it suddenly vanishes. The people at the bottom of the pyramid are at the highest risk.

Despite of its popularity as a fraud scheme, their are still a plenty of them that gets launched time and now. Some of them attain a national fame too and before an action is taken the initiator mostly is difficult to reach. Some of the countries have banned the pyramid scheme too.

Most of the people fall in the trap of investing into the pyramid scheme because it promises making big bucks with minimum investment and also with hardly any effort.

Multi Level Marketing

Unlike the pyramid scheme which is mostly a fraud scheme, multilevel marketing is a marketing strategy adopted by various organisations to sell their products. In multilevel marketing, employee doesn't only earn by the sale of the product done by him but also by sale of the product done by his recruits. The sales force in multilevel marketing sells the product through their networks, word of mouth, relationship. It is in a way a method of direct selling. Direct selling involvsellers ing directly to consumers without the involvement of any retail zone.

Unlike pyramid scheme where the sales force makes money by only recruiting a new force under it, in multilevel marketing sales force makes money either by the sale of product either directly or through their recruits.

Few organisations only choose Multilevel marketing method to sell their product, while other use multi level marketing as an additional sales method besides the regular. This way they are able to reach the rural sectors or areas that remain untouched by retail.

Cosmetics and home products companies mostly adopt this technique of selling as it helps directly reaching the women of the house. These companies help them organise parties so that they can introduce products to their networks. This method also gives money making option to women while being at home and using their relationships.

Few of the famous Multilevel marketing companies are Avon, Amway, Tupperware, Oriflame.


Summary

In pyramid scheme where recruitment is everything, sale of product is primary focus in multilevel marketing. In pyramid scheme every new recruit pays an amount that gets distributed to the chain on top, while in multilevel marketing new recruit pays an amount for which he is given some products to start his sale.

In pyramid scheme the hiring of new sales force starts dropping and the company shuts which results in few making money and few who are below in pyramid making huge losses.


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