Multilevel marketing explained – core insights from research and social media
- For policymakers
- Summary created: 2025
Provides a comprehensive examination of multi-level marketing (MLM), network marketing, and direct selling, highlighting their operational structures and the inherent issues within these business models.
MLM, network marketing, and direct selling are business models that involve products and services but focus on recruiting new participants/distributors into the company. Companies like Amway, Avon, and Herbalife exemplify this model. Despite being marketed as lucrative opportunities, MLMs are often criticized for their pyramid-like structures, where only a few at the top earn significant income, while the majority earn little to nothing. The industry is plagued by issues such as misleading income claims, the exploitation of personal relationships, and cult-like community dynamics. Regulatory frameworks, particularly in the European Union, are insufficient to address these issues, as they often fail to protect distributors who are classified as independent contractors rather than consumers. The industry’s resilience is bolstered by its lobbying power and the inadequacy of existing legislation, which fails to effectively regulate MLM practices or provide transparency regarding distributor earnings and business operations.
Key findings
MLMs often engage in dubious and partially illegal practices due to insufficient anti-pyramid rules and enforcement.
Evidence
The European Directive 2005/29/EC defines illegal pyramid schemes, yet many MLMs operate in a legal gray area by focusing on recruitment rather than product sales. Distributors are classified as independent contractors, not consumers, which exempts them from certain protections. The directive's vagueness allows MLMs to exploit loopholes, such as requiring distributors to purchase products to qualify for commissions.
What it means
The lack of clear regulations and enforcement allows MLMs to continue operating with practices that resemble illegal pyramid schemes, leading to financial harm for many participants.
The vast majority of MLM participants earn minimal income or incur debt, contrary to the promises of wealth and financial independence.
Evidence
Research indicates that in Amway Germany, only one in 10,000 participants can achieve significant wealth. Most distributors stop within six months, necessitating a constant influx of new recruits to sustain the income of those at the top. MLMs often require distributors to purchase products to qualify for commissions, leading to financial losses. Similar numbers exist for the US.
What it means
The income distribution in MLMs is heavily skewed, with only a few at the top earning substantial amounts, while the majority earn little or lose money, contradicting the industry's promises of financial freedom.
MLMs exploit personal relationships for recruitment and sales, leading to social and financial consequences.
Evidence
New distributors are encouraged to sell to and recruit friends and family, leveraging trust to make sales. This can strain relationships, as people may feel obligated to buy products or join the MLM. The sale of complex products like dietary supplements and financial products by unqualified distributors can lead to health and financial risks.
What it means
The exploitation of personal relationships in MLMs can lead to social isolation and financial harm, as distributors prioritize sales over genuine relationships.
MLMs foster cult-like communities that discourage critical thinking and promote toxic positivity.
Evidence
MLMs create a strong sense of community through events and a shared mindset, discouraging criticism and promoting unwavering belief in the company. This community dynamic can prevent members from questioning the ethical implications of their actions or the viability of the business model.
What it means
The cult-like atmosphere in MLMs can lead to a lack of critical thinking and self-blame among distributors, perpetuating their involvement despite financial losses.
The recommendation and sale of financial products and dietary supplements by MLMs are particularly problematic due to the lack of distributor expertise.
Evidence
Distributors often lack the necessary knowledge to provide informed advice on health and financial products. MLMs do not require professional training, and distributors are incentivized to sell or recruit others rather than offer sound advice, leading to potential harm for consumers.
What it means
The sale of complex products by unqualified distributors poses significant risks to consumers, highlighting the need for better regulation and education in MLMs.
Proposed action
Better regulations on the EU-level, a revision of the existing EU Directive.Regulations on the national level. Examples are requiring MLMs to register and to provide basic data such as revenue, number of participants, costs, losses, turnover time etc.Monitoring of the industry by a public, independent authority and consumer education.
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