Definition: The Multilevel Marketing is the marketing strategy wherein the direct sales companies encourage its existing distributors to recruit new distributors to facilitate the sale of goods and services. The distributor is compensated not only for the sales generated by him but also gets a percentage of sales revenue of the other distributor that he recruits.
Thus, a multilevel marketing is a type of direct selling wherein the distributor sells the product via relationship referrals and word-of-mouth marketing. Here, the salespersons or distributor not only sell the products but also encourages others to join the company. The recruits are called as the participant’s “Downline” or distributor’s “Downline”. Example, Tupperware, and Amway are the direct sales companies that use the multilevel marketing.
The multilevel marketing is also called as a network marketing, referral marketing or pyramid selling. Though this is a legitimate business strategy, it is subject to criticism and lawsuits because of its similarity to the illegal pyramid schemes. Since the compensation is determined on the basis of recruitments done by the distributors, there are chances that more emphasis is laid on the recruitment and less on the product sales. Hence, there is more emphasis on the recruitment of others over the actual sales.