The concept of network marketing is that people like to tell others about great things they've found, whether it's a great product or service, an incredible price on something, or whatever. We like to share. And this is the most valuable form of marketing possible for a business, even though word of mouth is traditionally free.
But somewhere along the way, someone realized that they could pay advertising companies to make ads and then run them at a high cost, hoping for results ... or they could pay OTHER people to advertise for them, and ONLY pay if those people made sales. Not only would this minimize risk for the company by precisely building in the cost of advertising, and with nothing spent up front, but it would also use the power of "word of mouth."
What they forgot, ignored, or simply didn't admit was that "word of mouth" has power because it comes without bias. As soon as someone benefits from telling you about something, you naturally become guarded. MAYBE they're still telling you because they feel it will benefit you, but you can no longer tell for sure. They may simply be telling you because they benefit. In short, it's no longer word of mouth -- it's another form of advertising.
Unless you feel that advertising is inherently evil -- people should not be able to tell you about things that could improve your life -- then paying people to share your product isn't evil. But it's definitely a form of advertising, and no one should pretend differently. However, evil or not, it can certainly become obnoxious. And this is PART of MLM's poor reputation.
The only black mark here is that affiliates have often hidden their affiliate relationship, thus giving the impression of offering information without bias when in fact a bias is there. Today, there are laws promoting more transparency, and top affiliates are happy to make their relationships clear, though there is not really a standard for how they do so. (I'm an affiliate for some products, and depending on my relationship with the product, I may let the reader know within my written recommendation. If it's more of a passing reference to it, I usually mention potential affiliate relationships in the site footer for instance.)
One Thing Wrong with Network Marketing
Other Things Wrong with Network Marketing
Making that same problem even worse, most MLM companies sold products at prices well above what you would pay in a retail setting. They might have claimed that their products were superior, but many times that just wasn't true, and ultimately you were paying for a business opportunity. And if half the product cost was for the business opportunity, you could bet it would be hard to keep customers and that attrition among members would be high. Both points have been the case for MLM.
Network Marketing & Pyramids
[A friend once told me these companies are all scams, because rather than paying people to tell each other, they should just lower the end price of the product and let everyone win. There is a fallacy here, however, because if no money is put into marketing / advertising, no one will know about the products unless they happen to enjoy a rare viral explosion. Businesses can't expect that, and do need to invest in getting the word out.]
I said, however, that associating MLM with pyramid schemes was KIND OF patently false. That's because many use pyramids, but that doesn't make them schemes. The "KIND OF," though, comes from the fact that SOME MLM companies sell nothing of real value; therefore, they are mainly just attracting people into a pyramid where money is moving around, and that IS a scheme, a scam, and it's illegal.
Now frankly, I don't think it should be illegal. I think it's a scheme and a scam, and I think people are hurt by it. But they're hurt by spending money on candy and McDonald's, cigarettes, booze, and many other things. If I want to give my money to someone else in hopes of getting money given to me, I should be able to do so. If I want to give money to someone for food that I know is bad for me, or booze that I know is bad for me, I should also be able to do so. It's my money. Maybe I have to learn a lesson the hard way. I think educational material should be available on all these points, but I don't understand how government picks and chooses what people are "allowed" to do with their own resources. In any case, regardless of what place government should have in all of this, shifting money through a pyramid is definitely a scam and I wouldn't recommend it to anyone.
There's a grey area to this as well. If I sell you a case of cola each month as the product you buy from my MLM, but that case of cola costs $50 ... is it a pyramid scheme? Companies mark their products up different amounts, and Coke and Pepsi -- because of the cost of advertising and the need to satisfy share holders, etc. -- certainly charge a lot more for their product than a generic cola. Are they a scam? You can decide. But at some price, people would simply stop buying them.
In network marketing, though, people might spend $5 per can and feel good because it comes with a business opportunity ... and then try to convince you that it was the best cola in the world, and this justified the extra cost. But in reality, it's just a cola, and isn't that $2 to $3 more than anyone would ever pay for a can of Coke? If so, you could say that excess money is, in fact, money that's being just pushed around a pyramid. And this is where it's hard to distinguish some network marketing businesses from pyramid schemes or Ponzi schemes.
The Right Way to Do Network Marketing
Better yet ... what if the company used the power of its membership to do what my friend suggested and lower prices for everyone? For instance, by having many members, they could negotiate better prices for members for things they already spend money on. Now everyone gets a great deal, and still those who help keep the business healthy -- those who help it to grow -- could earn cash back or even earn a living, depending on their level of action.
To me, this is the critical first element in fixing network marketing: bringing people a fair value. As soon as this is done, members don't have to hype a product to friends and family, because the value will readily be seen by those who care. Also, now that we're in the age of the internet, it's much easier for people to share a company's products and even the business opportunity through an occasional e-mail, or in a subtle e-mail signature, or even by posting an article that can be found and read by those who are searching, and this makes it much more like affiliate marketing. (This is almost exclusively how I grow network marketing businesses -- I have interested people call me, and we have great conversations. I don't hound anyone -- I let their own interest guide them.)
Of course this doesn't stop members from spreading the word obnoxiously, and that is an individual's problem and lesson to learn. But by making the business itself legitimate with real value and providing tools for sharing a message online, a network marketing company gives people the avenue for sharing and educating rather than pushing and being rude. In this case, the only difference between a network marketing company and any other company is who they pay to do their advertising. And I love that one option gives back to the very people who give life to the company in the first place!
Network marketing will probably never be for all people, but I think it has the potential to help us change how we think of business, how we do business. While we continue to look for better ways of business that help all people, I do see some network marketing companies thinking progressively, giving people the tools for success (rather than charging for these), not requiring large up front fees or requiring big purchases, and charging competitively for quality products. And some may be taking it to the next level by helping their networks to offer each other even more value by virtue of communication and sharing, which is something I can sink my teeth into.
So for those interested in earning something extra from home, or who like the idea of doing business differently, or who love to share products they're excited about, network marketing has potential. But if you're heading down that road, consider companies that leave behind the negative practices of the past.