Chapter-2

REVIEW OF LITERATUREREVIEW OF LITERATUREREVIEW OF LITERATUREREVIEW OF LITERATURE

The purpose of this study is to examine the relevance of multilevel

marketing in Kerala. A literature review resulted in identification of selected

research papers, books, journals, articles and surveys, each of which examines

both the positive and negative views on multilevel marketing system.

Literature is analysed carefully and selected few which seems to be the most

appropriate to the current context of study. Data analysis results in tables and

analysis of different prerequisite elements identified by the literature and their

categorization into specific multilevel marketing problem areas. Conclusions

are presented for readers as a list of recommendations related to the varied

aspects of multilevel marketing.

Since multilevel marketing is a new marketing concept to our country,

wide studies have not been conducted so far in the area. At the same time, this

type of marketing was quite popular for many years in USA and as a result

many studies both in favour and against the system were found in literatures

of that country. In addition to that, the researcher has also made references at

the appropriate places regarding the studies and the opinion expressed by well

known authorities, in the connected areas of multilevel marketing such as

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distribution, advertising etc. which seems to be relevant and closely

associated with the concept of multilevel marketing system.

To accomplish this goal, this researcher employs literature review as

the research method to identify existing publications in areas collateral to the

area of this study. Selected research papers, book, journal articles and survey

results published are analysed. Most resources selected are located online

because;

1. They are timelier and much more accessible, as well as the fact that

2. Very few books and academic research papers are available on the

topic of multilevel marketing.

The initial search produced over 74 sources. A closer review identified

around 58 that directly discuss the relevance of multilevel marketing. The

survey of literature connected with the research in question also contains an

annotated bibliography of the primary references examined during the

research. The literature is surveyed in such a manner to have a discussion in

the following lines.

1. Key aspects of the reference related to the purpose and problem of this

paper.

2. The role that the reference plays in the content of the paper.

References are published in various formats, including research papers,

books, journal articles and surveys. Based on the content, these documents are

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presented as two categories namely literature connected with multilevel

marketing and literature connected with marketing. A summary of such a

literature survey is outlined below.

Direct Selling

Marketing is practiced today in all modern nations, regardless of their

political philosophy. As international competition has heated up, the attention

paid to marketing has increased. Depending on circumstances, marketing can

be vital to the success of an organization. In recent years numerous service

firms and non-profit organizations have found marketing to be necessary and

worthwhile. Every organization, large or small must have a mission. The

global economy is changing so fast and the marketing organizations have to

keep in touch with these changes. Developments affect marketing, direct

sales, including technology, work practice and systems.

The marketing concept was born out of the awareness that marketing

starts with the determination of consumer wants and ends with the satisfaction

of those wants. The customer, not the corporation has to be the centre of the

business universe.

The key to success of any marketing method is the satisfaction of

needs and wants of consumers. The modern marketing concept proclaims that

the key to success in any business consists of determining the needs and

wants of target marketers and delivering the desired satisfaction to consumers

more effectively and efficiently than competitors.

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Marketing in the global economy is going through a period of exciting

and dramatic change make them mature and competitive with the

consequence of consumer base being fragmented. New competitors, products,

brands and line extension means there is hardly a product category in which

marketers are not contending for dominance in relatively small markets.

Competition is rule of modern marketing. Only such firm that enable to

face the competition will only survive. This is also true in the context of

multilevel marketing companies. Dr. M.A. Shaf expresses this view in his

article published in August 2000. According to him, the fierce competition in

the marketing scenario made it impracticable to address the mass markets.

Marketers are now trying to create an opportunity for micro markets or one-to

one market. Such an approach would enable a firm to tailor each element of

its market offering in tune with the taste of individual consumers and thereby

increase the rate of customer retention.

The concept of marketing mix is like a recipe for a gourmet delight. It

is important that all the ingredients are mixed properly in the right proportion.

Failing to do so would make the diner either reject it or consume much less

than what he would have taken otherwise. The idea behind the development

of a mix is that certain combination of four P’s with producer greater

consumer satisfaction than other blends.

A study conducted by KSA Techno park- Extracts published in

Business Line 20th Feb 2001 shows that customers are given their first

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preference to the product quality itself during the course of his purchase.

Similar type of study conducted in 1998 showed that it was value for money

from a shop that ranked on top and quality of products second. But in 2000 it

was inverse state. Consumer looked first at the quality of products and then

looked for value for money.

The product that needs the lowest money outgo is no longer the best

choice. Providing value for money is vital for the product to succeed. Brand

loyalty is dead; the consumer will continuously switch to the brand that

provides the highest value to him. The consumer will not just choose from

available products. If his demands are not met, he will either improvise or buy

it from abroad. This section describes direct selling and explains why this

distribution sector is particularly appropriate for exploring the study’s

research question.

Direct selling is a method of distributing consumer products directly to

customers. Instead of selling through shops, direct sales uses a marketing

network of people called a direct sales 'representative' or ‘distributor’ to find

customers and move products. Representatives are also known as Independent

Business Owners, Distributors, Consultants or Networkers. Direct Selling can

be best described as the marketing of products and services directly to

consumers in a face to face manner, generally in their homes or at their

workplace and other places away from permanent retail locations, usually

through explanation or demonstration by an independent direct salesperson.

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Direct selling is defined as personal contact between a sales person and

a consumer away from a retail store. This type of retailing has also been

called in-home selling but, the changing roles of women have made the term

less accurate. A variant of direct selling is called multilevel marketing where

by companies such as Amway or Shaklee recruit independent business people

who acts as distributors for their products, who in turn recruit and sell to

distributors, who eventually recruit others to sell their products. A

distributor’s compensation includes a percentage of sales to the entire sales

group that the distributor recruited as well as earning on any direct sales to

retail customers.

Without doubt, India has the greatest potential for direct sales in the

world. This is because of their huge middle class, highly entrepreneurial

culture, massive international connections, huge technology base and their use

of the English language. It is probably the largest effective 'single market' in

the world. Direct Selling and 'Networking' has always been part of the Indian

culture and tradition. For centuries they have traded and bartered by word-of-

mouth advertising. Only over the last few years have they been exposed to the

organised structure of direct sales. Through the close-knit network of

extended family and friend’s resident in the western world, the concept of

direct selling has filtered through to India.

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Although it is a centuries old practice and is the bread and butter of

number of successful organisations today, there was a paucity of published

empirical research on direct selling until 1980s.

Direct marketing efforts have an excellent chance of favourably

influencing target consumers attitudes because the product and services

offered and the promotional message conveyed, are very carefully design to

address the individual segments needs and concerns and they are able to

achieve higher hit rate than mass marketing.

In the direct channel, the company sells the products to consumers

directly. There are no intermediaries. Direct marketing means there is a direct

two-way dialogue between individual customers and a company.

For consumer goods, sometimes a channel in which wholesalers are

bypassed but retailers are used is termed direct rather than indirect

distribution.

Multilevel marketing is only a variation of the traditional marketing

system. The new system also aims at delivering goods to the satisfaction of

customers. This view is discussed in many literatures. In multilevel marketing

system, sales peoples are compensated not only for selling the products to

retail; customers, but also MLM is a business model in which an unlimited

number of distributors can sell a company’s products.

Network marketing, which has been examined from various academic

perspectives (Biggart 1989; Brodie, Stanworth, and Wotruba 2002; Coughlan

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and Grayson 1998; Frenzen and Davis 1990; Lan 2002; Pratt 2000), is the

most prevalent form of direct selling, and it generates more than $22 billion in

annual U.S. sales (Direct Selling Association 2005). Examples of network

marketing organizations that have received attention in the academic and

popular press include Amway, Herbalife, Melaleuca, Nu Skin, The Pampered

Chef, and Shaklee (Pratt 2000;Shrager 2001;Vander Nat and Keep 2002).

The term “network marketing” is used by practitioners (Berry 1997),

and it appears in academic articles (Coughlan and Grayson 1998; Jun et

al.2006; Kong 2001; Pratt 2000) and trade publications (including in

publication titles, such as the Network Marketing Business Journal and The

Network Marketing Times.com. Other labels are also common, including

“multilevel marketing” (Clothier 1994). However, as one reviewer rightly

noted, these labels are sometimes viewed as having negative connotations,

leading some in the industry to prefer the more generic term “direct selling,”

an umbrella term that refers to both multilevel and single-level direct selling

organizations (Berry 1997).

Sales people are compensated not only for selling the product to retail

customers, but also MLM is a business model in which an unlimited number

of distributors can sell a company’s products. Each distributor has the

opportunity to gain override commission payments on the sales of as many as

six levels of sales representatives below (downliners). Sales people are

compensated not only for selling the product to retail customers, but also for

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enrolling new sales people. In fact what MLMs really care about is enrolling

investors, rather than selling product. More than 15 million Americans are

involved in MLMs, which do an annual business of $31 billion.

MLM is an acronym for multilevel marketing, also known as network

marketing. It is not a type of business, but a way of doing business. MLM

companies are not different than other companies who manufacture or

distribute products in most respects.

Major Studies on Multilevel Marketing

The pros and corns of multilevel marketing have been widely

discussed and documented in the press, in the form of reports and research

studies.

Information about MLM consumers have been widely obtained from

two studies. The first was conducted for the Direct Selling Association in

1976 by Louis Harris and Associates. A total of 18 product categories were

investigated. The objective of the study was to assess the attitude towards

direct selling industry, focusing on its strength and weakness. According to

this study, consumers reported that direct selling, especially the use of cold

calls, represented an intrusion, and that they were concerned about letting

strangers in to their homes, being subjected to high sales pressure and the use

of misleading and unfair sales practices, ending up the buying of product that

did not need and paying an unfair price for products sold direct.

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Later Nowland Organisation conducted a study for the Direct Selling

foundation. The objectives of that study were to update the Harris study and

obtain specific information on three major segments of direct selling;

repetitive person to person; non repetitive person to person and party plan.

According to Nowland (1982), consumers hold generally negative views

about the very idea of direct selling, and many perceived that direct sales

people were overly aggressive, unmotivated and capitalised friendships, or

emphasised selling business opportunities and premiums rather than products

and delivery.

One of the first new wave studies of the consumer side of direct selling

is that of Peterson, Albaum, and Ridgway N.M (1989). This study partially

updates Harris study and Nowland studies on the selected consumer issues.

Their study aimed at;

1. Determine the extent to which consumers buy from direct sales

companies and document the demographic characteristics of

purchasers and non purchasers.

2. Obtain the perceptions of advantages and disadvantages from buying

a direct selling company.

3. Investigate the perceived risk of buying through other modes of retail

selling.

The research was descriptive and is based on a national sample of 1600

consumers from national consumer mail panel. 988 people responding are

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viewed as representing middle class American. A nationwide survey reveals

that 57 per cent of the respondents had purchased a product or service from a

direct selling company in the year preceding the survey. Purchasers tended to

be younger, more educated and more affluent than non purchasers.

Convenience was perceived to be the major advantage of buying product from

direct selling company ‘; the major disadvantage perceived to be pressure

tactics and pushy sales people. The risk of buying from a direct selling

company was viewed as being greater than that of buying from a retail store,

but less than that of buying from an unsolicited telephone call.

Similar type of data was obtained from 492 people in the study

conducted by Raymond (1990). Since the sample of consumers used by her

was provided by participating direct selling companies, findings are not

directly comparable to those of Peterson, Albaum, and Ridgway. Moreover,

Raymond’s study examined other issues such as well incentives for repeated

purchasing and increasing of order size and improvements consumers would

like to see in direct selling companies.

A study of the consumer perspectives also looks at how a company

might best integrate one or more direct marketing techniques such as direct

mail or telemarketing with its direct sales operation (Massey & Seitz 1991). A

mail survey of 4000 US households conducted resulting in response from 100

purchasers and non purchasers of direct selling companies. The original

sample was provided by direct selling companies and included active and

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inactive customers. The study investigated purchasing and shopping

behaviour; generalised orientation towards buying habits associated with

direct selling, attitude towards direct selling programs and perceived

satisfaction among the users of this method of distribution.

A study by Barnowe and McNabb (1992) described finding from an

investigation of consumers’ experiences with attitudes towards direct selling

methods, based up on face to face interviews with 491 residences in three

pacific North West metropolitan areas. Most of the households in this study

(92 %) had experienced direct selling attempts in the past three years than

were reported in the Harris (1997) survey for a five year period (88%). The

findings of this study also reinforce previous studies which and have indicated

that women make more purchased in direct selling than men. As was the case

in the earlier studies by Harris and Associates and Nowland Organisation

(1982), the consumers in this study complained about pushy, untrustworthy

sales persons and about the inconvenience of some direct selling encounters.

More than in the previous studies, consumers in this study criticised the poor

quality of products and services, and of follow up services including

warranties and other recourse problems. On the positive side, direct selling

provides, for some consumers, a set of strong attractions, personalised

attention in the convenience of one’s own or another house, the chance to ask

questions and the chance to try products or them personally demonstrated.

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A study conducted by P.T.Jose (2002) shows that distributor’s

awareness is nominal and there is significant difference in the level of

awareness about MLM among the various levels of performers. The study

reveals that the variables such as participation in upline sponsored meeting,

recommendation from warm circle, minimum risk and high income and

goodwill of the company constitute the vital group of motivating variables for

distributors.

The study by Wotruba and Pribova (1996) reports on a survey of 1571

households in the Czech and Slovak Republic concerning their experience of

buying from direct sales people, their demographic characteristics and their

attitudes as consumers towards direct selling. The results are also compared

with similar studies in US done by Harris (1977), Nowland (1982) and

Pete5rson, Albaum, Ridgway (1989). They found that the best potential

buyers are younger with higher level of education and income above average

household size.

Women seem more amenable to direct selling than man; perhaps

because of many of the products sold by direct sellers have more direct appeal

to women. Buyers do attribute more advantages and fewer disadvantages to

direct selling than do non buyer in both Czech Slovak market and US the

studies. But the relative strength of various advantages differs between these

two market situations. The Czech Slovak consumers are less concerned than

US consumers with the convenience and privacy intrusion and more

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concerned with the ability to examine the products and difficulty in returning

them if not satisfactory.

It quite common to assume that earning extra income is the primary

reason people to join MLM Company, several studies done in Britain and U.S

concluded otherwise. According to these research findings, when joining in

MLM company, factors such as the like for the product, achieving short term

goals, being one’s own boss, enjoying discount price and winning prices from

others were all cited as important factors (Berry 1997).

In a similar study conducted on four MLM companies in U.S, Wotruba

and Pradeep (1992) found that people who were motivated by factors such as

social rewards, the sense of self satisfaction and accomplishment and flexible

working hours generally have higher productivity in their sales performance

and were less prone in quitting.

A study conducted by the Direct Selling Association of U.S.A in 2000

regarding the public attitude reported some valuable findings. Public Attitude

Tracking Survey, conducted by Burke Marketing Research, assessed public

attitudes toward the direct selling industry. This study updates the findings of

an earlier DSA study conducted by Wirthlin Worldwide in 1997. Data from

both surveys indicate that direct selling remains a vibrant marketing method

that produces considerable loyalty among its representatives and customers.

Recent marketing innovations such as use of the Internet and mall kiosks,

while less prevalent than traditional direct selling approaches, are gradually

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increasing in importance. Some interesting points revealed by the survey

include the following:

1. The direct selling industry has touched a majority of adult

Americans: In 2000, 55 percent of American adults reported having,

at some time, purchased goods or services from a direct selling

representative. This represents a slight increase over the Wirthlin

figures.

2. In the 2000 survey, one in five American adults (20%) reported they

are now (6%) or have been (14%) a direct selling representative.

3. Among direct selling customers, three out of four (77%) have

attended an in-home demonstration or party.

Thirty-eight percent of adult Americans surveyed in 2000 have some

interest in purchasing a product or service in the future via direct selling, but

only 27 percent had actually made a direct selling purchase in the past year.

Both figures are about the same as in the earlier survey (Wirthlin Worldwide,

1997). With public interest in purchasing through direct selling (38%)

exceeding those who have purchased (27%), these recent figures suggest there

is an opportunity for growth.

The research also reveals the changing shopping patterns of Americans.

The finding goes as follows.

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As reported in 2000, the 55 percent of American adults who have ever

purchased by direct selling is exceeded only by the percentage of those who

have ever purchased via retail stores (96%) or through mail order catalogues

(83%).

The percentage of American adults who are somewhat, very or

extremely interested in using the Internet as a method of purchasing products

and services in the future has increased from the 30 percent of American

adults reported in the 1997 survey to the 50 percent reported in 2000.

Research conducted by DSA (Direct Selling Association) of USA in

2002 shows some of the most popular reasons for people choose direct

selling. These reasons are as follows:

• Direct selling is a good way to meet and socialize with people.

• Direct selling offers flexible work schedules.

• Direct selling is a good way to earn extra income.

• Direct selling is a good way to own a business.

• Earnings are in proportion to efforts.

According to a survey conducted by DSA in 2002 it was found

that 55 percent of Americans have purchased goods or services through direct

sales. That is more than the number who have purchased through television

shopping and on-line computer services combined. People value the products

available through direct selling and 45 percent of Americans want to buy from

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direct sellers. Other findings of their survey are the following. Direct sales in

the U.S. have doubled in the last decade to nearly $25 billion and are now

more than $82 billion worldwide.

• People from literally all walks of life, of all ages, are successful

in direct sales. About 73 percent of those working in direct sales are women,

10 percent are African American, six percent are Latino and three percent are

Asian, Native American or other.

• Many people start direct selling as a part-time, and later leave

their other careers when direct selling becomes more beneficial.

According to the Growth & Outlook Survey Report: U.S. Direct

Selling in 2007, the direct selling industry, which includes well-known name

brands such as Avon, Mary Kay, Herbalife, The Pampered Chef and The

Longaberger Company, gained 1.1 million representatives from the previous

year. The study also reports that a U.S.-based sale shows a slight decline to

$30.80 billion in 2007, down from $32.18 billion the previous year and

$29.73 billion in 2004. The number of Americans working as direct selling

consultants in the U.S. is 15 million in 2007, according to a study released by

the Direct Selling Association, the industry's national trade group. The report

indicates that women continue to represent the largest segment of consultants

-- 87.9 percent. The survey also found that 90.1 percent of all direct sellers

work part- time, less than 30 hours a week, while 9.9 percent work full-time.

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The study indicates that 77.1 percent of all sales in 2007 were

conducted face-to-face: 70.4 percent in a home, 2.5 percent in the workplace,

3.7 percent at a temporary location and 0.5 percent of the time in other

locations. The remaining 22.9 percent of sales occurred remotely: 8.8 percent

of the time over the phone, 11.4 percent via the Internet and 2.7 percent of the

time through other mediums.

Clothing, personal care and accessories remain the largest product

categories with 32.8 percent. Home and family care products were second

with 25.6 percent sales, wellness third at 21.4 percent, leisure and education at

4 percent, and 16.2 percent for other products and services.

Worldwide growth in direct selling had been steadily increasing over

the past decade. Current figures from the World Federation of Direct Selling

Associations (WFDSA) show that in the period 1988-1997, estimated global

retail sales have increased from $US33.3billion to $US80.3billion. The

number of individuals involved in direct selling over that time has grown

from 8.5million to 31million.

Significance of Relationship in Multilevel Marketing

The role of the recruiter in direct selling is similar to that of a

supervisor or sales manager in a typical selling situation. In mainstream

selling the sales manager typically is responsible for the recruitment, training

and development of the sales team members and, in return, receives a salary

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plus a bonus that is dependent on the level of sales or product volume

achieved by the team.

In direct selling, although the role is of a more informal nature, the

recruiter assumes the role of a mentor, taking the new recruit under their wing

and teaching them the rudiments of the business: how direct selling operates;

how to run the business; how to sell the product or service (overcoming

objections, closing sales); product knowledge and use, and effective recruiting

techniques. This latter is fundamental to the majority of direct selling

companies whereby the health of the organisation is dependent on the ability

to continually inject new recruits to replace those who have left, or to build

the downline. The ruthless recruiting of new distributors in direct selling is an

economic imperative particularly in party-plan and multilevel organisations.

In the early stages of a distributorship the relationship between

recruiter and recruit is especially close: the recruiter has a vested interest in

the new recruit doing well as their stature in the organisation and their income

increases as the size of their ‘team’ increases. In this period of new skill and

knowledge acquisition the need for support is higher than at later stages when

confidence is increased, and the new recruit is initially heavily dependent on

the sponsor for support and encouragement in this transition phase. This level

of support has been shown to significantly increase satisfaction in a retail

environment.

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Direct selling involves selling consumer goods to private people in

contexts in which retail selling does not usually occur, such as in homes and

workplaces (Berry 1997, p. 21). Network marketing companies are a special

type of direct selling organization because their agents can generate income in

two ways. They can earn commissions and retail profits by selling directly to

retail customers, and they can recruit and manage their own network of sales

agents (on whose sales they earn a commission).Those who undertake this

second income-generating activity are often called “sponsors ” who develop a

“downline ” of sales agents. Therefore, network marketing agents can have a

relationship with both their “upline” sponsor and their “downline” recruits.

With few exceptions, network marketing agents are independent contractors

who make individual decisions about how much time to spend on their

businesses. They also often work cooperatively by holding common

recruitment meetings and sales training sessions. Network marketing agents

are well suited for this study because the organizations they work for

encourage them to use existing social networks as a pool for recruiting new

agents encourage people to develop a list of potential sales contacts by

creating a “warm list ” of people who know them by name (Bremner 1996;

Carmichael 1993;Clothier 1994; Poe 1995).

As a result, network marketing agents are often sponsored and

supervised by someone who is at least a social acquaintance and sometimes

also a friend. In other words, as part of their job, network marketing agents

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are encouraged to introduce business role expectations into friendships (Lan

2002; Pratt and Rosa 2003).Therefore, they face potential role conflict.

Furthermore, research on network marketing has demonstrated that

despite this advice and encouragement, not all network marketing agents

pursue a business strategy that relies primarily on an existing social network

for customers. For several reasons, including concerns about upsetting friends

and acquaintances, some agents instead decide “that the effort and potential

social cost associated with selling to friends are too high ” (Grayson 1996)

and that “strangers or remote friends are ‘better ’targets than close friends

because distributors feel less pressure ” (Lan 2002). Therefore, as Merrilees

and Miller (1999) illustrate in their study of network marketing sales

strategies, some agents deliberately focus their selling and recruiting efforts

on people who are not friends. Nonetheless, when non friends join a

downline, their upline sponsor may then be interested in building a close

personal relationship with them. According to Lan (2002, p.177), some

sponsors actively “transform their relations with fellow distributors” by

developing particularly close relationships with them. As one of Pratt’s

(2000) Amway informants explained, if you “build a friendship, you build a

directship” (a “directship” is achieved when an agent’s downline exceeds

specific sales targets). Similarly, several informants reported that partly

because sponsors pay such intense personal attention to recruits, they often

naturally become friends (Grayson 1996). Thus, network marketing

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sometimes involves imposing a business role on a friendship and sometimes

involves developing a friendship role within a business relationship.

Network marketing companies are not the only organizations whose

tactics can foster a combination of friendship and instrumentality. Employees

in other sectors are also encouraged to “treat customers like best friends”

(Geller 2006) or to “make a friend —not a transaction” (Tan and Steinberg

2007). Furthermore, across a range of industries, companies frequently try to

capitalize on social relationships to achieve commercial aims.

Some encourage their salespeople to use their friends and family

networks to generate new business leads (Broker 2005;Huisken 2005;

Meagher 2006), and others, including companies as large as Sony, Gap, and

Citibank, offer customers financial incentives for referring friends and family

(Bulik 2006; Mitchell 2003;).

All sources claimed that direct selling is very popular among public, by

citing other research media statistics. While attempting to verify these

statements, this researcher discovered that the statistics came from research

firms, which would not release the original research without a fee. Therefore

the researcher was unable to verify the statistics. However, since many

sources cited similar claims, the researcher decided to include the citation

because it indicates the significance of direct selling in marketing arena.

One of the reasons for failures of this type of selling is that some

companies are simply peddling the wrong products. Others have a good

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product but lack the financing to build a distribution infrastructure that will

create profits and support growth. It is recommended that new distributors

stick to companies with;

1. a track record, a distribution network, and financial stability;

2. a highly developed support systems with training and video sales

aids;

3. a product that is credible, good, and consumable and

4. the prospect of growth, through expansion, innovation, and

diversification.

Several researchers have measured frequent direct marketing patronage

to identify factors that are associated therewith. Some of these studies have

focused on the demographics of direct purchasers Jayawardhena, Wright &

Masterson, 2003 conducted a study and it mainly focused on how

demographics affect the motivation of consumers in buying products directly.

Demographics are not sufficient for understanding consumers'

motivation for direct purchasing. Consumers' buying motives also need to be

taken into account. These are the internal forces that cause consumers to seek

out, evaluate, and make purchase decisions (Peltier & Schribrowsky, 1992).

Several international studies have focused on non-demographic

indicators as determinants of direct shopping behaviour, for example,

attitudes, perceptions and motivations. Some studies have identified perceived

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risk as a motivational factor for direct purchasing (Ghert, Yale & Lawson,

1996; Jarvenpaa & Todd, 1997; Park & Stoel, 2002; Reynolds, 1974;

Vrjayasarathy & Jones, 2000). Such perceptions may range from high levels

of perceived risk to no difference in perceived risk between direct purchasers

and store purchasers. Ghert, Yale and Lawson (1996) advise direct marketers

to be particularly attentive to convenience concerns that may arise during the

direct-purchasing process. The results indicate that direct shoppers tend to

perceive risk when in the process of ordering, receiving, and returning

purchased goods.

Several researchers have also found convenience to be a principal

reason for favouring non-store retail methods (James & Cunningham, 1987;

Kaufman-Scarborough & Lindquist, 2002). Women entering the workforce

have been cited as one of the reasons for the growth in direct marketing.

Berry and Cooper (1990) have identified the increase in women in the labour

force as primary contributors to time pressure which, in turn, could lead to a

preference for non-store buying. However, the results of a study by Lavin

(1993) indicated that for both husbands and wives, strong feelings of time

pressure were not associated with an increased preference for non-store

purchasing.

Findings by Akhter and Durvasula (1991) suggest that various

combinations of attitudes toward the elements of direct marketing affect

purchase intentions. Furthermore, the findings conceive that attitudes toward

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catalogues and ordering by mail are more important than attitudes toward the

direct-marketing company in distinguishing between those with favourable

purchase intentions and those with unfavourable purchase intentions.

This was supported by Kaufman-Scarborough and Lindquist's (2002)

research, which indicates that there is a positive relationship between the

frequency of online shopping and the frequency of using other forms of non-

store shopping. A study by Donthu and Gilliland (1996) found that direct-

television shoppers (consumers who phone in to purchase after seeing a direct

response television commercial) tend to be less risk-averse, more price

conscious, and more convenience seeking than non-television shoppers. They

are also more brand conscious, innovative, impulsive, and variety seeking

than non television shoppers and have a more negative attitude toward general

shopping and a more positive attitude toward direct marketing.

Business organisations have long relied on direct marketing to target

customers without spending a lot of money on retail distribution. However the

Network (Multilevel) Marketers have taken the direct model one step further,

i.e. not only they do the sales, but recruit and train new distributors i.e.,

independent sales persons who are members in the network marketing

company. This novel method was first popularised by Amway in 1950’s.

The big advantage in network marketing is the commission paid not

only for direct sales made by the salesperson, but also from the sales made by

the recruits made by him. That is, if a distributor enrols his friends and

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relatives, he gets a commission not only from the products bought by friends

and relatives purchase, but also from the sales they make to their friends

(Bloch, 1996).

This ‘wonderful’ opportunity attracts prospective candidates to join

network marketing companies. Studies reiterate the fact that a 100 percent

annual turnover rate among sales personnel in certain network marketing

company is not unusual (Peterson & Wotruba, 1996).

One of the objectives of this study was an attempt to investigate

consumers' perceptions towards multilevel marketing. There have been few

specific studies pertaining to consumer perceptions of direct selling as a non-

store retailing activity. The study hopes to add some information regarding

network marketing as a type of direct selling.

A literature review revealed that there was no much research

investigating consumers' perceptions of network marketing as a type of direct

selling. Two related research studies concerned with direct selling were

found. The first by Peterson (1989) conducted an investigation of direct

selling in the USA to determine consumer perception of this form of non-store

retail purchase behaviour. They researched how consumers used direct selling

to make purchases; they identified consumer characteristics, and consumers'

perceptions of the advantages, disadvantages and risk in purchasing products

from direct sellers. From their survey, more than half of the 988 consumers

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who responded had made at least one purchase of a product from a direct

selling salesperson in the preceding year.

They reported that convenience of shopping at home was an advantage,

although sales pressure by the salesperson was seen as a disadvantage.

Peterson (1989) also found that risk of purchase was perceived to be greater

through direct selling than at a conventional retail store.

In another study, by Wotruba (1990), researched the effect public

image of the selling job has on the sales activity or inactivity of direct selling

salespersons. From the 491 responses, he found a direct relationship between

a salesperson's low self-image, activity on the job and job satisfaction.

However, this varied between high and low performers.

Overall, the salesperson's job image and job satisfaction and

performance were positively related. Differences also occurred based on

reaction to image, length of time on the job and general successful selling

performance.

India Infoline conducted a study about direct selling industry in August

2004. The important extracts from their study is reproduced below.

1. The direct selling industry does an estimated sales of over US$88

billion worldwide

2. Almost 49 million people all over the world are engaged in direct

selling.

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3. Global industry sales growth averaged 3.1% the last 10 years. Growth

has decelerated to 1.3% in the last 5 years.

4. In terms of number of people joining the direct selling industry

annually, the growth rate has been a higher 15% over the last 10 years

and 9% over the last 5 years.

5. The dropout rate however is quite high, with only 50-60% of recruits

converting into active consultants

6. USA has the highest number of direct sales people at 13.3mn in 2003.

7. Indonesia has the highest number of sales people in the world after US,

but productivity is low. Sales per person are the lowest in the world in

Indonesia at US$109. Switzerland has the highest sales per person at

US$51561.

Their findings with regard to direct selling India can be summarised as

follows.

• India with about 1.24 million direct sellers ranks 11th globally in terms

of number of people employed in the direct selling industry.

• Sales in India through direct selling is estimated at Rs23 billion

(US$511 million) in 2003.

• Health & Nutrition products have emerged as the fastest growing

category in India, accounting for almost 40% of product sales through

direct selling.

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• Marketing of Services is likely to emerge as the next growth area.

The men to women ratio in India are gradually changing. Traditionally

considered as a profession for women, more and more men are today directly

or indirectly venturing into direct selling.

The reasons for becoming a direct seller are varied and bear some

relationship to the length of time a person stays with a company. The United

States Direct Selling Association (Berry 1997) identifies groups attracted to

direct selling as follows:

• Short-term goal seekers (need extra money for a specific reason)

• The underpaid (current income does not match desired expenditure)

• Career direct sellers (those for whom direct selling is their major

source of income)

• Recognition seekers (those who feel they do not receive the

recognition they deserve in their everyday role)

• Product enthusiasts (consumers who have a personal, and sometimes

passionate, belief in the product and wish to share that with others)

• Discount seekers (consumers who wish to keep using the product but

whose main purpose in joining is to purchase at the discounted or

wholesale rate)

• The unemployed (those needing a job who – mistakenly – perceive

direct selling as a way to replace a full-time position

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Berry (1997) confirms a similar pattern in the United Kingdom which,

it must be assumed in the absence of any research, also applies to the

Australian experience. This study will confirm or deny this assumption.

Distributor Turnover in Multilevel Marketing

Despite this worldwide growth in direct sales (now involving some 52

countries) both as a selling system and as a career opportunity, sales force

turnover continues to constitute a major problem for direct selling

organisations. The average turnover rate in the United Kingdom and Europe

exceeds 100 per cent per annum. This level of attrition comes at a significant

cost, not only in terms of recruiting, but also in terms of the less tangible

expense of customer dissatisfaction at losing their direct seller contact with

whom they have possibly built a valued relationship.

Studies undertaken in the United States by Wotruba and Tyagi (1991)

exploring the relationships and reverse causality relationships of certain

variables to turnover were used by Brodie (1995) as a basis to identify

antecedents of turnover in the United Kingdom and France. Survey results

support the earlier American findings and confirm that the following key

variables contribute significantly to reasons for this high turnover:

• Low met expectations;

• Poor job image;

• Inadequate job satisfaction; and

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• Intention to quit.

Multilevel marketing distributors get lot of expectations to the activity

that are partly set by the sponsor through the recruiting process. The recruit

observes the direct selling activity being conducted by the sponsor and

develops certain expectations about what direct selling may have to offer

them in economic, professional and personal terms. Their subsequent

evaluation of the extent to which these expectations have been met by their

experience of direct selling may impact on their level of commitment.

Porter and Steers (1973) define met expectations as: The discrepancy

between what a person encounters on the job, in terms of positive and

negative experiences, and what they expect to encounter, and that people can

have very different expectations about individual conditions or circumstances

of a job, such that a specified job condition may not have a consistent effect

on a person’s decision to quit, or not. Porter and Steers predicted that when a

large enough gap exists between original expectations about what the job has

to offer and what was actually delivered, then termination is likely to occur.

Thus, Porter and Steers postulate that job dissatisfaction mediates the

relationship between unmet expectations and turnover. Notably, Porter and

Steers’ (1973) operational definition of met expectations centres on the

discrepancy between one’s initial expectations and one’s subsequent

perceptions. Only the expectations of salient aspects of the job (e.g., pay,

promotion, supervisor relations, and peer group interactions) are included in

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the met expectations hypothesis espoused by Porter and Steers. They state that

individuals have varying salient expectation sets, depending on which job

aspects are most important to the individual.

Wotruba and Tyagi (1991) in their research using a direct selling

sample, found a strong relationship between met expectations and the

propensity to quit. Brodie argues in his (1995) thesis that this “comparison

between expectations and actual experiences is the critical factor which may

affect the person’s intention to quit”.

Research undertaken by Mason (1965) Mobley (1979) suggests that

when a person perceives that the image their job role portrays is

unsatisfactory; their level of job satisfaction is lowered. Subsequent research

(Mobley et al 1979; Porter and Steers 1973; Spencer and Steers 1981) has

shown that job satisfaction is a strong predictor of turnover.

Locke and Lathan (1976) give a comprehensive definition of job

satisfaction as pleasurable or positive emotional state resulting from the

appraisal of one’s job or job experience. Job satisfaction is a result of

employee's perception of how well their job provides those things that are

viewed as important. According to (Mitchell and Lasan, 1987), it is generally

recognized in the organizational behaviour field that job satisfaction is the

most important and frequently studied attitude. While Luthan (1998) posited

that there are three important dimensions to job satisfaction:

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• Job satisfaction is an emotional response to a job situation. As such

it cannot be seen, it can only be inferred.

• Job satisfaction is often determined by how well outcome meet or

exceed expectations.

For instance, if organization participants feel that they are working

much harder than others in the department but are receiving fewer rewards

they will probably have a negative attitudes towards the work, the boss and or

co-workers. On the other hand, if they feel they are being treated very well

and are being paid equitably, they are likely to have positive attitudes towards

the job.

“Job satisfaction is one of the most widely studied constructs in sales

force research” (Brown & Peterson, 1993, p. 63). From an organization’s

perspective, satisfied employees have been shown to exhibit greater

commitment to the organization (Koch & Steers, 1978; Marsh & Mannari,

1977), higher performance (Mowday, 1982), and lower tendency to leave the

organization (e.g., Brown & Peterson, 1993; Cohen, 1993; Futrell &

Parasuraman, 1984; Johnston, 1990). Job satisfaction is a recognized correlate

of organizational commitment and intention to stay (Porter, Crampon, &

Smith, 1976). Several studies depict job satisfaction as a mediator for other

antecedents such as role ambiguity and role conflict (Brown & Peterson,

1993; Sager, 1994). In consumer satisfaction/dissatisfaction literature,

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satisfaction is also shown to mediate relationships between other antecedents

and intentions/behaviour (LaBarbera & Mazursky, 1983).

Considerable research has been devoted to developing predictive

turnover models which include job satisfaction as one of the most commonly

proposed antecedents. This has been generally supported (Futrell and

Parasuraman 1984; Judge 1993; Michaels and Spector 1982; Mobley et al

1979; Tett and Meyer 1993; Schneider and Snyder 1975).

Intention to leave can be defined as one’s behaviour intention to cease

working. In their Turnover Model, Wunder (1982) also measured intent to

leave as a surrogate for actual turnover. Their model was used as a guide for

the research of Good et al (1988) who were able to confirm the linkages from

the role stressors identified by Wunderman to intention to leave by retail

managers. They acknowledge, however, that data collection is needed to

determine the degree to which intent does predict turnover

In the direct selling industry, turnover rates among direct salespeople

of up to 100% have been reported in the literature (Granfield & Nicols 1975;

Wotruba, Sciglimpaglia & Tyagi 1987; Wotruba 1990; Brodie & Stanworth

1998). Given the considerable investment that must be made in the

recruitment and training of new direct salespeople, controlling the cost of

turnover has become an important strategic issue that direct salespeople need

to address.

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It is not only the costs directly associated with the turnover that are at

issue. High rates of sales force turnover can also impact negatively on

customers. Customers who are poorly serviced as a result of a lack of

continuity in their relationship with their distributor can create unfavourable

perceptions of a direct selling organisation. Raymond & Tanner (1994) argue

that there are many cases of customers developing negative perceptions as a

direct consequence of the frustration experienced when the distributors

supplying them with their products leave the organisation.

Word of Mouth Communication

Advertising provide messages close to manufacturer, but different from

the customer at the point of purchase. In the distribution chain, manufacturer

located at one extreme and the consumer on the other. The shortest and the

most direct route with the clearest and relevant message will be the most

effective.

Research shows that consumer prefer personal information sources

when they buy services, because they have greater confidence in such sources.

Many marketers look for an opportunity to encourage word of mouth

communications and other favourable informal conversations concerning their

products because they recognize that consumers place more credibility than in

paid advertising or a company’s sales people.

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Although most marketing managers believe that word of mouth

communication is extremely effective, one problem they sometimes overlook

is the fact that informal communication is difficult to control.

At the same time negative word of mouth is less common when

consumer perceive the seller to be responsive to consumer complaints.

Even so, the Generation first man distrusts advertising in general, blaming it

for creating confusion. For the expensive products, therefore, he decides on

the basis of user testimonials, word of mouth reputation and personal

judgment….But he warned Generation one boy hates commercials,

dismissing most of them as boring, stupid and unbelievable.

Many firms also attempt to benefit by fostering word-of-mouth

recommendations among friends (Hughes 2005; McConnell and Huba

2007;Sernovitz 2006).To manage word of mouth in the Internet age,

marketers are experimenting with ways to capitalize on the recent growth of

Web sites such as MySpace.com and Facebook.com, which facilitate online

friendship networks (Maughan 2007). Similarly, some companies are

fostering word-of-mouth referrals by encouraging customers to mine their e-

mail lists, an approach that has spawned 2005’s fastest-growing category of

the online advertising business (Bulik 2006).

As emphasized previously, this article’s findings about the conflict

between friendship and instrumentality should not lead to the conclusion that

efforts to capitalize on friendship are always ill-advised (particularly because

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evidence suggests that they can enhance sales and profitability; see Harris

2004; Meagher 2006; Tschorn 2003). Instead, this study adds to growing

evidence that if customers view these tactics as creating a conflict between

friendship and instrumentality, companies may weather costs in addition to

benefits. For this study’s sample, these costs included agents who spent less

time working and whose time was less productive. More generally, the

findings reported in this study indicate that incentivizing customers to refer

their friends may attract new business but may also dampen future customer

commitment and negatively affect customers ’relationships with members of

their social network. In summary, the role of friendship appears to be more

complex than merely helping or hurting business. Depending on how it is

managed, it may simultaneously facilitate and hinder exchange.

There are at least two tactics that companies use to manage the

perceived conflict and thus reduce the potential costs. On the one hand,

companies that want to strengthen existing business relationships can do so

without invoking friendship norms —that is, by fostering some, but not all, of

the relational attributes that define friendship. In the words of one manager,

good business relationships should exhibit trust and mutual respect, but “this

doesn’t mean we have to always be best friends” (Sedam 2006). On the other

hand, companies that want to introduce instrumentality into friendships can

draw attention away from the extrinsic benefits that exchange partners are

getting. For example, many network marketing companies reframe

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instrumental activities as being primarily intrinsically motivated. As Biggart

(1989,) reports, Mary Kay consultants assert that they do not sell cosmetics

(they “teach skin care”), and A.L. Williams agents say that they do not sell

insurance (they “win another battle against the whole life insurance

industry”). Network marketing manuals also frequently reframe selling as

“sharing” good products and ideas with friends (Carmichael 1993, Clothier

1994, Poe 1995). For a similar example, consider Procter & Gamble ’s (P&G

’s)Tremor and Vocal point programs, which recruit influential teens and

mothers to promote products to their friends in return for coupons, free gifts,

and preferential treatment from retailers (Neff 2006).The potential conflict

created by these extrinsic rewards is not lost on participants, who sometimes

feel awkward playing a sales role with friends (Wells 2004).To minimize

these perceived conflicts, program members are not paid money for their

participation, a reduction in instrumentality that managers view as being

essential to the program ’s success (Wasserman 2005). In addition, as with

network marketing companies, P&G deemphasizes instrumental benefits by

describing its programs as a way to expose interested consumers to new ideas

(Singh 2002) and encourage them to “share” these ideas with their friends

(Wasserman 2005).

Some may view these reframing tactics as a cynical or deceptive

attempt to mask instrumentality (Neff 2006), but this is not necessarily so.

Given the authentic zeal demonstrated by network marketing agents (Biggart

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1989) and the legitimate consumer enthusiasm expressed for programs, such

as P&G’s (Wells 2004), company emphasis on intrinsic benefits often may

reflect an underlying truth. Ultimately, whether friendship and business

conflict in a relationship depends in great part on how the individual exchange

partners decide to define the terms of exchange Deighton and Grayson 1995).

However, broader social norms also play a role. In the United States, these

norms include proscriptions against the misuse of social relationships for

commercial gain, which places limits on how much a company can recast its

instrumental intentions. For example, the Federal Trade Commission (along

with professional associations, such as the Better Business Bureau and the

Word of Mouth Marketing Association) advises that people who earn

instrumental benefits as a result of endorsing a product within their social

network must disclose their relationship with the company when they endorse

the product (Neff 2006).Thus, managers who implement tactics that use

friendship and business must be sensitive not only to the potentially damaging

relational conflicts that can ensue but also to the ethical and regulatory

concerns that minimizing these conflicts can sometimes introduce.

The importance word-of-mouth referrals play in product and service

purchases and purchases behaviour are evidenced through a number of

studies. For example, when considering individual products or services past

research as shown that consumer rely on word-of-mouth referrals when

searching for a physician (Coleman, Katz & Menzel 1957; Feldman &

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Spencer 1965), razor blades (Sheth 1971), an air conditioner (Whyte 1954),

an automotive diagnostic centre (Engel, Kegerreis & Blackwell 1969) or

automobiles (Newman & Staelin 1972). When seeking farming practices

(Katz 1961) or voting (Lazarsfeld, Berelson & Gaudet 1944) word-of-mouth

referrals were again important. Word-of-mouth referrals influenced the

purchase of household goods and food products (Katz & Lazarsfeld 1955) and

were the most effective tool to persuade housewives to try new fabrics and

change supermarkets (Beal & Rogers 1957).

More recently, Jupiter Communications (1999) found 57 per cent of

people visiting a new web site on the basis of a recommendation. This form of

communication, personal referrals, was far higher than other communication

influence tested in the study.

These results matched those published a year later in a study based

across seven European countries where it was found that over 60 percent of

7,000 consumers were influenced to purchase a new brand on the basis of

referrals from a family member or friend (Kotler 2000).

Overall, word-of-mouth communication has been described as a

‘dominant force in the marketplace for services (Mangold, Miller &

Brockway 1999), an ‘especially potent form of communication’ (Dann &

Dann 2001), the 'most cost-effective form of marketing a business can use'

(Misner 1994) and the ‘most powerful force in the marketplace’ (Silverman

2001,). Word-of-mouth communication is considered to be a very powerful

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tool in the marketplace based on credibility that comes with a referral which

could make it ‘the greatest of all brand messages’ (Duncan & Caywood

1996,).

A survey by Planet Feedback reinforces that word of mouth advertising

is the best vehicle for advertising. Top of the list was "word of mouth"

advertising, the major driving force behind MLM - Network Marketing. For

tens of 1000's of years the human race survived verbally transmitted

knowledge by word of mouth. When someone looks for a mechanic, a doctor

or a dentist, they ask their friends or relatives. As per this survey 61% of U.S

consumers trust on word of mouth recommendations when they want to buy

products followed by print advertisement which accounts for 47% consumers.

Research results vary as to how many people a person informs about a

product. The emotional involvement of the customer is usual a good predictor

of how often a person informs others about his positive or negative

experience. There is wide industry belief that a dissatisfied customer will tell

more people than a satisfied customer. Also the number of people we tell

about a product can change overtime. A 1999 survey funded by Priceline.com

and conducted by Opinion Research Corporation International of Princeton,

New Jersey, shows that on-line shoppers told 12 other people about their

experience with buying on-line (Rosen, 2000, p. 41).

People share opinions about products and services and they usually

inform five to six people when they are satisfied from their experience with

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the service or product. In the case where they are dissatisfied they can inform

up to 11 people (Cafferky, 1996).

Negative Findings on MLM

Many negative findings with regard to multilevel marketing are also

found in literatures. Dr. Jon M. Taylor, of the Consumer Awareness Institute,

USA, made a very comprehensive study in this respect. He spent two years

researching in network marketing, first as a distributor determined to give

network marketing every chance of proving what it claims to be - then later as

a researcher determined to find out if everyone had as much trouble as he did

making the large amounts of money that were promised to the diligent.

Hundreds of NWM participants were interviewed to learn of the effects

of NWM on the lives of individuals and families. The results were surprising,

and millions of people who are involved would be shocked if they knew what

Taylor has discovered about the industry. Dr. Taylor summarized the results

of his research in a report and challenge to the network marketing industry,

entitled Network Marketing Payout Distribution Study. In a letter to the

presidents of 60 of the most prominent network marketing companies

operating in the U.S., he invited them to prove him wrong, at least for their

respective companies. While some responded, none were able or willing to do

so.

According to some, multilevel marketing is just like a pyramid scheme

or ponzi scheme. Ponzi scheme is like a money chain, which involves the

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mere distribution of money. When Charles Ponzi organized the Securities

Exchange Company in Boston in 1919 and issued promissory notes payable

in 90 days with 50 percent interest, he kicked off a storm of investment frenzy

which duped just about everyone, including politicians, law enforcement

officers, and reporters. He tricked speculators by using the money of new

investors to pay old investors huge ‘profits.’ Some consider Ponzi schemes as

separate and distinct from pyramid schemes.

Ponzi and pyramid schemes do have similarities. Both are fraudulent

arrangements for the receipt and redistribution of money with early

participants winning and those who enter later losing. In each case it is

essential to continue the game with new infusions of money, for if the play

ends and there is an accounting, there must be a deficit and cries of pain. But

where Ponzi promised a definite return on one’s investment the possibilities

in a pyramid were almost limitless as new subscribers feed those who joined

before.

Furthermore, the machinery of the pyramid is always explained and is,

in fact, one of its attractive features; whereas Ponzi plans invariably refer

vaguely to unusual investments that are really irrelevant and usually

nonexistent. In some cases the pyramid seems almost acceptable socially, as

in the cases of chain letters or distributorship plans, but there has never been

any question about the vice of Ponzi schemes.

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Another point of view towards multilevel marketing is it is a mere

arrangement for selling distributor ship rather than products. In 1967 Glenn

W. Turner began an incredible distribution scheme in Orlando, Florida, USA.

His line supposed to be cosmetics, featuring mink oil as a special ingredient,

but in reality he sold distributorships. A participant paid a fee and became a

distributor, entitling him to sell the cosmetic products, but more important,

entitling him to sell other distributorships. Little selling of the cosmetics

actually took place, for the real money was to be made in the sale of

distributorships. Those transactions were essentially the same as in the chain

letter, in that the new participant paid one fee to the party who brought him in,

another to the party at the top, and then assumed a position at the bottom of

the pyramid.

Over five years, Turner formed a big corporation that generated a cash

flow of $200 million, and in which as many as 100,000 people may have

invested. Two main business organizations were developed to carry out his

activities: Koscot (‘Kosmetics Company of Tomorrow’) Interplanetary, Inc.,

the sales arm, and Dare to Be Great, Inc., the training body. Joseph Bulgatz,

in the same book also describes the way of conducting business opportunity

meetings to attract new distributors.

Though technically legal since legitimate products are offered and

recruiting fees for participation are disguised or eliminated, it became

apparent that network marketing generally is as pyramidal as any illegal

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pyramid scheme that could be conceived. This view is admitted by another

authority of multilevel marketing, Michael P. Harden, in his book Handbook

of Multi-level Marketing. He says that the best way of making money in

MLM business is through recruiting more and more distributors.

According to him “This "pyramid" effect reinforces the philosophy of

many people in the MLM industry that the best way to make a substantial

income with the least amount of actual selling is to recruit other people to do

the work. Income is therefore generated through establishing the network, and

not through the actual selling of products.”

Jon M. Taylor, one of the great researchers in multilevel marketing

explains the ruins and loss caused to many distributors. He describes the dark

side of multilevel marketing as “ One thing that my interviews revealed was a

surprising number of maxed out credit cards, foreclosed homes, bankruptcies,

and broken homes resulting from compulsive participation in NWM

programs. A relative of a couple caught up in such a tragedy reported the

following about one NWM addict.”

Another negative remark about multilevel marketing is that the

distributors exploit the relationships to recruit new people in the network.

Network marketing companies encourage distributors to recruit family,

friends, and other contacts into its network of distributors as a way of moving

its products. M. Taylor reaches this conclusion by conducting a survey of 100

persons approached to participate in NWM programs.

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“A major strength of NWM—its potential to utilize the social capital

of its participants—is also a facet of the business that offends the most people.

People who are approached to do NWM often feel that their relationships are

taken advantage of when their friends and family recruit them—placing their

relationships "on the altar of money."

The research conducted by Robert L. Fitz Patrick who has fourteen

years experience in corporate consulting specifically in the distribution field

and more than 10 years of research and writing about the MLM model has

shown that the MLM business model as it is, practiced by most companies, is

a market place hoax. In those cases, the business is primarily a scheme to

continuously enrol distributors and little product is ever retailed to consumers

who are not also enrolled as distributors.

MLM's economic scorecard is characterized by massive failure rates

and financial losses for millions of consumers. Its structure in which selling or

buying goods purchase positions on an endless sales chain is mathematically

unsustainable and its system of allowing unlimited numbers of distributors in

any market area is inherently unstable.

As in all pyramid schemes, the incomes of those distributors at the top

and the profits to the sponsoring corporations come from a continuous influx

of new investors at the bottom. Viewed superficially in terms of company

profits and the wealth of an elite group at the pinnacle of the MLM industry,

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the model can appear viable to the uninformed, just as all pyramid schemes do

before.

CONCLUSION

The purpose of this study is to examine the relevance of multilevel

marketing in Kerala. The review of literature clearly shows that the pros and

corns of multilevel marketing have been widely discussed and documented in

the press, in the form of reports and research studies. The literature review

examined both the positive and negative views on multilevel marketing

system.

Multilevel marketing was quite popular for many years in USA and as

a result many studies both in favour and against the system were found in

literatures of that country. In addition to that, the researcher has also made

references at the appropriate places regarding the studies and the opinion

expressed by well known authorities, in the connected areas of multilevel

marketing such as distribution, advertising etc. which seems to be relevant

and closely associated with the concept of multilevel marketing system.

Since multilevel marketing is a new marketing concept to Kerala, wide

studies have not been conducted. The present study has been suggested under

this background

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