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Multi-level marketing (MLM) is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of the other salespeople that they recruit. This recruited sales force is referred to as the participant's "downline", and can provide multiple levels of compensation.[1] Other terms used for MLM include pyramid selling,[2][3][4][5][6] network marketing,[5][7][8] and referral marketing.[9] According to the US FTC, some companies that use multi-level marketing exploit members of their networks and constitute illegal pyramid schemes.[10][11][12]
Most commonly, the salespeople are expected to sell products directly to consumers by means of relationship referrals and word of mouth marketing.[1] Some people use direct selling as a synonym for MLM, although MLM is only one type of direct selling.[1][7][13]
Companies that use MLM models for compensation have been a frequent subject of criticism and lawsuits. Criticism has focused on their similarity to illegal pyramid schemes, cult-like behavior, price fixing of products, high initial entry costs (for marketing kit and first products), emphasis on recruitment of others over actual sales, encouraging if not requiring members to purchase and use the company's products, exploitation of personal relationships as both sales and recruiting targets, complex and exaggerated compensation schemes, the company and/or leading distributors making major money off training events and materials, and cult-like techniques which some groups use to enhance their members' enthusiasm and devotion.[9][14]
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