Chapter-2

REVIEW 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 Ps 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 studys
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
distributors 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-ofmouth 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 friends 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 companys 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 companys 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,
Raymonds 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 ones 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 distributors

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 ones 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 Pratts
(2000) Amway informants explained, if you build a friendship, you build a
directship (a directship is achieved when an agents 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 nonstore shopping. A study by Donthu and Gilliland (1996) found that directtelevision 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 1950s.
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 nonstore 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 persons 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 ones initial expectations and ones 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 persons 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 ones 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 organizations
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 ones 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 companys 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 email lists, an approach that has spawned 2005s fastest-growing category of
the online advertising business (Bulik 2006).
As emphasized previously, this articles 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 studys 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
doesnt 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&Gs (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 ones 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 NWMits potential to utilize the social capital

of its participantsis 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 themplacing 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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