Multi-Level Marketing (MLM), also known as network marketing or pyramid selling, is a marketing strategy that has both fascinated and polarized people since its inception. It involves a hierarchical structure of independent distributors or salespeople who earn commissions not only for their direct sales but also for recruiting others into the organisation. The history of MLM is a story of innovation, controversy, and persistence, spanning over a century and evolving through various forms. This article traces the development of MLM from its roots in the late 19th century to its current status in the 21st century.

Early Beginnings (Late 19th Century to Early 20th Century)

The origins of MLM can be traced back to the late 19th century when companies began using a direct selling model. One of the earliest examples is the California Perfume Company, founded in 1886, which later became Avon Products, Inc. This model involved individuals selling products to their social networks, earning a commission on sales.

The Birth of MLM (1930s to 1950s)

MLM, as we recognize it today, emerged in the 1930s and 1940s. One of the pioneers was Nutrilite, founded by Carl Rehnborg in 1934. Nutrilite marketed dietary supplements through a network of distributors who could also recruit others. This concept laid the groundwork for the MLM structure.

In 1945, Rich DeVos and Jay Van Andel, who had been distributors for Nutrilite, founded their own MLM company, Amway. Amway popularised the MLM model and became a symbol of its potential. Amway's business model involved selling a range of household products through a vast network of distributors. The key innovation was the emphasis on recruitment: distributors earned commissions not only from their sales but also from the sales of the distributors they recruited.

Growth and Regulation (1960s to 1970s)

The 1960s and 1970s saw rapid growth in the MLM industry. Companies like Shaklee, Mary Kay, and Herbalife emerged during this period. MLM appealed to many because it promised the opportunity to achieve financial success by building a network of distributors. However, this growth also attracted regulatory scrutiny.

In 1979, the U.S. Federal Trade Commission (FTC) issued guidelines for the MLM industry to differentiate legitimate MLMs from pyramid schemes. These guidelines emphasised the importance of real product sales over recruitment and led to a greater focus on product quality and compliance within the MLM industry.

Challenges and Controversies (1980s to 1990s)

The 1980s and 1990s brought both successes and controversies to the MLM industry. While companies like Amway continued to thrive, others faced legal challenges. Notably, the FTC took action against companies like Herbalife and Amway, alleging that they had operated as pyramid schemes. These legal battles resulted in settlements and changes in business practices within the MLM industry.

During this period, the concept of "MLM saturation" emerged, where the market became saturated with distributors, making it increasingly difficult for new recruits to earn significant income. Critics argued that MLM disproportionately benefited the few at the top of the hierarchy, leaving the majority of participants with minimal earnings.

The Internet Age (2000s)

The advent of the internet in the late 20th century and the rise of e-commerce had a significant impact on MLM. Companies began utilising online platforms to recruit and sell products, expanding their reach globally. The internet allowed MLM companies to reach a broader audience and automate certain aspects of their business, such as order processing and commission tracking.

Modern MLM (2010s to Present)

In recent years, the MLM industry has continued to evolve. Companies have diversified their product offerings to include health and wellness supplements, cosmetics, and technology products. The industry has also embraced social media and influencer marketing as tools to recruit and sell products.

However, MLM remains a controversial business model. Critics argue that the majority of participants earn little to no income, while a small percentage at the top of the pyramid benefit disproportionately. High-profile legal cases, such as the 2016 Federal Trade Commission action against Herbalife, have put a spotlight on issues within the industry.

Regulation and Scrutiny

Regulation of the MLM industry has been a topic of ongoing debate and legal action. The FTC continues to monitor MLM companies to ensure they comply with guidelines that focus on the importance of retail sales and legitimate product distribution over recruitment.

Several countries have implemented stricter regulations or outright bans on MLM. In contrast, others have embraced the industry, viewing it as a legitimate business opportunity.

Conclusion

The history of MLM is a tale of innovation, controversy, and adaptation. From its early beginnings in the late 19th century to its evolution in the 21st century, MLM has gone through significant changes, both in its business models and its public perception. It has created opportunities for financial success for some while leaving others disillusioned and skeptical. The debate over the legitimacy and ethics of MLM continues, making it a subject of enduring interest and scrutiny in the business world.