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 ‘ingenious’ method was first popularised by Amway in 1950’s. The big draw card 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 you get friends and relatives to join up, you get a commission not only from the products your 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.
According to the Direct Selling Association in the United States, 70% of the revenue from the direct selling industry was generated by network marketing companies (Coughlan & Grayson, 1998) and most of this came from the better known companies, such as Amway, Nuskin or Shaklee, that use multilevel instead of single level compensation plans.
In the case of India, network marketing momentum was conspicuous in India during mid 90’s followed by the establishment of the Indian arm of Amway Corporation. The total turnover of network marketing companies in India was estimated at Rs.30,104 crores in 2005 with an annual growth rate of 25% (Tribute, 2006). Amway India, Avon, Tupperware, Oriflame and desi companies like Modicare, Hindustan Lever Network are the major network marketing players in the Indian market. Indian Direct Selling Association (IDSA) facilitates membership to genuine network marketing companies. The IDSA projection for 2010 for the network marketing industry is Rs.8000 crores. According to National Council of Applied Economic Research, the Indian middle class was projected to grow from 1.1 crore households in 2001-02 to 1.7 crore households in 2005-06 and the figure is expected to be 2.8 crore by 2009-10. The above figures justify the rosy picture of network marketing in India.
However, studies carried out by Peterson et al (1989), Raymond and Tanner (1994), and Kustin and Jones (1995), suggest that consumers often have negative perceptions of direct selling organizations and network marketing organization in particular. The aggressive selling techniques, exaggeration of facts in recruiting and pyramiding scams (Kustin & Jones, 1995) altogether formed a basis for this negative perception. Then there are others like Koehn (2001), who have dubbed MLM schemes as unethical, and guilty of ‘instrumentalising’ relations rooted in love and affection and as such is socially and psychologically unacceptable to most people in our society (Bloch, 1996).
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