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Pyramid Marketing
Another word for Multi-Level Marketing (MLM) is pyramid marketing or network marketing. This business model is used by independent sellers. Services or products are distributed to end-users through a network of independent sellers. The parent company provides products or services to these independent sellers. Work is done from the top (parent company) down. These are other vendors or direct sales to customers. In this way a kind of pyramid of commerce is created, also called pyramid marketing.
Verkoopwijze netwerkmarketing
Independent sellers receive compensation for selling these products or services to customers. But they also receive compensation for sales to customers through their own network of other independent salespeople. By recruiting new salespeople and selling directly to customers, salespeople earn their income. This is also called network marketing because it takes advantage of the personal relationships between customer and seller. According to the European Commission, in MLM (Multi-Level Marketing), the seller may:
- Purchase products at a discounted price for resale or personal use
- Resell products both to end customers and other vendors
With Multi-Level Marketing, the salesperson is not dependent on salespeople above him. Depending on the parent company's marketing plan, the salesperson receives a bonus. The bonus is based on direct sales to customers. There is no compensation for expanding the network of independent salespeople.
Multi-Level Marketing versus pyramid scheme
In addition, Multi-Level Marketing is often confused with the pyramid scheme. The pyramid scheme, unlike MLM, is banned in many countries. This is because the pyramid game only makes money by recruiting new participants. The higher you are in the pyramid, the more participants you have under you and the more money you receive. When no more participants join the pyramid it collapses, leaving many people with big losses.
There are also some pitfalls associated with pyramid marketing. First, you must first invest yourself to sell a product to customers. In addition, you yourself must acquire a network of independent salespeople who purchase the product or service. Unless you set up a good network marketing system, the chances of making a profit are relatively small.