What Is Network Marketing? : Its History --Part I

J. Paul Getty said, “To succeed in business, to reach to the top, an individual must know all that is possible to know about that business.”

Knowing the history of network marketing will help us to understand the origin of the business, its past problems, its future expectations, and what we can do to ensure the highest standards of the industry.

The history of network marketing will help us to avoid future pitfalls, show us what to look for in a company, and how to become effective leaders in our organizations. It is important that you understand what network marketing is all about for yourself, your prospects, and your business partners.

The exact origin of Network Marketing (Multi-Level Marketing) is unclear. Various sources dated Multi-Level Marketing (MLM) around the 1920s. It is a legal and ethical business structure used for the distribution of goods and services. Today, it operates in all 50 states in the U.S. There are thousands of network marketing companies including FORTUNE 500 Companies. It also operates in more than 100 countries with over 50 million business operators worldwide and over $100 billion annual revenue. Click this link to learn more http://en.wikipedia.org/wiki/Multi-level_marketing.

In spite of it success, Network Marketing still faces resistance from many sides due to misinformation in the marketplace. Studies show that most people still do not understand the benefits of this powerful business model which is the most efficient way to distribute goods and services, and which offers the greatest opportunities to achieving wealth and financial security to individuals who are able to find more efficient ways to distribute products and services.

Some of the reasons for this misunderstanding are due: 1) people are comfortable with what most people accept, 2) they are fearful and resist change, and 3) they would prefer to stay in their comfort zone even when change can positively affect their lives.

In the early 1960s, the franchising industry was greatly misunderstood. Newspapers and magazines covered franchise as a scam and rip-off. In 1963, Congress came within 11 votes of declaring franchising illegal. Today, according to the International Franchise Association (IFA) "a recent PriceWaterHouseCoopers study found that the franchising sector generates 18 million jobs the United States alone and yields $1.53 Trillion in economic output. There are 760,000 franchised establishments or 10% of our private-sector economy". http://www.franchise.org/

Network Marketing is no different when it comes to scams and schemes that hurt an industry’s image. Real estate had its problems. Banking and Savings and Loans had their troubles. The stock market had insider trading scandal. Network Marketing has its peoblems like every other industry. The world is full of unsavory characters and there are new scams everyday that look like legitimate companies. So, you have to do your due diligence before you jump into any opportunity.

In the 1960s and 1970s, pyramid schemes proliferated in the marketplace, and these things continue to affect the network marketing industry to this day. Many companies came up with counterfeit version of scams from the late 1920s (The Ponzi Scheme) that looked like MLM.

In the illegal pyramids, money was the only commodity that moved through the programs. Products were attached to create a money pyramid to give the impression they were actually marketing products, but there was no underlining products or services. The schemes were developed with the purpose to recruit others into the programs.

Several high profile schemes led the reputable companies to petition government authorities to have the pyramid selling outlawed, and the regulatory investigation targeted MLM as a structure.

In the mid 1970s, the Federal Trade Commission (FTC) and state agencies embarked upon a mission to clean up the abuses of scams which took people’s money to get involve in business opportunities where there was no product being purchased. Click on this link for the FTC http://www.ftc.gov/

The FTC in 1975, filed suit against Amway alleging it was an illegal pyramid. Amway Corporation, Rich De Vos and Jay Van Andel, took on the might of the FTC. Amway spent four years and millions of dollars in legal fees to clear its name.

In 1979, the FTC ruled that Amway was not a pyramid because Amway’s revenues were generated from sales of its products. As a result of this case, the FTC acknowledged network marketing as a legal and efficient distribution system. The decision also led to the clarification of speculative or fraudulent schemes and legitimate direct sales activities. Today, MLM is regulated and there is a great deal of customer protection.

In order to spot the fakes and scams network marketing opportunity, ask the following questions to determine whether it is a legal company or a pyramid scam.

Are you required to retail the products or services before you can qualify for any recruiting or sales commission?

Does the company have a mechanism in place to prevent the stock piling of inventory?

Does the company offer its representatives who leave a buy-back provision on unsold, and unopened inventory?

In spite of its successful history of creating many millionaires, and even though it has been endorsed by many prominent business leaders and authors such as Brian Tracey, Robert Kiyosaki, Paul Zane Pilzer, Jim Rohn and Donald Trump for its merits as a proven business system for anyone who wishes to achieve financial success, Network Marketing is still mistakenly accused of being pyramid selling.

Same Walton, founder of Wal-Mart once said, “I’d rather run a profitable business in an unconventional industry than an unprofitable business in a conventional industry.”