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Ethical issues in Multi-level Marketing:

Ethical issues in Multi-level Marketing: . Is it legitimate business or just another pyramid scheme?. Ethical and legal issues Overview of MLM and problems How to differenciate legitimate to unlegitimate marketing opportunities?

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Ethical issues in Multi-level Marketing:

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  1. Ethical issues in Multi-level Marketing: Is it legitimate business or just another pyramid scheme?

  2. Ethical and legal issues • Overview of MLM and problems • How to differenciate legitimate to unlegitimate marketing opportunities? • 5 questions to determine the legitimacy of a multilevel opportunity.

  3. The MLM industry • MLM = « network marketing » • Estimates of worldwide sales are as high as 90 billion $ (Dyer 2001) 2004 : 99 billion US $ • over half of the respondents had purchased at least one item from MLM company (Kustin and Jones 1995) • Pyramide schemes : 1996 to 2002 • Bad image of MLM but image not universal (Gabriel 1993) • Many people are in favor in MLM

  4. Giving good advice • Hypothesis: « MLM is bad » • All the MLM industry is bad • Difficulty to differenciate legitimate marketing practices from inethical ones • Direct selling seems to fill a legitimate need in the marketplace

  5. 2 types of products: - innovative products • Ex: home water filtration device • - products, which need information • Ex: Nutrilite company • What is the difference between a legitimate marketing opportunity and an illegal or unethical one? • See guideline

  6. Question 1: How is the money being made? • Legitimate MLM companies compensate their salespeople for selling products or services to comsumers and not for simply recruiting people. • A good DS companie must carry inventories. • «  inventory-loading » or « front-loading » • Amway: buy back unsold inventory requires that 70% must be sold in the month it was purchased • Direct selling association’s code of ethics : MLM companies must repurchase inventory

  7. Question 2: Are the products legitimate? • Koscot test: compensation must be based on sales • Overpriced • Unneeded • How to differentiate? « Would I buy a product such as this at the price that is beeing charged? » « Are people buying these products who are not doing so to make money? »

  8. Question 3 : How much does it cost to be involved? • 3 types of costs: - registration - inventory - training

  9. Question 4 : How much work is required? • Patience • Experience

  10. Question 5 : How long has the company been around? • Myth : « ground-floor opportunity » • Dexter Yeager : number 1 income producer of Amway after 5 years • Bill Britt : number 2 in 7 years

  11. conclusion • Identity and evaluate ethical issues

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