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Multi-level marketing (MLM) is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a downline of distributors and a hierarchy of multiple levels of compensation.

Direct selling, network marketing, and multi-level marketing.

"Network Marketing" and "Multi-level Marketing" are generally considered to be synonyms, and a subset of direct selling. While "direct selling" and "network marketing" refer primarily to the distribution system, the term "multi-level marketing" emphasizes the compensation plan more. Other terms that are sometimes used to describe multi-level marketing include "word-of-mouth marketing", "interactive distribution", and "relationship marketing".
The Direct Selling Association, an American industry body, reported that in 1990 twenty-five percent of members used MLM, growing to 77.3 percent in 1999. Companies all originally used single level marketing to sell their goods and later introduced multi-level compensation plans. By 2009, 94.2% of members were using MLM, accounting for 99.6% of sellers, and 97.1% of sales.

History.

It is generally accepted that the first multi-level marketing plan was introduced in 1945 by the California Vitamin Company (shortly afterwards to become Nutrilite). The plan allowed Nutrilite distributors with at least 25 regular customers to recruit new distributors and draw a 3 percent commission from their sales. Unlike traditional direct selling, this was an ongoing payment whenever the customer re-ordered, allowing direct sellers to build a sales organization that could generate a residual-like income.

Legality and legitimacy.

MLM businesses operate in the United States in all 50 states, and in more than 100 other countries.

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