Tracing the roots of MLM

MLM is a business which extends through a bunch of network or down the many levels of acquaintances that we made throughout our lives.

For many, especially those who have never even heard about this term before, MLM is a totally new concept to them. Towards an unknown object, the first feeling generated from a normal person would be – fear . As a result, many avoid commenting on this topic or those who started discussions actually spread false information around. Few seldom research on the business model of MLM, much less the beginning of it.

I hope to help clear part of the mists in most people’s mind because I believe; only by tracing the roots then can we discover the original intention of MLM being started. Here is a brief history of MLM which I managed to gather:

In the early 1940s, California Vitamins , a product-based company realised that all the new sales representatives joining aboard were friends and family of the existing sales team. The main reason was because they wanted to purchase the products at wholesale price . They also discovered that it was easier to generate sales volume with many who each sold a small quantity of product than it was to find a few sales superstars.

California Vitamins MLM
A product of California Vitamins, a MLM company

Thus, they merged both ideas and came up with a sales compensation model that spurred their salespeople to invite new representatives from contented customers, mostly their family and friends. These people enjoyed the same rights to offer the product and representative status to others and this greatly increased the sales volume. The company then rewarded them for the sales produced by their entire group or network of sales representatives and hence, MLM was born! A few years later, the company was renamed NutraLite Food Supplement Corporations .

In 1956, NutraLite was joined in MLM by Dr. Forrest Shaklee to get a wider distribution of the food supplements he had developed. Not long after, in 1959, former NutraLite distributors Rich DeVoss and Jay Van Andel started the Amway company as the American Way of marketing products. Like most pioneering breakthroughs, the development of true MLM was an accident.

Abuses of huge and fast growth disturbed MLM for years and it is still misunderstood today. One of the first abuses about this concept to generate income may have been the chain letter fad that swept the U.S. after World War I. The letters promised great profits if people send a dime or a dollar to the person at the bottom.

The chain letters spread as far as Europe, and by 1930s, the U.S. post office estimated that 10 million letters were being mailed each day. Postal Authorities and law enforcement agencies battled the bogus schemes and the chain letter occurrence began to diminish in the early 1940s. Unfortunately, this scam initiated pyramid schemes where money was given for the right to involve others and no product was being purchased from the company.

In 1974, Senator Walter Mondale declared such companies to be the nation’s number one consumer swindle. Law enforcement agencies moved quickly to clean up the abuses. In the mid 1970’s, with no clear understanding of what constituted a legitimate use of MLM, the Federal Trade Commission (FTC) and state agencies across the nation turned their eyes to almost all MLM companies. In 1975, the FTC filed suit against Amway, claiming that the company was an illegal pyramid and its refusal to sell its products in retail stores signified a control of trade.

Amway spent four years and millions of dollars in legal fees to clear its name. In 1979, the FTC judged that Amway was not a pyramid and its revenue was generated from the sale of its products. The FTC then approved MLM as a legal and efficient distribution system which leads to the blooming of MLM in the next decade.

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