Content area
Full text
Introduction and overview
Face-to-face retailing experienced two noticeable transitions during the twentieth century. The first occurred when door-to-door selling, in an increasingly urban environment with rising household income, displaced the itinerant peddler. The second happened when a “business opportunity” via multilevel marketing (MLM) altered single-level, commission-based traditional direct selling.
The success of traditional direct selling pre-WWII caused concerned store retailers to seek legal remedies. Post-WWII, an increase in women salespeople and the “party plan” sustained growth. By the 1980s, with more women in the workforce and improved store retailing, direct selling growth stalled. Beginning in the 1940s, MLM offered an alternative business model, lowering fixed costs and adding a “business opportunity”. No longer commission-based selling, the MLM model operates on a dual premise of retailing products through a network of independent contractors also responsible for recruiting new distributors. When distributor income primarily derives from purchases undertaken by downline recruits, the MLM model creates an opportunity to operate an illegal pyramid scheme. By the 1970s, product-based MLM/pyramid schemes became a significant form of consumer fraud, creating millions of victims losing hundreds of millions of dollars.
This paper presents an historical analysis of the transition from an industry that began by retailing product to general consumers and evolved into an MLM model that is now apparently heavily reliant on selling to itself. We draw on a wide range of primary and secondary source material, including court decisions, company documents (e.g. annual reports), industry data, academic research in business and law, government documents, articles in the public press and relevant books with an historic perspective. We structure the analysis in five sections. The first briefly examines the development of direct selling in the USA. The second looks at the transition from traditional direct selling to MLM. The third provides a detailed explanation of the multilevel compensation structure. The fourth highlights key legal decisions regarding the continuing problem of illegal pyramid schemes found to be operating under the guise of MLM. And the fifth examines MLM growth, stagnation and continuing concerns. We finish with conclusions and recommendations for future research.
The direct selling model in the USA
Early in the twentieth century, direct selling bridged the selling tradition of the itinerant peddler into a new era. Where peddlers traveled...