The number of multilevel marketing organizations has been increasing, and the number of people involved is increasing exponentially. As more people become a part of the multilevel marketing business model, the negative impacts of some multilevel marketing organization practices on people’s lives is growing due to the high potential for moral hazard amongst multilevel marketing organization leadership. It is my contention that new legislation to protect people involved in this type of organization is critical to dramatically reduce the potential for moral hazard. This paper contends that the practices of some multilevel marketing organizations currently can be comparative to pyramid schemes, which is known to have high moral hazard. But the franchise model, which originally had the potential for similar moral hazard, has been greatly reduced through prudent legislation. The ability of this model to minimize the potential for moral hazard maximizes fairness for all parties involved. Therefore, the franchise model guidelines will be examined to provide for a new model for dramatically reducing the potential moral hazard issues posed currently by multilevel marketing organizations.

MLM-NETWORK MARKETING - HISTORY & CONCEPT

The world, as we know of today, has evolved through three phase which we call primary, secondary and tertiary economies. Initally all activities were based on agriculture and related activities. Then came the industrial revolution and people started coming into cities for manufacturing and related activities/ industries. But with the advent of technology, manufacturing has largely automated and manufacturing costs have been consistently dropping over the ages.

Today, you will not find people excited about setting up a manufacturing unit. Today is the time, when everything is oriented around the service industry, where the large sector today is the distribution industry. The No.1 company in the world today is not from manufacturing, or oil, or even software but Wallmart, which is involved in the business of distribution, Let me give you an example.

Earlier, if a product costed Rs.100/-, its manufacturing cost would be 60-70/- Rs. And 30-40 Rs was consumed in distribution. But with emerging technologies and countries like China playing a major role, the product cost today has come down to Rs.30-40 and the bulk cost has shifted to distribution. In fact, even large companies, that used to manufacture and sell, are today outsourcing manufacturing and focusing on just distribution, which is the key to wealth in the future.

There are two ways in which distributions happen. Today, if you go to buy a television / car, the sales man who is promoting the sale is himself most probably not using that product. This is where the difference comes in between network marketing and normal distribution. Network Marketing is done person to person by someone who is himself using the product, unlike the car salesman. . This is an industry that is relatively new and is growing at a pace, which is faster than any other industry. To give you an idea, let me give you an example. The first IBM PC came out in 1981and by 1990 PC sales exceeded automobile sales. In 1990 no one knew what the internet was. By 2000 most of the new millionaires in the US and Europe were being created by the internet.