Multi-level marketing: The risks

Multi-level marketing, also known as pyramid selling, is a controversial form of business. The disadvantages of this system can be considerable compared to direct selling.

Various types of products can be sold through multi-level marketing. In addition to financial services, insurance and software, other possibilities include cosmetics, medicinal herbs or detergents.

This form of selling works according to a pyramid structure: the entrepreneurs (agents) are responsible for the merchandise and corresponding advertising material and distribute it on their own behalf. The system becomes advantageous only when they manage to acquire their own sellers – i.e. sub-sellers – who are seduced by this method. The agent collects commission on merchandise sold by sub-sellers. The more sub-sellers there are, the greater the profits.

But even legal forms of multi-level marketing often end in financial disaster. Most of the time, a large number of sellers not managing to sell the goods they have paid for end up competing on a saturated market.

In this respect, due note should be taken of the Federal Law on Unfair Competition, which aims to prevent any commercial conduct which is misleading or in breach of the rules of good faith (Federal Law on Unfair Competition (in German only)).

Direct selling

Direct sellers are also self-employed. But their method of operation is clearly different from multi-level marketing. Tupperware parties are an example of direct selling.

Unlike multi-level marketing, direct sellers attach great value to loyalty when initiating and completing a transaction and they allow customers to change their minds. This is why direct sellers have created the Swiss Association of Direct Selling Companies (VDF). Members have to comply with the Association’s Code of Ethics (Swiss Association of Direct Selling Companie (in German only).

Last modification 09.04.2021

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