Questions

[ronyodish]

Hi,

This is my first post here, and I have some question on MLMs:

Let's say a certain MLM company has both the Retail site for the sale of products to the public, as well as, a wholesale site for the sale of products to distributors.

Let's also say that Distributor A is interested in the commissions from both ends, the wholesale side as well as the retail side, but seems to favor in operation more the wholesale side.

Let's say Distributor B is likewise interested in both sides, but seems to favor more the retail side.

By favoring the wholesale side, is Distributor A operating the MLM company legally?

Or in other words,

Is Distributor B legally required to operate the way he does, that is, by pushing more the retail site?

Rony

[Webwatch]

Hello ronyodish and welcome to Matrixwatch.

Do you have a particular company in mind as its hard to give an opinion based on the information given, although the mention of products and retailing to the public is a good sign.

[ronyodish]

Webwatch,

I don't have a specific company in mind, it's more of a general question, but I'll try to be more specific:

I'm trying to get a basic idea as to what are the legal responsibilities of distributors in MLM companies.

In MLM companies, must a distributor focus more on selling the products to the public (retail) through the following ways?

1. By advertising the MLM company's retail site (if any) such that people who visit the site can purchase products without becoming distributors. In the process, the ads placed (in ezines, etc.) must not mention here the money making aspect of distributorship, but merely the product.

2. By purchasing products at wholesale prices from the MLM company and selling the product (online or offline) for a retail price to the public.

OR

Can the distributor legally focus more on the "opportunity" by building a downline of "distributor-customers", that is, distributors who both purchase products at wholesale prices, as well as, are in the MLM company for the money making aspect of it?

Let me know if my questions are still vague and too general.

Rony

[surfer]

Welcome to Matrix Watch Rony.

Technically speaking there is most likely
nothing illegal in the actions of either
theoretical distributor.

However, it is theoretical distributor A
that has been the dominant force in
MLMs and has caused much of the
negative connotation they have.

A somewhat outdated, rarely enforced,
and widely ignored ideal is The 70% rule (http://www.mlmlegal.com/seventy.html)
established during the Amway-FTC battle
in the 1970s.

Although this rule was established mainly
to prevent an issue that isn't as problematic
in MLMs these days, frontloading or front-
end loading, I still view it as a standard
that should be followed and enforced in
product based MLMs.

Back to theoretical distributor A.

Depending on how much distributor A leans
towards the wholesaling/recruiting side, he
could be getting into a grey area ethically,
if not legally.

Unfortunately, most distributor A types
focus almost 100% on the recruiting side
of the business with little to no focus on
the viability, quality, or price competitiveness
of the products offered.

Sure, you get the standard lip service about
how wonderful and revolutionary the product
is. But mostly, you get the hype of how much
money you can make by finding other distributors.

Since most MLMs have at least a questionably
viable product to peddle, they are operating
legally. Not necessarily ethically.

But IMHO, the fact that nearly all of them
put the highest product commissions several
levels down shows that they are mostly
about recruiting in a pyramid type fashion.

If you join a company that actually has valuable,
quality consumable products, you would be much
more likely to build a stable income selling to
several hundred satisfied customers as opposed
to recruiting several hundred overhyped distributors
who were sold on dreams of making big money.

The simplest question that people should ask
themselves before joining an MLM is

"Would I actually spend my money on this product
at this price if there was no business opportunity
attached to it?"

If you truly believe the answer is yes, you just
might have something worth marketing.

[ronyodish]

surfer,

Thank you for your answers. I might post some follow-up questions later on.

Take care,

Rony