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Earning potential in multilevel marketing enterprises

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  • Legara, Erika Fille
  • Monterola, Christopher
  • Juanico, Dranreb Earl
  • Litong-Palima, Marisciel
  • Saloma, Caesar

Abstract

Government regulators and other concerned citizens warily view multilevel marketing enterprises (MLM) because of their close operational resemblance to exploitative pyramid schemes. We analyze two types of MLM network architectures — the unilevel and binary, in terms of growth behavior and earning potential among members. We show that network growth decelerates after reaching a size threshold, contrary to claims of unrestricted growth by MLM recruiters. We have also found that the earning potential in binary MLM’s obey the Pareto “80–20” rule, implying an earning opportunity that is strongly biased against the most recent members. On the other hand, unilevel MLM’s do not exhibit the Pareto earning distribution and earning potential is independent of member position in the network. Our analytical results agree well with field data taken from real-world MLM’s in the Philippines. Our analysis is generally valid and can be applied to other MLM architectures.

Suggested Citation

  • Legara, Erika Fille & Monterola, Christopher & Juanico, Dranreb Earl & Litong-Palima, Marisciel & Saloma, Caesar, 2008. "Earning potential in multilevel marketing enterprises," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(19), pages 4889-4895.
    • Handle: RePEc:eee:phsmap:v:387:y:2008:i:19:p:4889-4895
    DOI: 10.1016/j.physa.2008.04.009
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    References listed on IDEAS

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    1. Kim, Beom Jun & Jun, Tackseung & Kim, Jeong-Yoo & Choi, M.Y., 2006. "Network marketing on a small-world network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 360(2), pages 493-504.
    2. Barabási, Albert-László & Albert, Réka & Jeong, Hawoong, 1999. "Mean-field theory for scale-free random networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 272(1), pages 173-187.
    3. Juanico, Dranreb Earl & Monterola, Christopher & Saloma, Caesar, 2003. "Allelomimesis as a generic clustering mechanism for interacting agents," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 320(C), pages 590-600.
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    Cited by:

    1. Ioana-Mădălina Purcaru & Ana-Maria Urdea & Cristinel Petrişor Constantin & Gabriel Brătucu, 2022. "Building Long-Term Business Sustainability: The Influence of Experiential Marketing on Sales Representatives’ Loyalty to Multi-Level Marketing Systems," Sustainability, MDPI, vol. 14(15), pages 1-16, August.
    2. Bäckman, Claes & Hanspal, Tobin, 2018. "Participation and Losses in Multi-Level Marketing: Evidence from an FTC Settlement," Working Papers 2018:13, Lund University, Department of Economics, revised 22 Aug 2019.
    3. Pierpaolo Andriani & Bill McKelvey, 2009. "Perspective ---From Gaussian to Paretian Thinking: Causes and Implications of Power Laws in Organizations," Organization Science, INFORMS, vol. 20(6), pages 1053-1071, December.

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