The Truth and History of MLM or Network Marketing
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The Pioneers

Permalink 04/13/04 14:52, by admin, Categories: Original Document


Like all-powerful concepts, Network Marketing has also met resistance due to a lack of understanding. There is no mystery to Network Marketing. It's just another form of sales and distribution. Network Marketing is 50 years young. In the early 1940's a company by the name of California Vitamins recognized that all their new sales representatives coming aboard were friends and family of their existing sales force, primarily because they wanted the product at wholesale cost. They also discovered that it was easier to create a sales force of a lot of people who each sold a small amount of product than it was to find a few superstars who could sell a lot of products.

So they combined those two ideas and designed a sales compensation structure that encouraged their salespeople to invite new representatives from satisfied customers, most of whom were family and friends, who each had the same right to offer the product and representative status to others, which allowed the sales force to grow exponentially. The company rewarded them for the sales produced by their entire group or network of sales representatives. Network Marketing was born! A few years later, the company changed its name to NutraLite Food Supplement Corporations.

In 1956, NutraLite was joined in Network Marketing by Dr. Forrest Shaklee to gain a broader distribution of the food supplements he had developed.

Not long after, in 1959, former NutraLite distributors Rich DeVoss and Jay Van Andel started the Amway company as the American Way of marketing products. Like many truly innovative breakthroughs, the development of true network marketing was an accident.

Abuses of exponential growth haunted network marketing for years and it is still misunderstood today. One of the first abuses of the concept of exponential growth to generate income may have been the chain letter craze that swept the U.S. after World War I. The letters promised great profit if you would send a dime or a dollar to the person at the bottom.

The chain letters spread as far as Europe, and by the 1930's the U.S. post office estimated that 10 million letters were being mailed each day. Postal Authorities and law enforcement agencies battled the fraudulent schemes and the chain letter phenomenon began to subside in the early 1940s. Unfortunately, this scam spawned schemes which came to be known as pyramids, where money was given for the right to involve others, as no valid product which was being purchased from the company.

In 1974, Senator Walter Mondale declared such companies to be the nation's number one consumer fraud.
Law enforcement agencies moved quickly to clean up the abuses. In the mid 1970's, with no clear understanding of what constituted a legitimate use of network marketing, the Federal Trade Commission and state agencies across the nation turned their eyes to almost all network marketing companies. In 1975, the FTC filed suit against Amway, alleging that the company was an illegal pyramid and that its refusal to sell its products in retail stores constituted a restraint of trade.

Amway spent four years and millions of dollars in legal fees to clear its name. In 1979 the FTC (Federal Trade Commission) ruled that Amway was not a pyramid, that its revenue was generated from the sale of its products, and the FTC acknowledged network marketing as a legal and efficient distribution system. Network Marketing exploded in the next decade.

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