Mechanism of Network Marketing Organizations Expansion as Pyramid Structures

As a special retailing channel, network marketing organizations (NMO), also referred to as multilevel direct selling organizations (ML), have existed widely for decades. Although the marketing literature documents numerous studies on this popular but controversial practice, NMO's functional mechanism has not yet been explored. This research presents a theoretical model in characterizing NMO's behavioural rationale and illustrates how NMOs convert social networks into sales opportunities by incorporating the size of the sales force with individuals' contacting rate and salespersons' persuasive rate. In addition, when the factor of the quitting of salespersons is considered, the modeling dynamics demonstrates how and why down-stream salespersons are worse off. This paper provides insights into the inherent relationships within NMO's pyramid levels and it advances our knowledge of NMO's controversial practices.