Journal of Management Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Mechanism of Network Marketing Organizations Expansion as Pyramid Structures


Affiliations
1 Faculty of Administration University of New Brunswick New Brunswick, Canada, E3B 5A3, Canada
     

   Subscribe/Renew Journal


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.

Keywords

Network Marketing Organizations (NMO), Retailing Dynamics, Marketing Modeling
User
Notifications

  • Bhattacharya, Patralekha and Krishna K. Mehta (2000), Socialization in Network Marketing Organizations: Is It Cult Behaviour?, Journal of Socio-Economics 29: 361-374.

  • Bloch Brian (1996), Multilevel Marketing: What’s the Catch?, Journal of Consumer Marketing 13 (4): 18-26.

  • Brodie, Stewart, John Stanworth and Thomas R. Wotruba (2002), Comparisons of Salespeople in Multilevel vs. Single Level Direct Selling Organizations, Journal of Personal Selling and Sales Management 22(2): 67-75.

  • Cassidy, David (1995), Einstein and Our World, Humanities Press, Atlantic Highland, New Jersey.

  • Coughlan, Anne. T. and Kent Grayson (1998), Network Marketing Organizations: Compensation Plans, Retail Network Growth, and Profitability, International Journal of Research in Marketing 15: 401-426.

  • Direct Selling Association US (2002), Research and Publications - Direct Selling by the Numbers, www.dsa.org/research/numbers.htm, Extracted November 6, 2002.

  • Federal Trade Commission US (2001), Multilevel Marketing Plans, www.ftc.gov/bcp/conline/pubs/invest/mlm.htm, Extracted December, 26, 2001.

  • Feldman, Allan (1988), Welfare economics and social choice theory, Kluwer/Nijhoff Publishing, Boston.

  • Frenzen, J.K. and H.L. Davis (1990), Purchasing Behaviour in Embedded Markets, Journal of Consumer Research 17: 1-12.

  • Grayson, Kent (1996), Examining the Embedded Markets of Network Marketing Organizations, in D. Iacobucci (eds.), Networks in Marketing, Sage Publications, Thousand Oaks, California.

  • Hanssens, Dominique M., Leonard J. Parson and Randall L. Schultz (2001), Marketing Response Models (2nd ed.), Kluwer Academic Publishers, Boston.

  • Koehn, Daryl (2001), Ethical Issues Connected with Multi-level Marketing Scheme, Journal of Business Ethics 29: 153-160.

  • Lucas, William F. (1983), Life Science Models (Volume 4 of Modules in Applied Mathematics), Springer-Verlag, New York.

  • Saloner, Garth (1991), Modelling, Game Theory, and Strategic Management, Strategic Management Journal 12: 119-136.

  • Shugan, Steven M. (2002), In Search of Data: An Editorial, Marketing Science 21(4): 369-377.

  • Spanos, Aris (1990), Statistical Foundations of Econometric Modeling, Cambridge University Press, Cambridge, UK.

  • Varian, Hal R. (1993), Microeconomic Analysis (3rd ed.), Norton & Company, New York.

  • World Federation of Direct Selling Associations (2002), Worldwide Direct Sales Data, www.wfdsa.org/statistics, (October 18), Extracted November 11, 2002.

  • Wyner, Gordon (1999), Network Effects in Marketing, Marketing Research (Fall): 36-38.


Abstract Views: 408

PDF Views: 1




  • Mechanism of Network Marketing Organizations Expansion as Pyramid Structures

Abstract Views: 408  |  PDF Views: 1

Authors

Ming Ouyang
Faculty of Administration University of New Brunswick New Brunswick, Canada, E3B 5A3, Canada
E Stephen Grant
Faculty of Administration University of New Brunswick New Brunswick, Canada, E3B 5A3, Canada

Abstract


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.

Keywords


Network Marketing Organizations (NMO), Retailing Dynamics, Marketing Modeling

References