PARTICIPATION IN NETWORK MARKETING COMPANIES: THE MOTIVATIONAL FACTORS THAT INFLUENCE THE PART-TIME

DISTRIBUTORS IN KUCHING, SARAWAK.

NG GEK KEUN

This project is submitted in partial fulfillment of the requirements for the degree of Bachelor of Economics and Business Honours

(Marketing Program)

Faculty of Economics and Business UNIVERSITI MALAYSIA SARAWAK

2004

ABSTRACT

PARTICIPATION IN NETWORK MARKETING COMPANIES: THE

MOTIVATIONAL FACTORS THAT INFLUENCE THE PART-TIME

DISTRIBUTORS IN KUCHING, SARAWAK.

By

Ng Gek Keun

The main aim of this study is to determine whether there are significant relationships

between the respondents' decision making of becoming distributors in network

marketing companies and the four motivational factors (financial satisfaction,

flexibility, job satisfaction and social satisfaction). Besides, it intends to determine

the differences between the distributors' demographic factors (gender and age)

differences and the four motivational factors as well as the relationships among

them. The scope of this study is limited to the active part-time distributors of

network marketing companies licensed to do direct selling in Kuching, Sarawak. A

total of 270 respondents (142 male and 128 female) were selected from the total

population of 5370. The results of regression linear had shown that all of the

motivational factors are having significant relationships with the respondents'

decision making of becoming distributors. There are significant differences between

gender differences and the motivational factors while for age differences, only

financial satisfaction shows no significant differences with the motivational factors

when One-way ANOVA was carried out. Results of Pearson Correlation had shown

that all of the four motivational factors are having positive relationships between

each other. Overall, social satisfaction is the most dominant factor in influencing the

decision making of respondents while financial satisfaction is the least dominant one.

iv

ABSTRAK

PENYERTAAN DALAM ORGANISASI NETWORK MARKETING:

FAKTOR-FAKTOR MOTIVASI YANG MEMPENGARUH PARA

PENGEDAR SEPARUH MASA DI KUCHING, SARAWAK.

Oleh

Ng Gek Keun

Penyelidikan ini bertujuan mengkaji sama ada wujudnya perhubungan bermakna di

antara keputusan para pengedar untuk menyertai organisasi network marketing

dengan keempat-empat faktor motivasi (faktor kewangan, kefleksibelan, kepuasan

pekerjaan dan kepuasan sosial). Selain itu, ia bertujuan mengkaji perbezaan di antara

ketidaksamaan maklumat demografik responden (jantina dan umur) dengan semua

faktor motivasi serta perhubungan antara mereka. Skop kajian ini terhad kepada

pengedar separuh masa yang aktif dalam organisasi network marketing berlesen

membuat jualan langsung di Kuching, Sarawak. Seramai 270 responden (142 orang

lelaki dan 128 orang perempuan) telah dipilih daripada jumlah populasi 5370 orang.

Keputusan Linear Regression membuktikan bahawa semua faktor motivasi

mempunyai perhubungan bermakna dengan keputusan para responden. Terdapat

perbezaan ketara di antara ketidaksamaan jantina responden dengan semua faktor

motivasi, manakala hanya kepuasan kewangan tiada perhubungan ketara dengan

ketidaksamaan umur responden apabila ujian ANOVA satu hala dijalankan.

Keputusan Pearson Correlation menyatakan semua faktor motivasi mempunyai

perhubungan positif antara mereka. Secara keseluruhannya, kepuasan sosial adalah

faktor utama bagi responden, manakala kepuasan kewangan adalah faktor yang

paling tidak diutamakan.

V

ACKNOWLEDGEMENTS

First and foremost, I would like to convey my heartfelt thanks and gratitude

to Cik Siti Hasnah and Puan Norzaidawati Zaidin, my supervisors, for their expert

advice, assistance and encouragement in carrying out this study throughout the year.

My sincere thank to all my friends and course mates, who have provided me

with moral support, encouragement, guidance and assistance in my quest for

knowledge. In particular, I would like to thank Mr. Bong Kuet Foong, for his help,

comments and advices during the process of completing this study. Also, I would

like to thank all the respondents who have been very co-operative and candid in their

views during the administration of questionnaires.

Finally, my deepest thank to my family, for giving me the warmest supports

and advices in my life.

vi

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

CHAPTER 1: INTRODUCTION

1.0 Introduction

1.1 Background of Research

1.2 Problem Statement

1.3 Objectives of Research

1.5 Scope of Research

1.6 Significant of Research

Pages

xi

xii

1-9

I

I

7

7

8

9

CHAPTER 2: LITERATURE REVIEW 10-26

2.0 Introduction 10

2.1 Direct Selling 10

2.1.1 The Direct Selling Industry 12

2.2 Network Marketing as a Type of Direct Selling 14

2.2.1 The System of Network Marketing 16

2.2.1.1 Duplication and Multiplication in Network Marketing 17

2.3 The Advantages of Network Marketing 18

2.3.1 Flexibility 18

2.3.2 Quality and Quantity of Information 19

2.4 The Concept of Motivation 20

2.4.1 Work Motivation 20

vii

2.4.1.1 Distributors' Motivation

2.5 Model of the study

CHAPTER 3: METHODOLOGY

3.0 Introduction

3.1 Research Design

3.2 Population and Sample

3.2.1 Population

3.2.2 Sampling

3.3 Data Collection

3.4 Research Instrument

3.5 Pre-test

3.6 Data Analysis

3.6.1 Descriptive Statistics

3.6.2 Hypotheses Testing

3.6.2.1 Linear Regression

3.6.2.2 One Way Analysis of Variance (ANOVA)

3.6.2.3 Correlation coefficient

3.6.2.4 Factor Analysis

3.7 Research Hypotheses

3.8 Conclusion

CHAPTER 4: RESEARCH FINDINGS

4.0 Introduction

4.1 Frequency Distributions

21

25

27-37

27

27

27

28

28

30

31

32

33

33

34

34

34

35

35

35

37

38-55

38

38

viii

4.2 Descriptive Statistics: Measures of Central Tendencies 44

4.3 Findings 47

4.3.1 Relationships between respondents' decision making and the four 47

motivational factors based on current monthly income factor

4.3.2 Differences between demographic factors (gender and age) 50

differences and the four motivational factors of respondents

4.3.3 Relationships among the four motivational factors 53

4.3.4 The dominant factor among the four motivational factors 54

CHAPTER 5: DISCUSSIONS 56-69

5.0 Introduction 56

5.1 Respondents' Demographic Profile 56

5.2 The Dominant Factor among the Four Motivational Factors 57

5.3 Relationships Between the Four Motivational Factors and Respondents' 59

Decision Making Based on Current Monthly Income Factor

5.4 Discussion on Each of the Motivational Factor 60

5.4.1 Discussion on Financial Satisfaction 60

5.4.2 Discussion on Social Satisfaction 62

5.4.3 Discussion on Job Satisfaction 63

5.4.4 Discussion on Flexibility 65

5.5 Differences Between Demographic Factors (Gender and Age) and the Four 66

Motivational Factors of Respondents

5.5.1 Differences Between Gender Differences and the Four Motivational 66

Factors of Respondents

ix

5.5.2 Differences Between Age Differences and the Four Motivational 67

Factors of Respondents

5.6 Relationships Among the Four Motivational Factors 68

CHAPTER 6: CONCLUSION AND RECOMMENDATIONS

6.0 Introduction

6.1 Conclusion

6.2 Recommendations

6.3 Recommendations for Future Research

6.3 Limitations of Research

REFERENCES

APPENDIXES

Appendix A: Result of Reliability Analysis

Appendix B: Result of Pre-test

Appendix C: Survey Questionnaire

70-75

70

70

71

74

74

X

LIST OF TABLES

Pages

Table 1.1 Number of salespeople based on countries (Worldwide direct sales 6 data, 2003)

Table 4.1 Means and standard deviations of the total scores for the four 44

motivational factors among the respondents

Table 4.2 Means and standard deviations of the total scores for every 45

question

Table 4.3 Results of Regression Linear for determination of the relationship 47 between distributors' decision making and financial satisfaction based on current monthly income factor

Table 4.4 Results of Regression Linear for determination of the relationship 48 between distributors' decision making and flexibility based on current monthly income factor

Table 4.5 Results of Regression Linear for determination of the relationship 48 between distributors' decision making and job satisfaction based

on current monthly income factor

Table 4.6 Results of Regression Linear for determination of the relationship 49 between distributors' decision making and social satisfaction based on current monthly income factor

Table 4.7 Results of One-way ANOVA for differences between gender and 50

age differences and financial satisfaction among respondents

Table 4.8 Results of One-way ANOVA for differences between gender and 51 age differences and flexibility among respondents

Table 4.9 Results of One-way ANOVA for differences between gender and 51 age differences and job satisfaction among respondents

Table 4.10 Results of One-way ANOVA for differences between gender and 52 age differences and social satisfaction among respondents

Table 4.11 Results of Pearson Correlation for determination of relationships 53

among the four motivational factors

Table 4.12 Result of Factor Analysis for determination of the most dominant 54 factor among the four motivational factors

X1

LIST OF FIGURES

Pages

Figure 1.1 Statistic of American Business List 1

Figure 1.2 Estimated global sales force (2002) 4

Figure 1.3 Total distributors in Malaysia (August, 2003) 5

Figure 2.1 Model of the study 26

Figure 4.1 Distribution of respondents based on gender 38

Figure 4.2 Distribution of respondents based on age group 39

Figure 4.3 Distribution of respondents based on marital status differences 40

Figure 4.4 Distribution of respondents based on highest education level 40 completed differences.

Figure 4.5 Distribution of respondents based on occupation differences 41

Figure 4.6 Distribution of respondents based on types of company 42 differences

Figure 4.7 Distribution of respondents based on current monthly income 42 differences.

Figure 4.8 Distribution of respondents based on current household monthly 43 income differences.

Figure 4.9 Component plot in rotated space 55

xii

Chapter 1: Introduction

1.0 Introduction

This chapter provides a general idea of this research. It discusses the research

background, brief history of network marketing, problem statements and objectives

of the research. Model of the study, research scope and significant of research are

also discussed in the later part of this chapter.

1.1 Background of Research

Over the years, many have dreamed of being one's own boss, seeking financial

and time freedom, health, beauty and independence. In fact, not many of them can

really achieve their dreams successfully and at the same time, earning great income

and enjoy a relaxing lifestyle. Based on the statistic of American's Business List in

United States of America, by the age of 65 and after working for 40 years, many

people will fall into the following categories: -

Figure 1.1: Statistic of America Business List

60%-

50%-

40%-

3M

20%

10%

0%

ool

. -I

loll

r ii ýI

ý 11 Rich Financial Working Passed away In Debt Independent

ý LEMMA 1

1

This statistic showed that only 4 out of 100 of them will actually be financially

independent and only one will get rich after working for so many years. This means

that people have been trying to find the easiest way for them to really achieve

successful and enjoying easy lifestyle.

Nowadays, many have found that network marketing is a way to produce extra

incomes through part-time effort and most of them have made this part-time

business their full-time focus. In a study done by Kearney and Bandley (1991) stated

that everyone has only 168 hours in a week and these 168 hours are used up through

a rather similar pattern for each of us: -

c 40 hours plus earning a living

49 hours sleeping

c 21 hours eating, dressing, commuting, personal pursuits and working at home

Therefore, most of us have about 20 to 30 hours left at the end of week. Some have

decided to take part of that left over time and use it to build network marketing

businesses because it can ultimately lessen their burden and increase their

satisfaction

People may question what network marketing is all about. It is a strategy for

selling products whereby independent salesmen are permitted to recruit other

salesmen and to draw commissions from the sales of their recruits (Poe, 1999).

Whilst Bauer and Miglautsch (1992) explained that network marketing as a type of

direct selling that usually performed by an independent distributor representing the

manufacturer or franchisor of a product or service. In order to differentiate it from

the traditional businesses, Kiyosaki (2001) positioned network marketing as a way

2

of becoming rich because it is a revolutionary new way of sharing the wealth with

anyone who truly wants to acquire great wealth.

The development of the network marketing concept and its first use has been

credited to Nutrilite, a United States of America based direct selling organization. In

the mid 1940s, the company was involved in the production and sale of food

supplements, for which it had developed a very particular and unique method of

marketing. In network marketing, companies move their products through a group of

independent distributors who buy wholesale, sell retail and sponsor other people to

do the same. In turn, overrides can be earned on multi-levels of people in the

organizations.

According to American Direct Selling Association (DSA), approximately one

in four Americans will give network marketing a try at some point in their lives and

most will quit after less than one year, but about ten percent of those who try it will

make a career of it. The direct sales industry continues to grow because word of

mouth and personal recommendations are one of the most powerful ways of

informing people about products. Apart from that, with corporate downsizing

continuing to be a reality, the search for job security becomes increasingly elusive.

For those who have jobs, there has been an accelerating trend towards cutting

benefits and wages. Based on the DSA's 1999 National Sales Force Survey, the

most common reasons for becoming a direct sales representative are to increase

income, obtain high quality products and to receive products at discounted prices.

According to World Federation of Direct Selling Association', the estimated of

global sales force (figure 1.2) has been continuing increasing from 8.48 million

Founded in 1978, is a non-governmental, voluntary organization globally representing the direct

selling industry as a federation of national Direct Selling Association.

3

people in 1988 to 43.84 million in 2001. This shows that there are getting more and

more people joining in direct sales companies.

Figure 1.2: Estimated Global Sales Force (2002)

Estimated Global Sales Force 1988-2001 In millions

(As of November 2002)

43: 84

39,71 3s. Sa,  

3U9

15 ý

10

17.67

21.68

21

3aES

1988 1989 1990 1991 1992 1993 1994 1996 1996 1997 1998 1999 2000 2001

Based on an International Statistic of Worldwide Direct Sales Data2 dated on 21 s`

August 2003 (refer to table 1.1), direct sales companies have been operating in 51

countries all over the world. The total of salespeople has been increased from 43.84

million people in 2001 to 47.28 million people in 2003. In Malaysia alone, there are

3 million salespeople, which are about 13% of the total population of Malaysia.

Currently, the total population of Malaysia is 24014.2 people3.

Z Source: http: //www. wfdsa. org/statistics/index. cfm? fuseaction=display_stats&number-1.

3 The World Gazetteer: Current population figures of cities, towns and places of all countries.

Population in [1000] for 2003. Source: http: //www. world-gazetteer. com/home. htm.

4

Figure 1.3: Total Distributors in Malaysia (August, 2003)

There are many companies that were founded on the network marketing

principle and have continued to thrive using this marketing method. Most of them

are direct sales and insurance companies that operating locally and internationally.

According to the Ministry of Domestic Trade and Consumers Affairs, as of January

2003, there are 402 companies licensed to do direct selling, of which 225 companies

are in multi-level marketing, 125 in single-level marketing, 25 via the post and 27

companies in a combination of postal and single-level marketing in Malaysia.

Among them, the most popular mode is multi-level marketing, with most of them

are dealing in herbal products and health supplements. Today, there are a few well

known network marketing companies that can be found in Malaysia such as Amway,

Nu Skin, Avon Cosmetics, Tupperware, Sunrider, Elken, CNI Enterprise, Cosway,

Omegatrend and so on. Thus, it is interesting to discover the true power behind

network marketing and the reasons why more and more people want to get involved

with it.

5

Table 1.1: Number of Salespeople Based on Countries (Worldwide Direct Sales Data, 2003)

Worldwide Direct Sales Data (August 21,2003) Countries Number of Salespeople

1 Argentina 570,000 2 Australia 650,000 3 Austria 11,946 4 Belgium 15,077 5 Brazil 1,174,583 6 Canada 891,469 7 Chile 205,000 8 Colombia 310,000 9 Czech Republic 177,014 10 Denmark 75,000 11 Estonia 12,258 12 Finland 52,720

13 France 300,000

14 Germany 337,000

15 Hong Kong 80,000

16 Hungary 140,667

17 India 806,000

18 Indonesia 4,765,353

Ital 260,000

Ja an 2,000,000 r

Korea 3,050,000

Mala sia 3,000,000

23 Mexico 1,820,000

24 Netherlands 38,000

25 New Zealand 97,000

26 Norway 68,000 27 Peru 136,000

28 Philippines 2,000,000

29 Poland 510,000

30 Portugal 44,595

31 Russia 1,146,573

32 Singapore 255,000

33 South Africa 400,000

34 Spain 109,000

35 Sweden 100,000

36 Switzerland 8,543

37 Taiwan 3,200,000

38 Thailand 3,800,000

39 Turkey 210,260

40 Ukraine 281,715 41 United Kingdom 501,000 42 United States 13,000,000 43 Uruguay 31,171 44 Venezuela 502,000 45 Others 253,214

TOTAL 47,276,158

6

1.2 Problem Statement

Network marketing offers its distributors many advantages and opportunities.

Anyone can get involved with it and it can be done with as much or little time

commitment as one likes.

Generally, the problem is that the activity of recruiting people into network

marketing schemes is socially and psychologically unacceptable to most people in

the society. In other words, the process of network marketing brings with it some

perceptions, situations, attitudes and types of behavior that are highly problematic

and doubtful in terms of its nature of business which involved recruiting or

sponsoring new prospects and day to day selling. This kind of scenarios is happening

in all kinds of direct sales or network marketing companies locally or even globally.

However, evidence have shown that there are still lots of people willingly to become

distributors in network marketing companies, either in part-time or in full-time basis.

So, what are the motivating reasons that influence them to participate in network

marketing companies as distributors? Are the chosen motivational factors really

having significant relationships with their decision making?

1.3 Objectives of the Research

To determine the significant relationships between the respondents' decision

making of becoming distributors and the four motivational factors (financial

satisfaction, flexibility, job satisfaction and social satisfaction) based on

current monthly income factor.

7

ii. To determine the differences of distributors' gender and age differences and

the four motivational factors.

iii. To determine the relationships among the four motivational factors.

iv. To verify the dominant factor among the four motivational factors.

1.5 Scope of Research

The scope of this research is to determine the motivational factors that

influence the participation of the distributors in network marketing companies in

Kuching City. In this research, four motivational factors (financial satisfaction,

flexibility, job satisfaction and social satisfaction) will be tested whether there is

having significant relationships with the distributors' decision making.

Therefore, the subject of this research is the present distributors within

Kuching area who are currently participate in any of the network marketing

companies licensed to do direct selling, regardless whether it is multi-level or single-

level marketing. The examples are Amway, Nu Skin, Elken, CNI Enterprise,

Omegatrend, Avon Cosmetics, Sunrider, Nutrimetics, Tupperware, Cosway and so

forth. Most of the products that they are dealing in are nutritional supplement

products, cosmetics, skin and hair care products and household products. Apart from

selling activities, they are also involved in building their own business networks by

recruiting or sponsoring new distributors.

Network marketing is a kind of business that can be built in either full-time or

part-time basis. In order to obtain more accurate result, this research is targeted to

those part time distributors only. This is because the intention of being part-time

distributors has significant differences from those who work in full-time. It is

8

undeniable that there are many kinds of part-time businesses offered in the market.

Somehow, those part-time distributors have decided to involve in network marketing

businesses. Hence, there must be some reasons behind it that motivate and influence

them to do so. However, not all of them have the same motivational factors.

Therefore, the result that is going to be obtained will be more obvious and precise in

determining the relationships between the variables. In addition, the most influential

motivational factor can be identified as well.

1.6 Significant of Research

This study aims to present a clearer picture of why these financial satisfaction,

flexibility, job satisfaction and social satisfaction are the influential motivational

factors in inspiring the part-time distributors to participate in network marketing

companies. Moreover, the weight that is given by those part-time distributors on

each of the motivational factors can be verified. It is crucial for network marketing

distributors to understand the real needs and motives why most people participate in

such businesses. By integrating these motivational factors, it will be more essential

in finding a better way to convince new potential prospects to involve in network

marketing businesses.

Apart from that, it also intends to expose to those none network marketing

distributors concerning on the opportunities, strengths and potential of network

marketing. By this way, it helps to reduce those negative and doubtful perceptions as

well as attitudes and behaviors among the society on network marketing.

9

Chapter 2: Literature Review

2.0 Introduction

This chapter presents some of the important concepts regarding the topic of

this research based on previous research studies. At the outset, the meaning of direct

selling, direct selling industry, the concept of network marketing and its working

system are discussed. This then followed by the benefits and advantages of network

marketing. Finally, the motivation factors that motivate or influence the distributors,

to participate in network marketing are discussed.

2.1 Direct Selling

First and foremost, it is important to seek out the difference between direct

selling and direct marketing in order to get a clearer and more precise understanding

on direct selling. According to World Federation of Direct Selling Association

(2001), direct selling should not be confused with terms such as direct marketing or

distance selling, which may be described as an interactive system of marketing that

uses one or more advertising media to affect a measurable response or transaction at

any location, with this activity stored on a database. For example, some commonly

known types of direct marketing and distance selling techniques are telemarketing,

direct mail, and direct response. Besides, Kustin and Jones (1995) also claimed that

direct selling is differentiated from direct marketing, of which direct marketing is

defined as a relational process where products are sold directly to the consumer

using direct mail, telemarketing and direct response advertising such as television

solicitation.

10

On the other hand, direct selling may best described as the marketing of

products and services directly to consumers in a face to face manner, generally in

their homes or the homes of others, at their workplace and other places away from

permanent retail locations, usually through explanation or personal demonstration by

an independent direct salesperson (WFDSA, 1978). They added that direct selling

provides important benefits to individuals who desire an opportunity to earn an

income and build a business of their own; to consumers who enjoy an alternative to

shopping centers, department stores or the like; and to the consumer products

market. It offers an alternative to traditional employment for those who desire a

flexible income earning opportunity to supplement their household income, or

whose responsibilities or circumstances do not allow for regular part-time or full

time employment.

Direct Selling is being considered as a vehicle for marketing to consumers or

end buyers (Peterson and Wotruba, 1996). Brodie, Stanworth and Wotruba (2002)

defined that Direct Selling is a marketing method exhibiting substantial growth in

sales revenues and is particularly noteworthy because it involves so many

salesperson participants. Direct salespeople are usually independent contractors, not

company employees. In addition, the opportunities with direct selling companies are

open to persons from all backgrounds, experience levels, and personal

characteristics.

Peterson and Wotruba (1996) on the other hand defined direct selling as face-

to-face selling away from a fixed retail location. Whilst Kustin and Jones (1995)

explained that direct selling requires individual one-to-one sales presentations rather

than indirect presentations. Additionally, Lee (1999) defined that direct selling is a

distribution system where products from a manufacturer or national distributor flow

11

directly to the purchasers through a body of sales people. The distinguishing

characteristic of this method of marketing is that the seller arranges to meet the

buyer in order to create a sale instead of waiting for a buyer to come to him at a

shop.

Furthermore, direct selling had been further discussed as to gain full

understanding of the concept. According to Peterson and Wotruba (1996), there are

three perspectives of direct selling, designated as "operational", "tactical" and

"strategic". Operationally, direct selling is a straightforward personal selling activity

or in other word, it can be known as a form of interpersonal communication. From a

tactical perspective, direct selling can be considered as a way organizing sales

activities and the selling function. Strategically, direct selling can be viewed as a

channel or mode of distribution, in which it is a mean of gaining access to a market

or a way of doing business.

Thus, it is comprehensible that direct selling is wholly differentiated from

direct marketing, in which it is a distribution method for product or service directly

to the end users or customers through personal contact away from a fixed business

location.

2.1.1 The Direct Selling Industry

It has been a shift in the nature of direct selling organizations. The shift

involves the relative incidence of the two types of organization structures that are

identified as multi-level and single level (Brodie, Stanworth and Wotruba, 2002;

Peterson and Wotruba, 1996). They noted that in a multi-level organization, direct

salespeople recruit, train and supervise other direct salespeople who become part of

12

the recruiter's down line and in return, the recruiting salesperson receives

compensation on the sales of down line members as well as on his or her own sales.

Whereas in a single level organization, the salespeople do not build their own

organizations via recruiting and training, but rather, they focus their efforts on

selling and achieving compensation based on their own sales.

Moreover, Butwin (1997) claimed that there are two very different types of

direct selling companies: the direct sales companies and the multi-level companies.

Direct sales companies are known as "seller-based", which means that they give

more income to the distributor when he or she makes a sale at retail. These vehicles

usually market higher-ticket, one-time-sale or durable items such as durable

automotive products. He added that one have to invest more in initial inventory in

these direct sales companies because each individual unit of products costs more and

in addition, there is usually little or no residual income. In contrast, multi-level

companies usually offer reasonably priced products that people consume within a

month or two and then re-order. The author highlighted that in multi-level

companies, more people can become involved because the cost is lesser and there is

residual income promised. For information, multi-level networks are built by a lot of

people where every one of them is doing a little bit.

According to another researcher, Bloch (1996) stated that multi-level firms sell

their goods not through a conventional distribution system and retail outlets, but

through individual people, selling to their friends, acquaintances and strangers. For

this, commission is paid not only for direct sales that one has made, but from sales

made by he or she recruits as well.

Furthermore, Pratt (2000) explained that a large network marketing

organization also known as network direct selling or multi-level marketing

13

organization in which it is a social structure through which a sponsoring

organization uses individual members or distributors to sell its products and services

face-to-face, as well as outside of a central business location.

In addition, according to the World Federation of Direct Selling Associations,

one crucial element of the direct selling industry is multi-level marketing and it has

proven over many years to be a highly successful and effective method of

compensating direct sellers for the marketing and distribution of products and

services directly to consumers. Where as, multi-level marketing also known as

network marketing, in which it is one type of non-store retailing methods. (Kustin

and Jones, 1995).

2.2 Network Marketing As a Type of Direct Selling

Network marketing as a type of direct selling had been supported by a several

researchers with various definitions. Bauer and Miglautsch (1992) claimed that

network marketing is a type of direct selling that usually performed by an

independent distributor representing the manufacturer or franchisor of a product or

service. According to Barrett (2000), network marketing is a form of direct sales in

which independent distributors sell products, usually in their customer's homes, by

telephone, or through the Internet. In theory, the distributors can make money not

only from their own sales but also from those of the people they recruit.

Besides that, Walsh (1999) in his article titled "Multi-Level Marketing Skirts

Legal Lines" stated that the strength of multi-level marketing in a corporate

perspective is that it shortcuts the traditional retail distribution mechanism with all of

its attendant support costs such as marketing, sales, inventory and distribution.

14