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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