Management Science Letters 5 (2015) 903–914

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Management Science Letters

homepage: www.GrowingScience.com/msl

Motivational factors in multilevel marketing business: A confirmatory approach

Sourav Jaina*, B.B. Singlab and Shashi Shashia

a
Research Scholar, Punjabi University, Patiala, India
b
Assistant Professor, Punjabi University, Patiala, India
CHRONICLE ABSTRACT

Article history: In the present scenario of high unemployment; Multilevel Marketing (MLM) generates
Received March25, 2015 employment for people who have no permanent source of earning. MLM system has emerged
Received in revised format as one of the prime alternatives in the current marketing system. India has become a very
August62015
popular destination of doing MLM business with high potential of growth. MLM system
Accepted August92015
Available online provides lucrative compensation that works as motivation for people to join this business.
August102015 Motivation for executives of any firm plays a major role in its success. It also leads
Keywords: commitment of employees towards work and responsibilities. An attempt has been made to
Multilevel marketing system identify the motivational variables that have the highest level of contribution for joining the
Motivation MLM system. Most of the MLMcompanies focus on compensation plan or reward system but
Compensation plans apart from that a number of variables have been found which motivate the distributors to
Network marketing engage in MLM business. Further, the distributors play a vital role in the growth of the
Ponzi schemes business. In this study, we also propose a motivational model to help MLM companies
formulate better strategies in making a large network of people for growth of business.

© 2015 Growing Science Ltd. All rights reserved.

1. Introduction

The contemporary business system includes manufacturer, distributors, retailers and final customers.
Manufacturers make the products and supply to distributors or retailers, which are supplied to the final
customers (Singh et al., 2013). With the passage of time, marketing started on playing an important
role in business. In marketing, firms usually focus on advertisements by spending a colossal amount of
money on promoting their new products in various ways such as TV commercials and newspapers.
Thus, the high advertisement cost makes the product costly for customers and decreases the profit of
the firm.

* Corresponding author. Tel: 9780195189

E-mail address:[email protected](S. Jain)

© 2015 Growing Science Ltd. All rights reserved.

doi: 10.5267/j.msl.2015.8.006
 904

Company Agent Distributor Wholesaler Retailer

Profit

Manufacturer Advertisement Consumer

cost

Profit

Company

Fig. 1. Direct Selling V/S Contemporary Business System

1.1.Direct Selling

In order to abolish the malfunctions of contemporary marketing system and its policies, direct selling
concept was developed. Direct selling is also a very old method of doing business. This concept is
based on establishing a direct relationship between the customer and producer. It eliminates the role of
intermediaries in the distribution channel.

Single level marketing

Direct selling
Multilevel marketing

Fig. 2. Types of Direct Selling

2.2 Types of Direct Selling

Single Level Marketing: In single level marketing, the salesperson earns the income on the basis of the
sales generated by him. He cannot multiply his sales volume by sponsoring other salespersons. Thus,
the commission provided to the salespersons is on the basis of their sales performance.

Multilevel Marketing:In this system, the seller becomes distributor of the firm and can recruits other
distributors or sales people under his sponsorship (downline). Thus, the uplinedistributor generates bonus
and commission on the collectively sales of the group. Downliners help to augment the overall sale, and
thus enable the upliners to earn a high commission.
MLM system provides firms an alternative way of promoting products to potential consumers by using
relationships. It is the best way to use of human relationships and make a social network across the people.
By using Network Marketing or customer referrals, the business entity need not incur advertisement costs.
More importantly, the potential customer shows keen interest to buy the products from his acquaintance.
 S. Jain et al. / Management Science Letters 5 (2015) 905

The origin of MLM is still a matter of confusion among various researchers. According to Pajera (2008)
MLM system existed during 1920s to 1930s with Nutrilite or California Perfume Company rebranded as
“Avon Product”. In the views of Attri (2011) this business concept started in 1940s with the California
Vitamin Company. On the other hand, Evert (1994) stated that it originated in the 1960s and even as late
as the 1970. In 1959, the employees of Nutrilite Jay Van Andel and Rich DeVos started their own firm
called Amway (Dominique, 1993) and also acquired the business of Nutrilite in 1972. Since 1994,
Amway is one of the largest business organizations in the MLM industry. In today’s MLM business,
Avon, Amway, Forever, Modicare, Oriflamme, Tupperware, etc. are the most popular network selling
firms.
Microsoft founder Bill Gates says “If I would be given a chance to start all over again, I would choose
network marketing”.
Nobel Prize winning economist and author Paul Zane Piltzer thinks “Of all the entrepreneurial
opportunities available today, one of the most important is direct selling also called network marketing”.
Nowadays, MLM is gaining much attention in business circles in the Indian environment. More than
10000 Companies of direct selling are operating in India, whose business turnover is more than 7200
crores in fiscal year 2013-2014 (Indian Direct Selling Association, IDSA). IDSA is an association which
regulates the direct selling companies, core issues related to this business and future prospects of the trade
in India.In MLM the distributors are compensated not just for their respective sales but the sales generated
by the people they recruit. The recruiting is generally done through personal networking as shown in Fig.
3; thus MLM is also called “Network Marketing” (Muncy, 2004).
A C D
1 1 1 2

B
2 2 2 2

3
3 3
2

Fig. 3. MLM Network Structure

Most of the researchers have defined MLM is a type of direct selling (Duffy, 2005; Brodie, 2004; Marsh,
2004; Kiew & Run, 2007). Many researchers have defined MLM like pyramid schemes (Nat & Wicked,
2002; Maxima, 2013). Some of them described it as network marketing (Oksanes, 1999; Jones, 1995).
Though MLM is given various names like Network Marketing, Chain Marketing, (money chain in a
negative sense), the basic principle is that a happy consumer brings in more customers for which he is
getting an incentive. The compensation plan varies from company to company.
1.3 MLMCompensation Concept

Here, an attempt has been made to describe comprehensive MLM concept and distinct types of this
system. MLM works on the concept of time leverage and a unique strategy to sell the products to the final
customers.

I would rather earn 1% of 100 people’s efforts than 100% of my own efforts”
- John Paul Getty (American Billionaire)
906

MONTY
{INDIVIDUAL}
VOLUME= $ 400

PARKASH PALVI MANOJ

{INDIVIDUAL} {INDIVIDUAL} {INDIVIDUAL}

VOLUME= $ 200 VOLUME= $ 200 VOLUME= $ 200

ANIL SATINDER ANU

{INDIVIDUAL} {INDIVIDUAL} {INDIVIDUAL}

VOLUME= $ 100 VOLUME= $ 100 VOLUME= $ 100

Fig. 4. Compensation Structure

Table 1
Net Compensation Structure
Member’s Name Total Volume commission Rate $ Amount Net Commission Amount
MONTY US $ 1300 10% (US $ 130) US $ 66
PALVI US $ 500 8% (US $ 40) US $ 28
PARKASH US $ 200 6% (US $ 12) US $ 12
MANOJ US $ 200 6% (US $ 12) US $ 12
ANIL US $ 100 4% (US $ 4) US $ 4
SATINDER US $ 100 4% (US $ 4) US $ 4
ANU US $ 100 4% (US $ 4) US $ 4

In this network arena, all the firms have a web based information system where a member can monitor
the growth of his down line members, incomes accrued, etc. The visible part of the network is a
distribution center (for product based MLM), weekly meetings of members, explanations of business
plan, demonstrate products and recognition the achievements, etc.
2. Literature review
In MLM system, distributors do not receive a salary, but they received commissions on the sales of the
products they sold as well as sold by their downline members whom they recruit. The amount of
commissions depends on their group performance. Wang and Chang (1998) demonstrated that
Lucrative compensation plan of a firm is the key factor that motivates the distributors to work in an
enthusiastic manner. The effective compensation policy of MLM business provides the distributor an
opportunity to earn extra money and it also gives the financial satisfaction to distributors (Keun, 2004;
Palmatier et al., 2007; Parvi & Kabir, 2011). Kiewand and Run (2007) reported that financial rewards
and product quality allured people to join and stay on in MLM business. Consumers want instantly and
convincing solutions to their problems and desire innovative, nutritious and suitable products for
consumption. Chaubey and Subramanian (2013) illustrated, the product feel, demonstration,
opportunity to test and verify product claims are variables that satisfy the customers. Product quality is
considered a prime embolden for repurchasing the products (Devi & Kalaiselvi, 2014).The MLM
system affects its direct customer’s willingness to pay through relationship marketing, therefore
customers prefer to buy products from acquaintances, relatives, etc. rather than strangers. Oksanes
(1999) inferred, distributors tend to create co-operative relationship with other distributors in order to
accomplish their goals. This helps in building healthy relationship with co-workers and supervisor that
lasts for long term (Parvin & Kabir, 2011). Hence, the social network as a factor plays an important
role in success of business (Marsh, 2004; Palmatier et al., 2007).
 S. Jain et al. / Management Science Letters 5 (2015) 907

Table 2
Key Motivational Variables
Variables that motivate to Researchers
join MLM
Compensation: Coughlan et al. (1998), Wang & Cheng (1998), Nat & Wicked (2002), Keun (2004), Marsh (2004), Keun& Run
(2007), Chen et al.(2012), Buschgens et al.(2013), Fuji &Taji (2013), Jumpon et al.(2013)
Product Quality: Cheng(1993), Brodie (2004), Keun& Run (2007), Goncalves (2008), Constantin (2009), Chen et al. (2012),
Sarada (2012), Jumpon et al.(2013), Jain &Goyal (2013),Shirani et al.(2014), Devi &Kalaiselvi (2014)
Learning: Akiny (2008), Choudhary (2013), Radmand&Mukhtaram(2013), Rani & Kumar (2013)
Extra Money: :Wang & Cheng (1998), Keun (2004), Palmatier et al. (2007), Constantin (2009), Chaudhari et al.(2010), Chen
et al. (2012), Qasim&Sayeed (2012), Choudhary et al. (2013)
Corporate Social Responsibility Rattanaphan (2012)
(CSR):
Own Hours: Akiny (2008), Choudhary et al. (2013), Arya & Arya (2014)
Free To Work: Akiny (2008), Choudhary et al. (2013), Arya & Arya (2014)
Personal Accomplishment: Miekina (2012), Choudhary et al. (2013)
Build Rapport: Oksanes (1999), Dai Fu (2012)
Lavish Lifestyle: Dai et al. (2011), Spire (2011), Ismail et al. (2012)
Leadership: Sparks (2001), Akiny (2008), Huong (2013), Rani & Kumar (2013)
Financial Security: Palmatier et al.(2007), Parvin&Kabir (2011),
Be Own Boss: Choudhary et al. (2013), Arya & Arya (2014)
Entrepreneur: Choudhary et al. (2013)
Recognition: Chang & Tseng (2005), Contantin (2009),
Company image: Brodie (2004), Sizovaite&Pashaloudis (2011), Ismail et al. (2012), Rattanaphan (2012), Reavis (2014)
Low Investment: Zamanian (1986), Albaum& Peterson (2011),Choudhary et al. (2013)
Low Entry Barrier: Akiny (2008)
Company policy: Chang & Tseng (2005), Younus (2006), Parvin&Kabir (2011), Albaum& Peterson (2011),Qasim&Sayeed (
2012), Joshi (2013)

As we earlier discussed, India has become an emerging nation in MLM business. A large number of
companies have adopted MLM system but still the people are perplexed to understand the difference
between legitimate and illegitimate MLM Company. Some financial scams erupted from time to time
hit the reputation of MLM companies and create negative perception towards MLM (Spire, 2011). Most
of the people in Australia perceive the network marketing as pyramid scams, aggressive selling
techniques, high pressure sales, recruitment policies and ponzi schemes (Kustin & Jones, 1995).
According to Reavis (2014) in ponzi schemes, the compensation is paid by recruiting new members
rather than selling the products to consumers. Veena (2014) evinced that lack of sport from up-line
members, low income, lack of training, Rigid mindset, pyramid structure and difficult to recognize
legal MLM companies are some variables that restrict women to join MLM companies. Thus, The
contribution of women in expansion of MLM business is very less as compared to men.
Several studies (Poe, 1999; King & Robinson, 2000; Hedges, 2001; Kiyosaki, 2004) supported the
concept of MLM business and emphasized it as a strong marketing system of 21st century. It also
generates extra income for distributors who further can also avail many kinds of benefits.

3. Conceptual Framework and Gap Analysis

In this section, the issues related to MLM are reviewed meticulously. The prior studies revealed that
this business system has been growing day by day. India has become one of the largest markets in the
world in MLM business. The report of IDSA presented that Amway is the market leader in India with
44% of total market share.In addition to the review of literature, we also conducted the interviews of
representatives and top level executives of MLM companies. By taking their views into consideration,
we formulated a conceptual framework to depict the motivational factors that have the highest level of
contribution in the expansion of MLM business.As we already discussed, many researchers defined
MLM in their own style and termed it in a different manner. Although the whole concept is same and
it revolves around two sided theory of recruiting and selling. According to Reavis (2014) majority of
the people have a negative perception towards MLM because of frequently occurred financial scams
that are also called Ponzi schemes. Albaum and Peterson, (2011) described the attributes of legal MLM
and explored that it is based on selling the products or services rather than only recruiting new members.
908

Cheng (1993), Brodie (2004), Keun & Run (2007), Goncalves (2008) and Constantin (2009) observed
product quality as a major factor that influences the perception of the customer. According to Akiny
(2008) there is a low entry barrier because people can join Network Marketing organization with
irrespective of their demographic profile. Besides it, researchers covered various issues regarding MLM
as: Extra money can be earned through good Compensation plan (Coughlan et al., 1998; Wang &
Cheng, 1998; Nat & Wicked, 2002) transformational leadership (Sparks & Schenk, 2006) and
entrepreneurial motivation (Kuntze, 2001).MLM system has appeared as one of the most successful
marketing systems in the past several decades (Sparks & Schenk, 2001), still a few researchers
conducted empirical studies in this area and also ignored some key motivational variables that persuade
people to join MLM business. As shown in Fig. 5. Motivation also leads commitment towards work
responsibilities and contributes in business’ growth.
Network

Motivation Join MLM Team work Growth

Network

Fig. 5. Impact of Motivation

In this study, we aimed to explore the various motivational factors that influence the people to join
MLM. We proposed a confirmatory factor analysis model and testing construct covariance for better
understanding of motivational factors in MLM system.
4. Research methodology

This study investigated the factors that motivated the respondents to join MLM business.The 26 item
semi-structured questionnaire was developed to rate them on 5-point Likert scale and sent to 23 MLM
experts for pre-pilot survey. Then it was improved on the basis of their recommendations and sent for
pilot survey. The results of pilot survey did not support the level of acceptance of Eigen and
communality values of two items i.e. support system and extra skills. Therefore, we removed these two
items form questionnaire after discussion with experts. Finally, the large scale survey was done on 24-
item, 5 points Likert scale (1 = strongly disagree to 5 = strongly agree). The 382 questionnaires were
sent to distributors working in various MLM companies irrespective of their demographic features
within the region of Punjab, Chandigarh and Haryana. Thus, respondents from all walks of life were
ensured. The respondents answered a 2-Part questionnaire. Part A- Contained questions on the
respondents’ demographic profile and Part-B was about the reasons for joining MLM. Finally, the 337
questionnaires were returned that demonstrate the 88.21% return rate. But we found 21 unengaged
responses and did not digitize them in SPSS. Finally, the total 316responses were used for data analysis.
The principal component factor analysis with varimax rotation technique was used to group the same
items in one construct.
5. Results and discussion

A factor analysis was performed to identify the motivational factors that allured the respondents to join
MLM business. The results obtained (.912) value of Kaiser-Mayer-Olkin (KMO) and Chi square
(8566.11) and P value is (0.000). The social responsibility has a maximum variance of (22.904%), self
development has a variance of (21.887%) followed by personal freedom and working lifestyle with
 S. Jain et al. / Management Science Letters 5 (2015) 909

variance of (20.992%) and (14.993%) respectively. The cumulative percentage of variance is 22.904
%, 44.791%, 65.783% and 80.776% respectively.
Table 3
Scale Statistics
Communality
Variables Mean Total Corrected Initial Final
items
Contribution 2.2215 .800 1.000 .736
Learning 2.0886 .911 1.000 .884
Extra Money 4.5000 .841 1.000 .811
Challenged 3.2627 .954 1.000 .946
CSR 2.1139 .955 1.000 .944
Innovative 2.123 .927 1.000 .907
Work Anytime 4.5411 .902 1.000 .882
Work Anywhere 4.4778 .814 1.000 .771
Accomplishment 3.7880 .710 1.000 .634
Build Rapport 3.9051 .946 1.000 .933
Lifestyle 2.2658 .874 1.000 .850
Leadership 3.9051 .840 1.000 .807
Fun 2.2658 .840 1.000 .793
Financial Security 3.3829 .822 1.000 .768
Locations 3.3228 .948 1.000 .936
Be Own Boss 3.8323 .860 1.000 .842
Recognition 3.3544 .777 1.000 .710
Company Image 3.7627 .778 1.000 .731
Low Investment 4.4715 .709 1.000 .628
Easy Entry 4.4873 .797 1.000 .747
Compensation Plan 3.8956 .745 1.000 .686
No Sale Target 3.3608 .839 1.000 .792
Product Quality 4.5222 .788 1.000 .745
Company Policy 3.2974 .925 1.000 .906
Chi square =8566.11 Df==276 Variables= 24 Number=316 Alpha= .841
Variance = .772 Item mean = 3.54

Table 4
Factor Analysis Results
Factors
Variables
Social Responsibility Self Personal Working
Development Freedom Lifestyle
CSR .970
Build Rapport .965
Innovative .951
Learning .940
Fun .889
Contribution .885
Challenged .970
Locations .965
Company Policy .950
No Sale Target .884
Financial Security .875
Recognition .834
Work Anytime .937
Extra Money .896
Work Anywhere .863
Product Quality .857
Easy Entry .847
Low Investment .792
Lifestyle .917
Be Own Boss .906
Leadership .888
Company Image .848
Compensation Plan .812
Accomplishment .788
Eigen Values 5.497 4.873 4.654 3.598
% Of Variance 22.904 21.887 20.992 14.993
Cumulative % Of Variance 22.904 44.791 65.783 80.776
Alpha .968 .961 .935 .845
Factor mean 2.15 3.33 4.49 3.82
910

Table 4 shows the loading of all 24 variables. All the 4 factors have good loadings and comprised the
same number (6) of variables. The obtained values in this study are following:Cronbach alpha value =
> 0.841, Item-to-total correlation = .955 to .709 and Inter-item-correlation = .967 to .537.
Table 5
Result of Factor Analysis
Factor Total Covered Factor Loading Inter-Item Item-To-Total Explained Eigen Value
Variables Range Correlation Range Correlation Range Variance
Social Responsibility 6 .970 to .885 .942 to .687 .955 to .800 22.904 5.497
Self-Development 6 .970 to .834 .967 to .661 .955 to .777 21.887 5.253
Personal Freedom 6 .937 to .792 .835 to .599 .902 to .709 20.992 5.038
Working Lifestyle 6 .917 to .788 .842 to .537 .874 to .710 14.993 3.598

6. Confirmatory model results

The proposed confirmatory factor analysis model is shown in Fig. 6. The personal freedom construct
loadings for variables are given as: low investment (.73), work any time (.94), extra money (.88), work
anywhere (.85), product quality (.82), and easy entry (.82). This construct’s obtained mean (4.49) shows
that the variables under this construct have the maximum level of contribution in motivating
respondents to join MLM. The respondents have desire to call their shots with their own style. The
Study also revealed that they can join MLM without any hurdle and they can earn extra money by
making low investment. The majority of the respondents rated MLM products of high quality. The
followings are the variables involved in construct of working lifestyle and their loadings are shown as
following: accomplishment (.72), compensation plan (.76), company image (.78), leadership (.90), be
own boss (.91), lifestyle (.92) and the construct mean (3.82) revealed that be own boss and
compensation policy are key variables. The majority of the respondents claim that they join MLM
because of these variables. Personal accomplishments, leadership quality and to improve lifestyle play
an important role to motivate respondents. Brand name of the company is also one of the important
motivational variables that attract respondents towards the company.Fig. 6 Shows that self development
has 6 variables that are depicted with their loadings as following: challenged (.99), location (.98),
company policy (.96), no sales target (.86), financial security (.81) and recognition (.76). The construct
mean value (3.33) shows, there is mix response regarding above variables. There is covariance of (.39)
between e11 and e12 in this construct. MLM companie’s challenging tasks, policies regarding
recognition and sales target affect some respondent’s perception to join the MLM system. This business
system also provides opportunities for its members to work at exotic locations which create willingness
to join this commerce activity. As a financial security concerned, MLM is no exception because
financial security has been always a reason for doing any business. But respondents are perplexed to
consider financial security as a motivational variable.

Fig. 6. MLM Motivational Confirmatory Factor Model

 S. Jain et al. / Management Science Letters 5 (2015) 911

Social responsibility construct has 6 variables with total construct mean of 2.15. The loadings of this
construct are: CSR (.98), build rapport (.96), innovative (.94), learning (.93), fun (.86) and contribution
(.81).This results evinced, that these variables do not motivate respondents to join MLM business.
Model fit

The Tables from 6 to 10 show the obtained model fit values. Here, we have obtained CMIN/DF value
(.986), P value (.000), CFI (.986), GFI (.901), RMSEA (.039) and PCLOSE (.984). This indicates that
the purposed model absolutely fits for motivational factors that affect joining decision.
Table 6
CMIN
Model NPAR CMIN DF P CMIN/DF
Default model 79 364.854 245 .000 1.489
Saturated model 324 .000 0
Independence model 48 8813.261 276 .000 31.932

Table 7
RMR, GFI
Model RMR GFI AGFI PGFI
Default model .076 .901 .879 .739
Saturated model .000 1.000
Independence model .517 .250 .185 .230

Table 8
Baseline Comparisons
NFI RFI IFI TLI
Model CFI
Delta1 rho1 Delta2 rho2
Default model .959 .953 .986 .984 .986
Saturated model 1.000 1.000 1.000
Independence model .000 .000 .000 .000 .000

Table 9
Parsimony-Adjusted Measures
Model PRATIO PNFI PCFI
Default model .888 .851 .875
Saturated model .000 .000 .000
Independence model 1.000 .000 .000

Table 10
RMSEA
Model RMSEA LO 90 HI 90 PCLOSE
Default model .039 .031 .048 .984
Independence model .313 .308 .319 .000

It is highly necessary to establish reliability as well as validity for confirmatory factor analysis. The
absence of validity and reliability makes model useless. Hair et al. (2010) proposed some parameters of
model reliability and validity is hereunder: shown in Table 11.

Model validity
912

Table 11 shows that there is no validity concerns. All required values of Composite Reliability (CR),
Average Variance Extracted (AVE), Maximum Shared Variance (MSV) and Average Share Variance
ASV are obtained. Thus, the proposed model is absolutely valid for MLM business.

Table 11
Model validity
Construct CR AVE MSV ASV
Self Development 0.959 0.797 0.006 0.003
Social Responsibility 0.967 0.832 0.003 0.002
Working Lifestyle 0.928 0.685 0.034 0.012
Personal Freedom 0.935 0.706 0.036 0.015

7. Conclusion and recommendations

In this study, we developed a motivational model for MLM system. The obtained results demonstrated
that product quality, easy entry, low investment, extra money, work anytime and anywhere are the most
effective variables that persuade people to join MLM. Leadership, personal accomplishment, company
image, be own boss are also some key variables that attracts people towards MLM. Here, the social
responsibility factor does not contribute in motivating people to join MLM. On the other hand, self
development factor obtained a mean score of 3.33 which reveals the mix response of the respondents
towards the variables comes under self development construct.
In addition, the motivational confirmatory model shows that all factors are independent because there
is no correlation among them. The results of this study have been empirically tested and validated.
The findings suggest that MLM companies should focus on providing recognition to their loyal and
hardworking distributors. MLM should formulate the policies in such a way that each member or
distributor feels financially secure and comfortable to work.
The proposed model will help MLM companies to formulate better strategies to overcome turnover
problems faced by distributors and ensure their commitment towards work. Further, it yields high
productivity in organization. On other hand, Legitimate MLM companies are required to make their
policies more transparent and conduct seminars to create awareness amongst people regarding the
business structure.
In this research, the target population was the only MLM companies’ distributors in India. This study
would have been more extensive and beneficial if it had also included customers of MLM companies
in India. A future research can be carried out on MLM product attributes that allure customers to
purchase the products and join the business.
Acknowledgement

We would like to thank the top level executives of MLM companies in India for their kind cooperation
and support in conducting this research.
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