| Direct Selling is the selling institution in which products and services are directly face-to-face sold to customers by independent distributors, away from a fixed retail location. And it has attracted debates since its appearance. According to the calculation way of payment, Direct Selling can be divided into Single-level Marketing and Multi-level Marketing (MLM).MLM distributors can obtain income not only form their sales but also from the sales of the people they recruit.There are few domestic and foreign economic scholars who focus on MLM, except for several ones. This paper characterizes multi-level marketing in economics, and, the differences and relations between direct selling and pyramid selling are addressed. The dissertation adopts Principal-Agent, a strong tool which we can analyze various kinds of complicated issues in the economy and society. By mathematical model, we discover the essence of direct selling:Direct sellers prefer referral program to sale under the incentive of wage policies and direct sellers undertake high risk and high cost of firms. Furthermore, MLM is an efficient Mode to the company, while it is inefficient to the distributor. Based on the analysis of the wage policy of multi-level marketing, the dissertation points out that both direct selling and pyramid prefer referral program to sale.And they also prefer to recommend their friends and relatives to be the distributors. The biggest difference between direct selling and pyramid is that there is circulation of products in direct selling, but there is nothing in pyramid. What's more, this paper suggests that "salary and bonus" should be implemented in Direct Selling. Finally, the writer looks forward to the future of the Direct Selling in China. There is a possibility that Chinese government will allow folks undertaking Direct Selling in more areas. And if the wage policy of MLM is adjusted, in addition to complete legislation and supervision, MLM will successfully transform. |
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