People often credit Amway with being the OG of MLMs, but Jay Van Andel and Richard DeVos basically took over a ready made format in 1959, when they set up a separate company to distribute the Nutrilite products. The history of MLM and Direct Sales goes a little further back than 1959, we have to travel back in time to the late 1800s to see the full picture.
Picture New York, 1878, David Hall McConnell, aged 20 and just completed his studies from Oswego Normal School, in Oswego, N.Y., accepted a position with the Union Publishing House as a general agent, earning $40 a month plus expenses. This $40 in 1878 is equivalent in purchasing power to about $1,187.19 today, just to give you an idea of DS salaries then.
Over the next 10 years that McConnell worked for Union Publishing House he held several positions, including General Manager at several branches across the United States. During this time he learned all aspects of Direct Sales, including the importance of selecting the right travelling agents and sales representatives.
In the spring of 1888 he took over the Union Publishing House business from his, by then friend, C.L. Snyder, who had other business to attend in South America and later California.
McConnell admits in his 1903 autobiography, that the book business was not his aspiration, his ambition was to manufacture a line of goods that would be consumed, used up, and to sell it through canvassing agents, direct from the factory to the consumer. McConnell explained that in 1892 they were selling sets of books to stores for advertising purposes, and they had a number of lady 'travellers' who were not as good at appointing agents, but were good business women, so he wanted to get hold of something that they could handle to the trade. He stumbled upon a box of perfumery, containing three bottles of perfumes and an atomizer. It was called the 'Little Dot Box' by Mr H.H. Sawyer.
Contrary to what some sources report, McConnell did not offer the perfumes 'he made himself' as a 'Gift with Purchase' of his books whilst he was selling books door-to-door himself, McConnell had to ORDER these sets, presumably from H. H. Sawyer. He set up a company, D. H. McConnell, and that company started manufacturing these 'Little Dot Box' sets, those were the ones first sold by the California Perfume Company.
The name California Perfume Company was suggested to him by his friend, C. l. snyder, who then resides in California, who described California and it's great abundance of flowers, which of course are associated with the perfumes.
On June 16, 1909, McConnell and Alexander D. Henderson, signed an agreement of Corporation for the California Perfume Company in the state of New Jersey. On January 28, 1916, the California Perfume Company was incorporated in the state of New York. It became Allied Products, Inc. in 1924, later Avon Allied Products, Inc.
In May 1928, the California Perfume Company announced a new product, the 'Avon Toothbrush'.
The Avon name as used by the California Perfume Company came into being after McConnell keenly observed that, "looking out over the Ramapo hills, he was impressed by its striking resemblance to the Stratford-on-Avon countryside!"
By December, 1928, there were a total of five products within the Avon line: the Avon Tooth Brush, the Avon Powdered Cleanser, the Avon Talc For Men, the Avon Gift Atomizer with Venafleur Perfume, and the Avon Vanity Set.
Throughout the 1930's, all of the products manufactured by the California Perfume Company began to carry the Avon name. Moreover, the labeling of the early-1930's contained, "An AVON Product, California Perfume Co., Inc." By the mid- to late-1930's, Avon became an incorporated division under the California Perfume Company, and the labeling changed to, "Avon Products, Inc. (Div.), California Perfume Co., Inc."
Following the passing of David Hall McConnell, Sr. in 1937, David H. McConnell, Jr. finalised the transition by renaming the entire company Avon Products, Inc. in 1939 and dropping all reference to the California Perfume Company on products, in catalogs, etc.
As evident from the quotation above, McConnell started his job selling books door-to-door at a salary of $40 a month plus expenses. Back then door-to-door sales was a salaried job, a Direct Sales model that existed side by side with Mail Order, which was started in the 1850s. The concept of Avon’s mail order door-to-door sales was a logical step. The sales reps were paid a basic low salary by the company they worked for and they topped up their wages by the commissions that they earned from the sales of the products. Quite a legit form of employment, which is why so many MLMs hold on to that Direct Sales label.
Direct Sales was still a salaried job by the time California Perfume Company became Avon in 1939 and Carl Rehnborg founded Nutrilite (pre-Amway) and came up with ‘The Plan’ the precursor of MLM in 1945. This was the first company exclusively based on the MLM model after WW2.
The MLM model
Stepping back a little bit in history; California Vitamin Company, founded by Carl Rehnborg was started in 1934, he started recruiting door-to-door sales people, but in addition to the in-house sales reps, those distributors were encouraged to find new distributors from within their circle of friends, acquaintances and customers. The in-house sales reps then got paid on the sales of the distributors they personally recruited and that’s when Multi Level Marketing was created.
California Vitamin Company became Nutrilite in 1945, which already used MLM by then. Two of its in-house sales reps, Richard de Vos and John van Andel founded Amway in 1959 and took the MLM model with them.
How did Direct Sales and MLM end up becoming the same?
It was a gradual process of change. Things changed a lot when the Party Plan method was introduced into the Direct Selling industry.
The history of the Party Plan method starts with another old, originally door-to-door company; Fuller Brush Company, founded in 1906 by Alfred Carl Fuller, who started making brushes and selling them door-to-door from his sister's basement.
Around 1908 he hired a young man named Frank Stanley Beveridge. Frank started peddling Fuller Brushes door-to-door, whilst a student at Colgate University. Allegedly he only spent a year at Colgate University but did spend his first 7 or 8 years of house to house selling in the Oneida area, making his headquarters here.
Under the dark clouds of the Great Depression in 1931, Frank partnered with Catherine L O'Brien, his former secretary at Fuller Brush, and launched the Stanley Home Products brand.
Frank had all kinds of selling experience, having handled Stereoscopes as well as Fuller brushes in his earlier years and had also operated concessions at carnivals, county fairs and just about everything and anything wherever a crowd had gathered. He possessed a persuasive manner and the rapid expansion in which the Stanley products boomed seemed perfectly natural to all who knew Frank.
With the ever growing hardships due to the economic situation at the time of the Great Depression, Frank Stanley Beveridge & Catherine O’Brien struggled at the start to attract the attention of consumers in a highly congested market.
As the Depression began to decline, Frank decided they needed to look at other selling methods. He hired Norman W. Squires who created the Hostess Home Party system. He presented his idea of Hostess Home Parties to Frank Stanley Beveridge and Catherine O’Brien of Stanley Home Products in 1938. The Party Plan method as it is also often called, was a system where you got an invitation to socialize at a party, where there were 'free' gifts, and a full demonstration of the various Stanley Home products. At these gatherings, the salesperson could demonstrate his/her products to a roomful of invited "guests" and then take orders from many at once -- a far more efficient method than knocking cold on doors, and selling to one person at a time, if you didn't get the door closed before you could make a sale.
Eventually interested consumers were able to purchase small quantities at highly discounted rates and then make a profit selling Stanley Home’s quality products themselves. This is where the recruiting started. There was still only one single level of income, through sales only, but we're now crossing into recruiting housewives.
This radical change brought women into the business. In fact, home party sales became a convenient and lucrative business for women. Throughout the 1940's women discovered that they could make some extra "pin" money -- or even support their families -- through a job with Stanley. The work offered them flexibility and autonomy they couldn't find in other jobs. They could choose how many hours they wanted to work, and control their own schedules.
At this point we're still seeing basic salaries for sales reps and bonuses based on sales volumes, apart from under the Nutrilite distributors, who has started using the MLM model and were earning money on recruiting new people into the business.
We can't quite pin-point when exactly the basic salaries were dropped and the sales commission & recruitment bonuses MLM model became the go-to for the industry. Clear is that by the late 1950s, when Amway was founded, this was the most prevalent business model used.
The home-party-style sales method has since been successfully copied by people such as Mary Kay Ash, Brownie Wise (Tupperware) and Mary C. Crowley (Home Interiors & Gifts) all previously trained at Stanley Home Products.
Tupperware was started in 1946, all single level, door-to-door, direct sales.
Tupperware started the Party Plan model when Brownie Wise introduced the ‘Tupperware Party’ concept in the 1950s, the concept that she had learned from Norman W. Squires, who himself worked other Earl Tupper at Tupperware for some time as well.
So you see, when you hear someone say or read about reps saying their business is purely Direct Sales and yet they don't have a basic salary for their reps, expenses aren't paid, they may even use the Party Plan model as well as recruiting, then they are using the MLM business model.
You can bet your bottom dollar, if the company was founded after 1950, they will be using MLM and not use 'just' Direct Sales.
Home Interiors & Gifts was founded in 1957,
Amway was started in 1959, Mary Kay in 1963.
The Direct Selling Association , a lobbying group for the MLM industry, reported that in 1990 only 25% of members used the MLM business model. By 1999, this had grown to 77.3%.
By 2009, 94.2% of DSA members were using MLM, accounting for 99.6% of sellers, and 97.1% of sales.
Rumours that the MLM industry only started when the internet became a thing are easily disproven with the history of Direct Sales and Multilevel Marketing starting well before the internet even existed, let alone that it was used for commercial purposes.
Commercial internet use didn’t really publicly happen until the 1990s, there were academic experiments since the 1970s, then some standalone concepts in the 1980s, but the World Wide Web wasn’t developed until 1990. In 1992 books.com was the first proper webshop. Online shopping really didn’t start properly until 1994 and it’s only since 1995 that private individuals have access to email and instant messaging.
Social Media wasn't really around until the 2000s.
The advancement of technology made the MLM market more prominent, it's more in our face now and the Party Plan system has all but died.
If we wanted MLMs to really be ethical, they'd go back to the initial Direct Sales model, where reps don't have to buy into the company, they receive a basic salary and sales commissions on top, expenses are paid by the company, they have a sales territory and there's no recruitment based bonuses.