Network marketing faces another crisis: gray-market sales

After COVID-19 broke out in 2020, “contactless” became a keyword across society, and the way people shop and products are distributed reached a new turning point. Network marketing couldn’t avoid a temporary slowdown either. The market shrank from 5.2284 trillion won in 2019 to 4.985 trillion won in 2020.

But the shock was smaller than expected, and the market bounced back quickly in 2021 to 5.1831 trillion won.

Experts pointed to network marketing’s particular strengths to explain the recovery. Thanks to a strong organizational culture built on face-to-face relationships and training systems developed over many years, the industry adapted quickly to digital, and product categories that fit the wellness trend, especially health supplements and cosmetics, kept drawing consumer demand even during the pandemic. Its flexible work structure also provided a foundation for adapting proactively to rapid change.

What is network marketing?

It’s a model with no intermediate distribution or mass-media advertising, in which consumers who have used a product experience its quality and benefits for themselves and introduce it to other consumers.

Consumers become more than buyers: they take part in selling too, delivering and explaining products to friends and acquaintances through direct selling (door-to-door sales).

This structure expands in multiple levels, as the people someone introduces recruit other consumers and start selling themselves. Each level is connected, so membership grows like a pyramid, but it operates as a marketing network built on personal trust and product quality.

Even traditional, face-to-face network marketing couldn’t resist the shift to digital. Training, seminars and sales through online platforms such as YouTube, Zoom and live commerce became routine, which actually had the positive effect of expanding customer touchpoints.

But the rapidly grown online distribution structure brought a new threat with it: a surge in gray-market (unauthorized) sales.

As products sold online without the permission of brands or sellers spread fast, the biggest strength of official distributors, “customer relationships built on trust,” began to waver.

Consumers now clearly tend to choose products based on “where to buy” rather than “who to buy from,” which threatens network marketing’s core values: trust and relationships.

Gray-market sales threaten distributors’ place

As the online market grew, consumer buying behavior changed rapidly. With more unauthorized sellers offering lower prices than official channels, consumers stopped choosing products based on trust in a distributor and started choosing on price and channel.

Unauthorized sales are different from ordinary online distribution. They involve third parties reselling products without the approval of the brand or headquarters, and some bypass official distribution or sell products bought in bulk illegally at low prices on online marketplaces. Prices below list may look attractive to consumers, but they can break down the relationship between official distributors and consumers, and with it the trust the brand has built.

Gray-market sales are especially damaging to network marketing because the industry is built on trust and relationships. Distributors aren’t just sellers: they’re partners who explain how to use products, provide regular follow-up and recommend products that fit a consumer’s lifestyle. But as unauthorized sales spread, those touchpoints disappear and consumers move to low-price sellers, threatening distributors’ very reason for being and their income.

Gray-market sales can also create distrust in product quality. Products sold through channels where storage conditions, expiration dates and tampering can’t be verified make consumers question their effectiveness and safety, which can turn into distrust of the brand as a whole.

A gray-market structure with no clear accountability ultimately hurts both brands and official distributors. Gray-market sales aren’t just a change in distribution channels. They’re a structural problem that undermines network marketing’s core values. Rather than competing on price or visibility, brands urgently need active protection policies, systematic monitoring and regular enforcement.

Responding to gray-market sales: decisive action to protect brand trust

As gray-market harm keeps recurring, major network marketing companies are taking more active steps to protect consumers and maintain brand trust. Amway and Atomy both clearly prohibit online resale and take tough action against sellers who violate the rule.

The problem starts with consumer harm. Cases of harm from products bought outside official distribution are reported steadily. Reviews from people who were drawn in by a low price only to receive a fake or a product stored in poor condition are easy to find on Naver blogs and online communities.

When these products circulate online, consumers end up unable to trust a product “even if it’s genuine.” Trust in the whole brand wavers, and even distributors who operate honestly are hurt.

The bigger problem is a structure in which some distributors buy excessive stock to earn higher commissions, then dump that inventory online at rock-bottom prices. It may clear inventory in the short term, but in the long term it damages the brand’s value.

Atomy takes a very clear stance on this. It completely prohibits resale on any online channel other than its official online store, and enforces strict penalties for violations, including revoking distributor status. This isn’t just about distribution order. It’s a real safeguard for brand value and customer trust.

(Source: Next Economy)

These measures go beyond recommendations and have become real operating rules. They’re essential not only to restore distribution order but also to protect trust in the brand and customer satisfaction.

Network marketing is built on selling based on trust. Gray-market sales are a serious threat that can undermine that core value. What brands need to protect isn’t just products. It includes the business opportunities of distributors who operate honestly, and the trust consumers have in the products.

That’s why clear standards and strong enforcement around online resale will become even more important in network marketing going forward. Atomy’s case is raising awareness across the industry and signaling that similar policies may spread to other brands.

Stronger online gray-market enforcement with AI

The network marketing industry has recently been strengthening its policy response to gray-market sales, going beyond warnings to enforce actual operating rules. This shows companies’ strong commitment to stopping gray-market sales before they start in order to protect brand trust.

But with online distribution channels as varied as they are today, policy measures alone can’t completely stop gray-market sales. That’s why many network marketing companies are adding a technology response, using AI to build more sophisticated monitoring and enforcement strategies.

Here are the key strategies for strengthening gray-market detection and response with AI.

Set up real-time monitoring

You need a monitoring system that constantly watches channels such as marketplaces, secondhand platforms and social media. With AI, you can automatically detect violations people easily miss and respond quickly.

AI-based monitoring detects abnormal transactions far faster and more accurately than manual work, dramatically improving how efficiently you can block gray-market sales.

Introduce authentication systems

Systems that let consumers verify products themselves, by applying authentication methods such as QR codes, unique serial numbers and NFC tags to products, are also important.

These consumer-centered authentication systems reduce harm from counterfeit or mixed products and strengthen brand trust.

A process for dealing with gray-market sellers

For sellers who repeatedly resell through the gray market, you need step-by-step measures such as warning emails, requests to stop selling and legal action.

Only with a practical enforcement playbook can you respond quickly to gray-market sales and protect distributors who operate honestly. When policy controls, technology-based monitoring, authentication systems and seller enforcement work together, brands can minimize the harm from gray-market sales. Now that the line between online and offline distribution has disappeared, this kind of integrated response is emerging as key to protecting brand competitiveness.

Network marketing isn’t just a way of delivering products. Within it move trust between people, belief in the products and affection for the brand.

But online gray-market sales can tear down all of these values with a single criterion: price. That’s why now is the time for brands to take decisive action to restore distribution order. Only when brands are protected can consumers and distributors be protected too. And that starts with thorough monitoring that doesn’t miss a single abnormal transaction, and real enforcement.