Multi-level marketers claim their business is primarily selling their products to their customers. But they deceptively force their customers to recruit more salespeople:
“They
deliberately set it up so that if the ‘salespeople’ don’t buy, they don’t earn ‘points’
that add up to override commissions or higher commission rates. They design the
pay plan so that if the ‘salespeople’ don’t continue to buy, they lose their ‘qualification’
to ever get commissions. And they always based the promised rewards on what the
salespeople and their recruits buy, not what they sell. The people running the
business know that their main marketing message is all about getting people to
buy and to recruit other to buy and recruit. They know that this buy and
recruit plan works.
“Millions
join up. Many are fooled. Some want to be fooled. Some fall into the world of
deception so deeply, it becomes a kind of religion, a closed society. They
practically worship the leaders. They learn to speak only in the logic of the
MLM. That logic says they are in the business ‘for the products’ while they are
also told to dedicate themselves entirely to recruiting. The deception is
contagious. It corrupts those who believe the lie – concocted in the executive
suite – to carry it, word for word, into neighborhoods, churches, offices and
into their own homes.”
Once someone has been recruited and
spent too much time and money with little return, they realize the only way to
salvage their efforts is to focus entirely on recruiting:
“In MLMs,
each consumer is solicited to pay fees and to buy into the ‘pay plan’ by
purchasing MLM inventory (soap, vitamins, fruit juice, weight loss pills, skin
lotion, etc.) at prescribed monthly amounts. Most of the initial investment in
the ‘home-based business’ is inventory. Later, it will include seminars, books,
CDs, more inventory, travel, lost time and lost friendships. These investments
will be paid for from savings or credit card debt.
“But, the
inventory, it turns out, is priced far too high to be profitably resold. So,
the net value of the business is negative unless… unless new people join the
‘downline.’ Income is based on later investors joining that program. So, more
investments are made in the hopes of building that downline. Why would more
people join your downline? Because they can make money by getting others to join
their downline also. It has no end.”
Most of the money goes directly to
the top 1%:
“The looting
by promoters at the top before the collapse occurs at the bottom is standard
operating procedure at MLMs. Each year, the MLM pyramids collapse. 99% of
investors (salespeople who are also the customers) lose money. 60-80% drop out
completely. The money they lose is transferred directly and immediately to the
top perpetrators. Schemes like Herbalife and Nuskin transfer as much as 70% of
all the “commissions” to the top 1% of recruiters. The company and its
shareholders take their cuts, month after month, year after year. The money
comes right out the pockets of the latest recruits who are lured on a fool’s
mission to ‘get to the top.’ At Amway, all the new recruits are urged to ‘go
Diamond’, a level at which big money is said to be paid. The recruits don’t
realize that less than 1 in 10,000 are at that level each year.”
MLM companies know 95-99% of recruits
will not make money, but that’s okay, because most people will blame
themselves:
“Later, when
the recruits fail to make money, which 99% eventually do in all MLM companies,
the ‘losers’ have a nice, ready-made excuse for their losses. They blame
themselves. Many will insist that they lost only because they were mostly
interested in the product, not the money. And some will even say they actually
profited from the camaraderie and the business lessons they learned, even
though the lessons were about recruiting, not business, and they never
associate with their old MLM pals any more. This story about products helps
also when friends rebuke them for getting them into a scam. They can say, ‘Hey,
didn’t we all get the products we wanted?’ This feels a lot better than saying,
‘I failed in the greatest income opportunity in the world, or, I tried to scam
my friends, but I couldn’t get any to take the bait and I ended up losing some
friends. Or, I wasted six months and wound up with nothing.’”
MLM companies also know it’s all
about ego. The majority of recruits to MLM will rationalize their failures and
lie to themselves, as well as to others:
“This is not
to say there is no benefit to MLM membership. You get certain tax write-offs.
You get to buy products, some of which you will be happy with. You get to go to
inspirational meetings, some of which will make you feel good. You may meet new
friends and you may even make a few bucks. But more than likely you will end up
alienating some family and friends. You will probably end up buying more stuff
than you sell. And you will learn a lot about deceiving yourself and others.
You won't be allowed to tell anyone how you are really doing, for example. You
will always have to think positive, even if that means lying. You will have to
tell anyone who asks that you are doing great, that business is wonderful, that
you've never seen anything go so fast and bring you income so quickly, even if
it isn't true.”
The unfortunate recruits soon realize
that even the products they buy for their personal use are often way
over-priced:
“MLM
perfected the model in selling bogus ‘home-based businesses’, based on recruiting
an endless chain of new distributors. MLM leaders understand that the endless
chain allows them to inflate the price of their ‘products’ (ordinary vitamins,
fruit juice, pills, and lotions) as much as 500% or more because the income
promise is not based on ‘direct selling.’ Consumers are not price shopping and
are not even demanding their products. It is understood that the ‘product’ is
only the vehicle for the money transfer. The money transfer is driven by the
false ‘income’ promise. The ‘profit’ comes out of the inflated margins and from
the transfer fees.”
Most MLM
require recruits to attend annual motivation rallies costing hundreds of
dollars:
“These usually contain nothing but hype, motivation speeches,
testimonials, and new improved methods of selling and recruiting. In other
words, you don't TECHNICALLY really learn anything new at these required
business seminars. Your upline will not tell you this of course. If you ask
them what you will learn, they will just say ‘It's a great seminar that will
help you succeed in this business! Just come. You'll see! Do you want to be
your own boss or not?’ The REAL purpose of these required business seminars is
to keep you motivated and inspired with staying in the business, and collect
some extra revenue in the process as well. After all, the turnover rate in
MLM's is very high, and would be even higher without these large scale rallies
and seminars. This is sad though because most people in MLM's (look up
statistics for Amway distributors on the internet from independent
sources) don't make that much and these fees alone sap up most or all of their
profits.”
MLM
companies foster almost cult-like thinking where the only true friends are the ones in the MLM group:
“If you're willing to accept all of these consequences and have no
problem with it, then perhaps you are the right person for this type of
business. Personally though, I don't admire people who live and breathe
only one thing and are obsessed with it. People like that are not
interesting and don't have much diversity, and plus it's not mentally healthy
to be obsessed with just one thing, no matter how good it is. (I don't deny
though, that being obsessed with something to the point of living and breathing
it greatly increases your chances at succeeding at it.) I also don't like
people who only like you if you're part of their MLM. It demeans a true
friendship and is so wrong. A true friend likes you for you, not for how you
can benefit their business or not. I thought that the person who recruited me
for an MLM was a real friend, but he turned out to lose interest in me as soon
as he realized that I wasn't going to be a serious part of his MLM operation.
That was a real disappointer and a lesson to choose your friends wisely.”
The basic difference between Bernie
Madoff and MLM:
“Well, we're
talking millions of people. Madoff conned a relatively small number of people
with investment money. Multilevel marketing is using a different system.
Instead of taking a million dollars from 10 people, you take $10 from a million
people. That's the way the system works. I'm just using that analogously. But
the numbers add up to be staggering amounts, year upon year upon year.”
http://www.cnbc.com/id/100366687
(also watch the 2 minute video)
The facts on Amway:
----
“Wittlich says he worked day and night on his Amway business and never made a
profit. Active Amway distributors earn an average of just $115 a month,
according to Amway's latest disclosure statement. Just a quarter of 1% (0.26%)
make more than $40,000 a year, which Amway attributes to the fact many work
part time. Active distributors, which describes about 60% of Amway's 600,000
North American distributors, get at least one bonus check, attempt to make one
sale or attend one meeting a year. ‘You'd be hard-pressed to find anyone making
over $1.50 an hour,’ Whitsell says of multilevel marketing. ‘The primary
product is opportunity. The strongest, most powerful motivational force today
is false hope.’”
---- “When
it comes to detergent, Consumer Reports program manager Pat Slaven agrees. She
did blind testing of detergents last year and ranked versions of Amway's Legacy
of Clean detergents ninth and 18th of 20 detergents tested. She recommends
against buying them because consumers can ‘go to the grocery store and get
something that performs a whole lot better for a whole lot less money.’ The
highly concentrated Amway brands cost 23 cents and 28 cents a load,
respectively. Five of the eight recommended brands cost less.”
Products
must always be moved, and moved, and moved…:
“The biggest
LIE they will all tell you is that ‘You
don't have to be a good at selling to succeed in this business.’ which
is usually in response to the common objection ‘What if I can't sell?’ Nothing
could be further from the truth. Obviously, money does not grow on trees and it
does not come from nowhere. In order for profits to come in, someone MUST BUY
the products! Anyone with the slightest amount of common sense knows this. One
way or another, you have to get people to buy the product, or you have to find
someone who is very good at it to be your downline.
“And this is
not a one-time sell either, you and your downline must find people who are
willing to buy your minimum product volume on a REGULAR BASIS! Even if you're a
great recruiter and recruit a hundred people, no one will make any money unless
the products of the MLM are sold on a regular basis. That is an indisputable
hard core FACT, and the MLM's will hold this fact from you as long as possible,
because this alone discourages most people from getting involved.”
The numbers just don’t add up:
“As we discussed above, in our example of the layout of the basic MLM
system, you recruit two downline partners to sell a certain product volume and
recruit two partners of their own as well, doubling the distributors at each
downline level. However, since there is not an infinite number of people in
this world, the levels cannot continue geometrically doubling forever, and at
some point there won't be enough people in the world to double to the next
level. If we assign numbers to the downline levels, then in this case at level
31, there wouldn't be enough left in the world to double to level 32 without
re-recruiting the people above. If you did that, then the population of level
32 (not including the population of the levels above it) will be 4,294,967,296.
That's about 4.3 billion people not counting the levels above, with some recruited
twice! Since there are approximately 7 billion people in this world, there
aren't enough people left on Earth for the 8.6 billion needed to double to
level 33! There aren't enough people
left on Earth! This is what the structure would look like.”
How to Spot a Pyramid
Scheme
ABC News Investigates
Controversial Diet Shake Company Herbalife
Herbalife Unmasked: An
Insider Admits that the “Business Opportunity is a Fraud”
The American Dream Denied: Herbalife
Victims Speak Out
Resources:
The Federal Trade Commission’s pyramid scheme detector https://www.ftc.gov/tips-advice/business-center/guidance/multilevel-marketing
Do the math yourself with a free online MLM calculator http://www.free-online-calculator-use.com/mlm-income-calculator.html
Twelve Tests for Evaluating a Network Marketing (MLM) “Opportunity” http://pyramidschemealert.org/PSAMain/resources/12tests1.pdf
Comprehensive Power Point Presentation http://www.academia.edu/7658601/PYRAMID_SCHEMES_and_MULTI-LEVEL_MARKETING_National_Association_of_Consumer_Protection_Investigators
Links to MLM information sites http://pyramidschemealert.org/more-resources/links-to-mlm-information-sites/
Photo:
http://www.forex-lawyer.com/practice-areas/multilevel-marketing/ CC
Jerry De Luca is a Christian freelance writer who loves perusing dozens of interesting and informative publications. When he finds any useful info he summarizes it, taking the main points, and creates a (hopefully) helpful blog post.
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