Multi-level Marketing (MLM)

Multi-level marketing (MLM) (also called direct marketing, affiliate marketing, pyramid schemes, etc.) is a term used to describe a business model that involves signing up distributors to sell a product and enroll other distributors. At one time or another, we have all been exposed to a multi-level marketing scheme, although we may not have been aware of it at the time or may not recognize it by that term. Have you ever attended a Tupperware or Candlelight party, or had your sister/Aunt/best friend hand you her Avon catalogue? These are just some examples of the thousands of different MLM schemes that exist today. They may offer different products, but the underlying business model remains the same: you pay a fee to become a distributor, gain access to product at wholesale pricing which you then sell to your friends and family. The product is just a front for the real money-making potential, which is had by signing up other distributors below you and earning a commission on all of the products that they sell. If those distributors happen to sign new distributors below them, you also earn a commission on any product those new distributors sell (beginning to see a pyramid forming here?).

MLM Distributor Pyramid:

It sounds so simple, and the potential for earning money is virtually limitless; if you sign up three friends, and each of those friends sign up three more friends, and so on and so on, you could soon be earning commissions off the sales of hundreds, nay thousands, of distributors! Repeat after me: if it sounds too good to be true, it is. In reality, 99.9% of participants in a MLM structured business actually LOSE money. So, where does it all go wrong?

It begins with the victim trying the product for themselves and experiencing the benefits the product claims first hand. This is not to say that the product actually works, simply that the victim believes that it works. Maybe the victim was already on the mend, and the timing of using the product and feeling better was merely a coincidence. Even more likely is the placebo effect; the victim wants the product to work so badly that it actually does have some small effect on them. This miraculous recovery, coupled with the potential to earn a living selling the product, has the victim hooked. It is human nature to want to share good news, good health and good fortune with others, so for the victim selling this product to their friends and families looks less like bilking their loved ones out of money and more like doing them a favor. The fact that the product sells itself makes the next step, signing up distributors, seem like a natural and easy progression to the victim. “If I am making money sharing a wonderful product with my family and friends, encouraging them to do the same will be a piece of cake!”

For a few hundred dollars, the victim purchases a ’starter kit’ which contains everything the company wants you to think you will need to be successful; hundreds of dollars worth of product, pamphlets and company magazines touting success stories of other distributors, access to purchase more product at wholesale pricing, and so on. The victim demonstrates the product to friends and family, enthusiastically describing how well it worked for them. Instead of purchasing product at an inflated retail price, the participants are encouraged to purchase their own starter kit to gain access to the wholesale pricing, as well as become distributors themselves. MLM distributors commonly use group settings, such as product parties, to display their product to a number of people at a time. Bonus gifts are usually offered if attendees sign up and provide payment during the party, and the hostess is usually offered a free gift for each sign up as well. These time sensitive incentives coupled with the peer pressure inducing atmosphere of the party, typically result in new victims getting involved before they have a chance to really think about the offering.

Unlike most business opportunities, the barrier to entry for MLM scams is low. You do not need education, business savvy or a great idea – all you need is a few hundred dollars to get started. The potential victim pool is unlimited, as you can pretty much sign up anyone you know. Sadly, the easiest targets are those who are already in trouble financially and/or looking for an opportunity that will allow them greater independence and an increased feeling of self-worth and purpose. The victim who has just signed up and is on an emotional ‘high’, filled with thoughts of great wealth and success is eager to share the MLM opportunity with a friend who has recently lost their job, or a stay-at-home mom desperate to gain the financial freedom necessary to not return to work following her maternity leave. Hearing that a friend uses and has just started selling the product is the icing on the cake, and usually the final push needed to convince the victim to purchase his/her own starter package.

The key to a successful MLM scheme is that the product sells itself, freeing the victims to concentrate on signing up new distributors. Who wouldn’t want to lose weight quickly, cure an illness, increase immunity, or look as fabulous as the models in the pages of a magazine? The MLM company claims that their product is new, well researched, an industry secret and the next big trend. If you were to seriously investigate the claims made in a MLM product pitch, you would quickly find that they are unsubstantiated. “Product X has been the subject of research by doctors and universities around the world!” does not automatically make it safe. In fact, most of the time the research being done by said doctors and universities is aimed at discrediting the product and company! Another marketing trick the MLM companies use is to talk about the amazing healing benefits of a certain mineral, and then quickly move into a discussion of their product. When you re-read the information you will see the company doesn’t actually link their product and the mineral, they just hope that by mentioning them together in the article the victim will assume the product and the mineral are one and the same. The same goes for grandiose claims that the product has cured illness and disease. To avoid nasty government intervention, the MLM companies have learned to steer clear of making any direct correlation between their product and actual health benefits. Instead, they rely on their distributors to make these claims for them. When the victim who has used the product suddenly feels better, word of mouth quickly spreads and soon her entire network of distributors can say it worked for “a friend of a friend”.

The product itself is of little consequence. It can be anything, really. The most common MLM schemes involve selling health products, diet supplements, and beauty products, but they could be selling pickles and the scam would still operate in the same manner. Sure, you can make some money when you buy X product at wholesale prices and sell it to your friends at retail, but the promise of real money, the easy, passive income if you will, comes from the commissions of the network of distributors the victim builds up below them. This is perhaps the most important aspect of identifying a multi-level marketing scheme – emphasis is placed on selling the dream rather than selling the product.

The majority of the product will be given away as samples, or used by the victim themselves. In fact, one of the main benefits a new victim will use to justify their involvement is that they can purchase product for themselves at less than retail, truly believing that they will be saving themselves money by signing up. Recall earlier when we mentioned that 99.9% of participants in MLM ‘opportunities’ lose money? It is because they never actually sell enough of the product to recoup their initial expenses. And, if they aren’t selling any product, neither are the distributors below them, and so on. But wait…if the victim isn’t making any money selling the product, and they aren’t making any commissions because the distributors they signed up aren’t selling any product, how are they making any money at all? The truth is simple – they aren’t.