Disclamer:
I don't own any of these materials, all credit to the owner/s...
no copyright infringement intended...
Note:
If you don't want to see the face of MLM behind its masks, stop at once!
But if you want to know the different side of the story, what "they" don't want you to realize or "they" too don't realize or deny too strongly, by all means, continue...
But don't say I didn't warn you...
Not intended to discredit or destroy any business or industry...
just an eye opener for me, or maybe I too were "sold" by "great story tellers"
What's Wrong With Multi-Level Marketing?
a.k.a. "Networking" Companies
Bad Image or Bad Reality?
"Let
me tell you about an incredible ground-level business opportunity," and
you are invited to a house or to lunch for "a discussion." Funny
enough, you feel sick in your gut that there is some hidden agenda or
deception. "Probably a multi-level marketing (MLM) organization," you
think. Suppose it is? Should you trust your instincts? Is there anything wrong
with MLM?
This
article will analyze four problem areas with MLM. Specifically, it will focus
on problems of I) Market Saturation, II) Pyramid Structure, III) Morality and Ethics, and IV) Relationship Issues associated with MLMs.
Thus, you can properly assess your "instincts."
Back to the Basics
A
tutorial on market saturation hardly seems necessary in most business
discussions, but with MLM, unfortunately, it is. Common sense seems to get
suspended when considering if MLMs are viable, even theoretically, as a
profitable means of distribution for all parties involved. This suspension is
created by a heightened expectation of "easy money," but more on that
later.
New, Innovative?
MLM
can no longer claim to be new and, thus, exempt from the normal rules of the
market and the way goods and services are sold. They have been tried and, for
the most part, have failed. Some have been miserable failures in spite of
offering excellent products.
Marketing
innovations are not rare in the modern world, as evidenced by the success of
Wal-Mart, which found a more efficient and profitable way to distribute goods
and services than the status quo, providing lasting value to stockholders,
employees, distributors, and consumers. But this is not the case with any MLM
to date, and after 25 years of failed attempts, it is time to point out the
reasons why.
Don't Some People Make Money in MLM?
First,
we will analyze the "driving mechanism" of MLMs. We will detail how
they are intrinsically unstable, guaranteed by design to oversaturate the
market with no one noticing. We will look at why MLMs can never equalize into
profitability the way companies in the real world can, so that the result will
be that the organization as a whole cannot, even in theory, be profitable. When
this inevitable destiny occurs, the only money to be made is not from the
product or service but from the losses of people lower down in the
organization.
Thus
the MLM organization becomes exploitative, and many high-level MLM promoters
have been shut down, the "executives" incarcerated, for selling the
fraud of impossible success to others. Other, larger MLMs have survived by
hiring large batteries of attorneys to ward off federal prosecutors, even
bragging about the funds they have in reserve for this purpose.
The
unfortunate "distributor" at the bottom is the loser, and once this
becomes apparent beyond all the slick videotapes and motivational pep-talks,
good people start to get a bad taste in their mouths about the whole situation.
So,
yes, money can be made with MLM. The question is whether the money being made
is legitimate or "made" via a sophisticated con scheme. And if MLM is
"doomed by design" to fail, then the answer is, unfortunately, the
latter.
But
how exactly does this happen, and must it always?
Doomed by Design?
The
first question is this: Is any company choosing this marketing strategy
destined to fail, to degenerate into an exploitative venture, regardless of how
good the product is?
To
see this clearly we must go through an, otherwise, obvious and elementary
discussion of how any business must be careful not to overhire, overextend, or
oversupply a market.
The Real World
Any
business must carefully consider supply and demand. For example, if the ReVo
Corporation thinks that it will have a full-fledged fad on their ovoid
sunglasses next summer, perhaps they should plan to build and distribute, say,
10M units. This involves gearing up factories, setting up distribution and
dealer networks, and carefully managing the inventories at each level so that
ReVo will still have credibility with their distributors, retail outlets, and
the public the following year.
If
it turns out that there is a "run" on ReVo products, and they sell
out in mid-June, then they have miscalculated demand and will miss out on
profits they could have made. The more serious problem, however, is
overestimating the saturation point for the product. If they make 10M units,
and sell only 2M units, this may be the end of ReVo as a company.
The
all-too-obvious point here is that management of supply and demand, and keen
insight into realistic market penetration and saturation are crucial to any
business, for any product or service. Mismanagement of this aspect of a
business will eclipse good market access, excellent product design, human
resource assets, production quality, and so on. Simply stated, a failure to
"hit the target" of supply and demand can ruin a company if the
market is oversaturated.
Market Dynamics and the End of the Cold
War
Interestingly,
the issue of supply and demand is what brought the USSR to its knees. By design,
the Soviet government tried to macro-manage supply, where bureaucrats would
decide how many potatoes were needed, how much toilet paper, etc. Assuming
these bureaucrats did the best they could, unfortunately their efforts to
deliberately manipulate the control "knob" of supply and demand was
not good enough. Notwithstanding their good intentions, they were usually
wrong, which created huge shortages and surpluses, and led to a massive
economic collapse.
Seeing
the disastrous end of market naiveté in Russia should help clarify the
fundamental problem with the MLM approach. In the real world, the profit of a
company is directly related to the skill and prescience of the "hand"
on the "supply knob," so to speak. In the USSR, that "hand"
could not react fast or accurately enough to market realities through the best
efforts of the bureaucrats.
With
MLMs, the situation is much worse. Nobody is home. Even the Soviets had someone
thinking about how much was enough! If the bureaucrat in Russia was having a
hard time trying to play Adam Smith's "invisible hand" in setting the
supply level in the Soviet Union, then an MLM "executive" is in a
truly unfortunate position. Not only is there no one assigned to make the
decision of how much is enough, the MLM is set up by design to blindly go past
the saturation point and keep on going. It will grow till it collapses under
its own weight, without even a bureaucrat noticing.
MLM
is like a train with no brakes and no engineer headed full-throttle towards a
terminal.
"Everyone Will Want to Buy This
Product!"
All
products and services have partial market penetration. For example, only so
many people wish to use a discount broker, as evidenced by the very successful
but only partial market penetration of Charles Schwab. Not everyone wishes to
join a particular discount club, or buy gold, or drink filtered water, or wear
a particular style of shoe, or use any product or service. No one in the real
world of business would seriously consider the thin arguments of the MLMers when
they flippantly mention the infinite market need for their product or services.
The Demand Problem: Of Widgets and MLMs
Imagine
a neat new product called a Widget that will sell for $100 (a fixed price, to
keep it simple). Now, while everyone could use a Widget, not everyone will.
Some will be afraid of anything new. Some will be loyal to existing brands.
Some will want to buy an inferior product for less money. Some will want a more
expensive product for prestige, regardless of quality. The reasons go on and
on, and the fact is that only "X" Widgets will sell at $100.
The
question for would-be marketeers is... what is "X," and how can it be
predicted to maximize profits? The fact that "X" is hard to pin down
does not mean that it does not exist, and every Widget built beyond
"X" will end up producing a problem for the organization. The market
only wants "X" Widgets at $100. What are you going to do with your
extra inventory of Widgets beyond "X" that no one wants, and the sales
people you hired to sell them?
No
one can perfectly predict "X," and the situation is not nearly as
simple as considered here, but the objective for marketeers is to forecast
"X" as closely as possible in order to provide lasting value to all
parties involved: to avoid missed opportunities as well as waste, loss, or
failure.
The MLM Forecasting Approach: Ignoring the
Target
Who
has an eye on "X," the point of market saturation at a given price,
in an MLM? Well, the funny thing, or perhaps the tragic thing, is that
"X" will be reached and exceeded without anyone noticing or caring.
Let's
just suppose that "X" has been reached today in a particular MLM; the
number of possible units sold at this price has just been exceeded, and you
happen to be a starry-eyed prospect sitting in an MLM meeting listening to the
pitch. Now consider: Does anyone in this company know about "X"? Does
anyone care? Is the issue being suppressed on purpose for some other motive?
Since we are supposing that the market saturation number "X" has been
reached, everyone joining the MLM from now on is buying into a false hope. But
that is not what the speaker will be saying. He will be telling you, "Now
is the time to join. Get in on the 'ground floor'." But it is all a lie,
even though the speaker may not know it. The total available market
"X" has been reached and nobody noticed. All the distributors will
lose from here on out. Could this be you? How could you possibly know at what
point you will become the liar in an MLM?
Pop or Drop
Perhaps
a better paradigm than the runaway train analogy offered earlier of how MLMs
perform over time is this: a helium balloon let loose in an empty room with a
spiked ceiling, where product quality is analogous to the amount of helium. The
better the product, the faster the balloon will rise, accelerating unhindered,
towards disaster. The other option would be the case of a lousy product, in
which case the balloon will sink of its own accord, never getting off the
ground. To be sure, equilibrium is not in the cards, except perhaps as an accident,
and then only temporarily. MLMs are intrinsically unstable. For any company
that chooses an MLM approach, it's pop or drop.
MLMs vs. the Real World
The
basic question that needs to be asked is this: If this product or service is so
great, then why isn't it being sold through the customary marketing system that
has served human society for thousands of years? Why does it need to resort to
a "special marketing" scheme like an MLM? Why does everyone need to
be so inexperienced at marketing this! Is the product just a thin cover for
what is really a pyramid scheme of exploiting others? But more on that later.
From Contracted, Protected Distribution...
to Mayhem
Imagine
that Wendy's became suddenly possessed by the idea that "everyone needs to
eat," and opened four Wendy's franchises on the four corners of an
intersection in your neighborhood. Who would benefit from this folly? The
consumer? Certainly not the franchises; they would all lose. Wendy's corporate?
Perhaps temporarily, by speculative inventory sales while the unfortunate
franchises were under the delusion that they could all make money. But in the
end, the negative image of four outlets dying a slow death would likely offset
the temporary inventory sales bubble. Even the most unreflective of the hapless
franchisees would think twice about doing business in such a manner again. This
is why real-world distributorships and franchises are contractually protected
by territory and/or market.
Again,
the simple fact is that even the most successful products will have partial
market penetration. The same is true for services. Demand and "market
share" are finite, and to overestimate either is catastrophic.
So
why are MLM promoters obscuring this? Who is in control of the supply
"knob," carefully and skillfully managing the size of the
distribution channels, number of salespeople, inventory, etc., to insure the
success of all involved in the business? The truth is chilling: nobody.
Imagine
trying to write a computer model of how MLMs work, and you will see this point
most vividly. An MLM could never work, even in theory. Think about it.
The People Machine
Chernobyl
had a control system that failed. MLMs have no control mechanisms at
all.
Where
is the "switch" that can be flipped in an MLM when enough sales people
are hired? In a normal company a manager says, "We have enough, let's stop
hiring people at this point." But in an MLM, there is no
way to do this. An MLM is a human "churning" machine
with no "off button." Out of control by design, its gears will grind
up the money, time, credibility, and entrepreneurial energy of well-meaning
people who joined merely to supplement their income. Better to just steer clear
of this monster to begin with.
There
is simply no way to avoid the built-in failure mechanism of MLMs. If a company
chooses to market this way, it will eventually "hire" (with no base
pay and charging to join) far too many
people.
Thus,
the only "control system" will be the inevitable losses and
subsequent bad image the MLM company will gain after it does what it was
designed to do: fail. And sooner or later we have got to stop blaming this particular MLM company
or that, and admit that the MLM
technique itself is fundamentally flawed.
The Un-Pyramid
For
most MLMs, the product is really a mere diversion from the real profit-making
dynamic. To anyone familiar with MLMs, the previous discussion (which focused
so much on the fact that MLMs are "doomed by design" to reach market
saturation and thus put the people who are legitimately trying to sell the
product into a difficult situation) may seem to miss the point. The product or
service may well be good, and it might oversaturate at some point, but let's
get serious. The product is not the incentive to join an MLM. Otherwise people
might have shown an interest in selling this particular product or service
before in the real world. The product is the excuse to attempt to legitimate
the real money-making engine. It's "the cover."
Intuitively,
we all know what is really going on with MLMs. Just don't use the word
"pyramid"!
"You
see, if you can convince ten people that everyone needs this product or
service, even though they aren't buying similar products available in the
market, and they can convince ten people, and so on, that's how you make the
real money. And as long as you sell to a few people along the way, it is all
legal." Maybe...
But
the way to make money in all this is clearly not by only selling product,
otherwise you might have shown an interest in it before, through conventional
market opportunities. No, the "hook" is selling others on selling
others on "the dream."
Math and Common Sense
MLMs
work by geometric expansion, where you get ten to sponsor ten to sponsor ten,
and so on. This is usually shown as an expanding matrix (just don't say
"pyramid"!) with corresponding kick-backs at various levels.
The
problem here is one of common sense. At a mere three levels deep this would be
1,000 people. There goes the neighborhood! At six levels deep, that would be
1,000,000 people believing they can make money selling. But to whom? There goes
the city! And the MLM is just getting its steam going. Think of all the
meetings! Think of all the "dreams" being sold! Think of the false
hopes being generated. Think of the money being lost.
It Will Fail??? It Cannot Fail???
Nothing
irritates a die-hard MLMer more than the preceding argument. If you point out
the absurdity, for example, that if "the pitch" at an Amway meeting
were even moderately accurate, in something like 18 months Amway would be larger
than the GNP of the entire United States, then listen
closely for a major gear-shift: "Well, that is absurd, of course. Not
everyone will succeed, and so the market will never saturate."
Well,
which is it? Are we recruiting "winners" to build a real business, or
planning by design to profit off of "losers" who buy into our
"confidence"?
During
"the pitch," anyone can make it work. "It's the opportunity of a
lifetime." "Just look at the math!" But mention the inevitable
saturation and the losses this is going to cause for everyone, and then you'll
hear, "Of course it would never really work like that." "Most
will fail," you will be told, "but not you, Mr. Recruit. You are a
winner. I can just see it in your eyes."
If
you are a starry-eyed recruit, it will grow as presented. If you are a logical
skeptic, then of course it would never really work like that.
But
the dialog usually never even gets to this. The fact that MLM is in a mad dash
to oversupply is largely chided as mere "stinkin' thinkin'." Expert
MLMers know how to quickly deflect this issue with parable, joke, personal
testimony, or some other sleight of mind.
New Solution: A Retarded MLM
Some
modern incarnations of MLMs attempt to address this particular problem by limiting
the number of people you can sponsor, say, to four. But the same geometric
expansion problems exist; the failure mechanism has just been slowed down a
bit. And now there is the added problem of even more unnecessary layers in the
organization.
The
claim that an MLM is merely a "common man" implementation of a normal
real-world distribution channel becomes even more absurd in this case. Imagine
buying a product or service in the real world and having to pay overrides and
royalties to five or ten unneeded and uninvolved "distributor"
layers. Would this be efficient? What value do these layers of
"distributors" provide to the consumer? Is this rational? Would such
a company exist long in a competitive environment?
Confidence Men and the Shadow Pyramid
The
age-old technique of "con men" is to create "confidence" in
some otherwise dumb idea by diversion of thought, bait, or force of
personality. The victim gets confidence in a bogus plan, and, in exchange, the
con man gets your money. MLMers are very high on confidence.
Since
the brain inevitably intrudes itself into the delusion that an MLM could ever
work, spirits drop and attitudes go sour. But this depressive state can itself
be exploited. As doubts grow when the MLM does not do what recruits were first "con"fidenced
to expect, then a further profit can be made keeping the confidence going
against all common sense.
Thus,
a parallel or "shadow" pyramid of motivational tapes, seminars, and
videos emerges. These are a "must for success," and recruits are strong-armed
into attending, buying, buying, and buying all the more. This motivational
"shadow pyramid" further exploits the flagging recruits as they
spiral inexorably into oversaturation and failure. The more they fail, the more
"help" they need from those who are "successful" above
them.
So,
MLMs profit by conning recruits up-front with a "distributorship
fee," and then make further illicit money by "confidencing"
these hapless victims as they fail via the "sale" of collateral
material.
Special MLM "Job" Offer: A
Losing Proposition
Would
a rational person, abreast of the facts, go to work selling any product or
service if he or she knew that there was an open
agenda to overhire sales reps for the same products in the
prospective territory?
What
do you think? Is this a good "opportunity" or a recipe for collective
disaster?
So,
as the saying goes, "Get in early!" This is a rationalization on the
level of "getting in early" on the L.A. looting riots. If profit from
the sale of products is fundamentally set up to fail, then the only money to be
had is to "loot" others by conning them while you have the chance.
Don't miss the "opportunity," indeed!
Where
is the money coming from for those at the top? From the sucker at the bottom...
as in every pyramid scheme. The product could be, and lately has been,
anything.
The
important thing is to exploit people while the exploiting is good, if you want
to make quick money at MLM.
Moral Riddle: What is Ever Present but
Universally Condemned?
While
issues of morality and ethics can be tricky to discuss, materialism and greed
are universally condemned by every major religion, and even by most of the
irreligious. This does not mean people are not materialistic or greedy; in
fact, the common ethical call to not be so is strong evidence that we are.
For
most people, this means if we are going to be materialistic or greedy, we would
rather not be obvious about it. Thus, Madison Avenue has subtle, highly
polished ways of appealing to these vices without being heavy handed. We don't
mind so much... as long as it is "veiled." This hypocrisy, while sad,
is the status quo. So, Madison Avenue is trying to be ever more subtle in
appearing not to be manipulating our immoral "bent" towards greed and
materialism.
A Blatant Appeal to Materialism and Greed
Not
so with the MLM crowd. Pick up any brochure or videotape for an MLM and you are
more than likely to see a cheesy, obvious, and blatant appeal to greed and
materialism. This is offensive to everyone, even die-hard materialists. Typical
is an appeal to "the American dream." Usually there will be a mood
shot of a large new home, a luxury car, a boat, perhaps a beautiful couple
boarding a Lear jet, and so on.
While
this need not necessarily be part of the MLM approach, it usually is.
Such
a transparent appeal should make people suspicious. "Why the bait?"
"Are they trying to 'get my juices going' so that my brain turns
off?" "Couldn't they show people doing more wholesome things with the
money they make?" "If this is really a legitimate opportunity, why
not focus on the market, product, or service instead of people reveling in
lavish materialism?"
But
we have reason enough to know, having read this far, why the distraction is
needed. Unbridled greed suspends good judgment. When the eyes gloss over in a
materialistic glaze, common sense is a stranger.
Besides
being cheesy and offensive to our sensibilities, this is not a big deal for
participants, right? But consider that all companies must have control over the
way they are presented to the public. Thus, an MLM has the right and obligation
to dictate what material is used. Otherwise any agent could say whatever he or
she liked about the nature of the company, causing obvious problems. Again, it
would take too much time to audit and approve each individual's idea for a
presentation where the goal is mass marketing. Using "boilerplate"
presentations affords the added benefit of consistency. This is basic
"information quality control."
The
net effect is that the MLM rep is "stuck" with the company-approved
video, brochure, and presentation outline.
"Not Me, I Would Never Stoop That
Low!"
In
1991, some distributors in the MLM FUND AMERICA began to produce their own,
improved recruitment material. They were summarily fired, which did not please
them since many of them were founding members who had "gotten in
early."
Later
the same year, by the way, the founder of FUND AMERICA was arrested for having
generated some 90% of revenues selling "distributorships" versus
product... making it clear that this particular MLM was little more than a
pyramid scheme.
Job Opening: Salesperson of Sin!
Do
you want to be involved in the blatant promotion of values contrary to your
belief system?
In
most MLMs you will have no choice. You are going to have to sit through meeting
after meeting after meeting after meeting. You are going to be
"motivated" to coerce your friends and family to hear "the
pitch." This is the way the "dream" is planted and fertilized.
Get used to it.
If
you are a materialist, you only have to get over the cheekiness of the
presentation. But if you do not wish to promote such ideas, if you consider
them sinful, then this puts you at the focal point of a moral dilemma. Do you
wish to be a salesperson for materialism?
Lack of Information Quality Control: An
MLM Incentive?
On
the flip-side of the issue of being stuck with the recruitment
"pitch" is the fact that the MLM organization is otherwise loose, to
say the least. This is part of the appeal to many, to "be your own
boss."
But
in practice this leads to loony product claims, many of which are deceptive and
some of which can be positively dangerous.
Hyperbole
is a given in an MLM. When inexperienced salespeople are turned loose to sell
on full commission without supervision or
accountability, what else could happen?
Since
MLM organizations are notoriously flash-in-the-pan, one has to wonder why any
new company would choose this flawed marketing technique. Perhaps one of the
things to consider is that the MLM organization can effectively skirt the
Federal Trade Commission by using word-of-mouth testimonials, supposed
"studies" done by scientists, fabricated endorsements, rumors and
other misrepresentations that would never be allowed to see the light of day in
the real world of product promotion, shady as it is.
Thus,
MLM has evolved into a "niche": it can be used to sell products that
could not be sold any other way. An MLM is a way to get undue credibility by
exploiting people's personal friendships and relationships via
"networking." This is an intrinsic moral difficulty with MLMs that
will be expanded in the last section.
MLM Sales Technique: Rumors, Slander,
Defamation
Hyperbole
is not limited merely to product claims, however. When MLMers turn to their
competitors it can get ugly indeed. Some of the most outlandish rumors of
modern history can be traced to MLMs. In recent years, for example, the
international rumor that the president of a major real-world corporation was a
Satanist, and that the logo of his company contained occult symbols, turned out
to have a commercial motive and was traced to
specific Amway distributors. These were successfully sued in 1991, but the
rumor persists. And how much else of the MLM negative "sales pitch"
is fabrication or outright lie? Not all the negative selling claims are as
scandalous or widespread as the previous example, but the MLM culture produces
so much of this stuff it would be hard to prosecute it all.
Again,
what else could be expected from inexperienced salespeople thrown into an
oversaturated sales market on full commission and no accountability?
Negative
selling is not unique to MLMs, but MLMs have a legacy of fostering a culture of
credulity, of bizarre "gossip-as-fact." After all, this is a friend
telling me this!
Telling
lies about people or groups is slander. Systemic and malicious slander is
illegal in most civilized countries. Slander is a sin listed next to murder and
adultery in Biblical texts. But how will you know when you become the slanderer
by repeating what you heard in an MLM meeting?
Great Men?
Another
morally questionable practice that is not intrinsic to MLMs, but seems
axiomatic, is the pent-up idolatry of the leaders.
In
FUND AMERICA, the "approved materials" showed what a great man the
founder was, depicted the depth of his management experience, showed him in
mood shots, etc. It is easy to swoon in admiration of such a powerful,
visionary man, dedicated to bringing this wonderful opportunity to common
Americans like us.
It
turned out he was a criminal fugitive from Australia, where he had been run out
of town for doing the same.
But
you would never guess it from the company material. A great man.
There
are more than a few MLM "executives" like this who will pop up
tomorrow in the MLM du jour. MLM exploitation can be very profitable and the
jail sentences light. Let the MLM "dream" buyer beware.
I
have been taken to task for making this point too strongly--and do not wish to
imply that all MLM leaders have criminal records--but it does pay to do some
research here. Are the idols you are being asked to worship in MLM worthy of
respect, or contempt? Have they been prosecuted or sued for exploiting people
in the past? Have they done prison time?
Do
not expect to hear the full truth in the MLM video.
Pride and the Secret Closet: Vanity and
the Way MLMs Grow
"Mr.
Prospect, now you aren't required to buy more than three product units, but why
bother joining unless you plan to succeed? Besides, all of our products are
100% money back guaranteed."
"Hmmm...
To ask for a refund, then, is to admit defeat. Others appear to be doing O.K.
at this. I'm no failure! Perhaps I should go to another motivational seminar or
strong-arm and alienate one more friend to join. I wasn't fooled! I'm no
failure!"
So,
the "inventory" and "recruitment kits," never viable,
collect dust. They become a pile in the back closet or attic, a trophy to pride
being unable to admit that greed seized the moment.
Back to the Pyramids: Innovative Marketing
or Organized Crime?
It
is generally agreed that to mislead people in order to get their money is
morally reprehensible. It is labeled "theft" or "fraud,"
and those who do it should be punished. No one is naive enough to suggest that
you can't make money at it. Crime can pay, at least temporarily.
Pyramid
schemes are illegal. They are illegal because they are exploitative and
dishonest. They exploit the most vulnerable of people: the desperate, the
out-of-work, the ignorant. Those who start and practice such fraud, should, and
increasingly are, being punished for their crimes.
But
add a product for cover, and call it an MLM, and people are willing to swallow
its legality. Is this true? Really? Who says so?
The Feds versus the MLM Gang: The Other
Side of the Story
It
is a fact that a few large MLMs have survived against the best efforts of law
enforcement officials to shut them down, spending millions of dollars to
protect, lobby, and insulate themselves. But the same could be said for any
organized crime. It is difficult to stop once it becomes so large.
And
MLMs look so legitimate to the public, so decent. So many nice people are
involved. Surely, it can't be illegal! The people lower down may even defend
the very organization that is robbing them, hoping that they might get their
chance to make "the big money" later.
But
if it looks like a duck, walks like a duck, and quacks like a duck, it probably
is a duck. Unless it is an MLM, and then it is NOT a pyramid.
The
Feds generally see it differently... when the ML (multi-level) aspect begins to
eclipse the M (marketing) of products or services.
People
can make money in an MLM, undeniably. The moral issue is: Where is the money
coming from? Selling product? Then why not sell the same product in the
"real world"?
But
everyone knows that the real incentive is the pyramid aspect, and the product
just the excuse to make it legal, or at least the MLM promoter would like you
to believe it is legal.
The Mob and the MLM: A Stretched Analogy?
Talk
to a mobster, and he will tell you that he is "merely misunderstood in his
benevolent intentions." "We are just trying to 'build our
business.'" "It's all a conspiracy to make us look bad."
"The Feds are out to get us because they are jealous or afraid of our new
way of life." "Why, look at all the good we do!" "We are looking
more legitimate every day." "Here's a statement from a famous DA that
the Mob is really a good organization and no harm ever comes from it."
"We've even got a minister to endorse us now!"
Propaganda and MLM Expansion
The
MLMers of the new millennium are starting to sound a lot like the gangsters of
yesteryear. In an era where management science and the law generally condemn
MLM, they've "got their own experts," from academia or law, who are
"on the payroll." Confidence, remember, is key.
Regardless
of all the vehement denials, MLMs are all to some
extent pyramid schemes, and pyramid schemes are illegal. Sure, some
are "getting away with it," but so did the Mafia for decades. It is
hard to stop a juggernaut, especially one that has taken such pains to look
legitimate and misunderstood, that is highly organized, and that has so much
money from its victims to propagandize, lobby, and defend itself. And so the
exploitation goes on.
If
these guys show up in your neighborhood, you are either "in" or
"out," family or target, friend or foe. Suspicion rules the day;
everyone has an "angle"; greed supplants innocence. The
"neighborhood" is turned into a marketplace, and may never recover
from the blow.
The
ethical questions remain: Are MLMs a morally acceptable way to make money? Are
they--and will they continue to be--legitimate?
MLM Proselytizing: Beneath Begging?
If
money is needed that badly, why not simply ask friends and family for help
rather than taking money from them under false pretenses--and also selling them
a bill of goods? By "sponsoring" them, you have not only conned them
and profited at their expense, you have made them feel like losers, since they
are not able to make a success of the hopeless MLM concept.
Once
seen, only the morally blind, or consciously criminal, could continue in such a
"business."
But
wait, perhaps you could recruit... your mother!
Moral Inventory
By
way of review, the prospective MLM initiate has to face and resolve these
ethical issues:
1.
Do
I want to be involved in encouraging people to be more materialistic?
2.
Do
I want to sell a product that perhaps couldn't be sold any other way?
3.
Do
I want to be a part of an enterprise famous for slander, libel, and rumor?
4.
Do
I want to be a part of a company that may employ criminals as marketing
experts?
5.
Do
I want to make money off my ability to convince people that an unworkable
marketing system is viable?
6.
Do
I want to be known among my friends and family as a person who tried to con
people with a thinly veiled pyramid scheme?
If
you can answer these questions "yes," training is available... But
remember that God is watching, even if you never get "successful"
enough for the Feds to notice you.
Learning the Hard Way
MLMs
grow by exploiting people's relationships. If you are going to be in an MLM,
you swallow hard and accept this as part of "building your business."
This is "networking." But to those not "in" the MLM, it
seems as if friendship is merely a pretext for phoniness, friendliness is suspected
as prospecting, and so on. There is no middle ground here, try as you might.
While
this is the most difficult point to make, it is perhaps the most important.
Anyone who has any experience with an MLM has strong feelings, either for or
against, and this is the problem. Polarization runs
deep.
High-pressure Selling -- Reserved for
Pyramids Only
When
it comes to selling product, MLM sales reps are probably no more aggressive or
obnoxious than ordinary salespeople. Since most are not salespeople by nature,
and it is characteristic that MLMs attract few people with any experience
selling this particular product or service, they usually sell through pre-fab
"parties" or home "demos." Thus, sales pressure is exerted
by situation, if at all.
It
should be noted that when selling product, the only distinction from a
real-world business is the possibility for deception due to the
"looseness" of the MLM and the incentive to exaggerate claims without
any accountability. Other than this, selling product in an MLM is fairly
similar to selling any product in the real world.
But
when it comes to getting you "signed up" as a
"distributor," the MLMers get pushy and deceptive beyond the
boundaries of polite social norms.
Remember,
an MLM is defined by its rewarding people to recruit others in multiple levels.
"Mother, Let Me Tell You About a
Fantastic Opportunity..."
Even
ex-accountants are willing to practice the crudest of high-pressure selling
tactics, at least when it comes to "signing people up." The end
justifies the means, when it comes to getting people to come to the
"meetings," where the objective is to get a materialism frenzy going
at high pitch through a slick speaker or video. The reasons for this
"confidence building" should be obvious by now, but here we are
considering the relationship cost associated with the "success" of
the MLM.
The
above title is meant to be absurd. Most people, no matter how jaded, would not
foist such a con on their own mothers. Even if people don't know the specifics
of what is wrong with MLMs, intuition often warns us: "Don't tamper with
that relationship." The first marks for recruitment are the gullible, or
the "expendable" friends. But successive moral compromise,
experience, and desperation... may yet lead to "good old Mom."
Never Admit You Are Wrong
Many
have left high-paying jobs to "pursue their dreams" in an MLM. Having
been conned so dramatically, they do not easily admit defeat. It seems easier
to cling to the bad dream in an increasing cycle of desperation to make the MLM
work against all odds. "Losers" at the bottom congregate into support
groups, perhaps spinning-off another MLM where they can be "boss."
There
is an undeniable camaraderie among MLMers. But for everyone else, "there
goes the neighborhood." It is saddening to see people being encouraged
against all instinct and common sense to chase after an illusory "pot of
gold," but what can be done?
Counting the Cost: The First Church of MLM
Many
readers will share the experience of observing MLMs divide families, friends,
churches, and civic groups. Lifelong friends are now "prospects." The
neighborhood is now "a market." Motives change, suspicions rise,
divisions form. The question is begged: "Is it worth it?"
Especially
nasty is the church situation. Will the pastor join? If not, he will take a dim
view of MLM proselytizing at church functions; animosity will rise, factions
will form. You are either "in" or out. If the pastor joins, then
those who are not "in" will feel a little uncomfortable in this
church.
A
church (or any community group) can be easily torpedoed by an MLM.
Trust Your Instincts?
For
most people, thankfully, the MLM experience usually ends in very quick
financial failure and is then sidelined. Two possible responses are: 1) being
embarrassed about participation, or 2) becoming even more intractable when the
MLM has failed. You will find the latter chasing after the latest "get
rich quick" scheme with similar results. "If we could have just
sponsored so and so--they have so many friends--we would have made it."
Thus,
there is reason for the "bad taste" most people have for MLMs. By
instinct if not experience or insight, we wince at the thought of what we know
will follow in the wake of an MLM. Relationships strained, factions formed,
deception, manipulation, greed, loss, a closet full of videotapes, brochures,
and useless inventory that "everybody wants."
Disease Alert: Beware of MLM Blindness
Apparently,
it is difficult for gung-ho MLMers to see how they look from the outside. They
can watch lifelong friendships unravel, churches and civic groups poisoned, the
avoidance of friends and family, etc., and never see that MLM was the cause.
If
you try to point this pathology out, you are treated as if you have attacked
the very gospel! Perhaps for some, the MLM approach is a new gospel?
They
will claim to have made "new friends," most of which are MLMers or
new acquaintances who could be considered "future prospects." The
shallowness of these "new friends," the stilted conversations among
the "old friends," and the embarrassment, in general, for what seems
clear to everyone but the MLMer go unnoticed. Callousness sets in; standards
are lowered.
Of
course, it could be pointed out that this might have happened anyway. Perhaps
the die-hard MLMers would have ruined their friendships anyway in some other
non-MLM business failure. Is the MLM really the cause, or just the vehicle?
Business
failure of any type is traumatic on the relationships involved, but in most
small businesses there is at least the chance of success. And this is
never the case in an MLM, unless "success" can be defined as
profiting off of the failures of others.
Non-MLM
real-world businesses that offer products of interest to friends, family, etc.,
such as insurance agents and small retail shop owners, seem to be more
circumspect in dealing with personal relationships in all but a few rare (and
grievous) cases. But the MLMer is recognizable by duplicity of friendship
overtures, overbearing glad-handing, full-time prospecting, outrageous initial
deception, and social callousness. This is no accident, but rather sheer
desperation. How could it be otherwise? For the active MLMer is in a hopeless
bear trap: with hubris as one steel jaw and oversaturation the other.
And
so the MLM relationship "bull" tramples through the relationship
"china closet," blindly ruining fragile and valuable things. Some
never pull out of this, figuring the coldness they experience in their
emotional lives is due to some other cause than their MLM participation.
The Aftermath
One
can't help but wish that the "neighborhood" could be like it once
was. But an MLM storm has blown through, ruining valuable relationships with no
regret or conscience. And brace yourself, another one is coming. Perhaps it is
in that smiling face approaching you, or in that nice letter you just received
from a "friend"?
What
goes unnoticed to the MLMer is that when the neighborhood is turned into a
marketplace, something precious is lost... which is not easily regained.
This
aspect of the MLM experience should not be underestimated, and the reflective
reader would do well to think twice about the value of friends, family,
community, and church fellowship before joining or continuing in an MLM.
Summary of What's Wrong With Multi-Level
Marketing
1.
MLMs
are "doomed by design" to recruit too many salespeople, who in turn
will then attempt to recruit even more salespeople, ad infinitum.
2.
For
many, the real attraction of involvement in multi-level marketing is the thinly
veiled pyramid con-scheme made quasi-legal by the presence of a product or
service.
3.
The
ethical concessions necessary to be "successful" in many MLM
companies are stark and difficult to deal with for most people.
4.
Friends
and family should be treated as such, and not as "marks" for
exploitation.
It
is hoped that by clearly pointing out "What is Wrong With Multi-Level
Marketing" that many might be spared the inherent and associative pitfalls
by avoiding the practice.
As
well, for those who insist on practicing MLM, it is hoped that this analysis
will serve as a handy framework of problem
areas to be avoided if and where this is possible.
For
more, see the Frequently Asked Questions, Additional Points and Rebuttals
section at http://www.vandruff.com/mlm_FAQ.html E-Mail the author
of this article, Dean Van Druff, at end of this section.
NOTE: This article was
written in 1990 and was one of the first to critique MLM. Now there are many
voices and resources concerning “product-based pyramid schemes.” Here are a few
of my favorites.
The Pyramid-Scheme-Alert (PSA) organization
offers consumer information on MLMs, news of legal cases, analytical tools,
insightful articles, and an opportunity to affect new laws and social change by
membership and contribution. You can do your own evaluation of any MLM program or
suspected pyramid scheme.
False Profits is a book that traces
out how MLM participation can commandeer and derail people's religious ideals
at http://www.FalseProfits.com. See also "The 10
Big Lies of MLM" athttp://www.mlmsurvivor.com/fitzpatrick.htm
Believe, The Movie is a humorous take on
“Network Marketing”. Both MLMrs and “anti-MLM zealots” (ahem) are both
lampooned.
Dr.
Jon Taylor's website includes surveys of MLM tax preparers (do they really
make money?), answers the question of “odds of success" at MLM
verses gambling, and provides a history of MLM at http://www.mlm-thetruth.com
Ami
Chen Mills Shaking the Money Tree captures the
"stink" of MLM pathology and culture most vividly. Hold your nose,
and dive into major deja-vu athttp://www.metroactive.com/papers/metro/10.03.96/cover/multilevel-9640.html
Inc. Magazine's Norm Brodsky
gives us "Multilevel Mischief" which depicts how MLMs churn through
human relationships at http://www.inc.com/magazine/19980601/941.html
Peter
Blood's The MLM File has research posted
that, among other things, shows the problem of geometric expansion at http://www.themlmfile.com.au
For
articles on "MLM Harassment" at work, as well as postings on Amway
and MLM in General, see The Skeptic's Dictionary at: http://skepdic.com/mlmhar.html
As
a closing parable - if you are not already familiar with it - please click here
to read a synopsis of Hans Christian Andersen's "The Emperor's New
Clothes".
This document is at http://www.vandruff.com/mlm.html
