What's Wrong With Multi-Level
Marketing?
a.k.a. "Networking" Companies
Dean Van Druff
Vandruff.com
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."
I. Market Saturation: An Inherent Problem
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.
II. Pyramid Structure: An Organizational Problem
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.
III. Morality and Ethics: A Problem of Greed
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 over saturated 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:
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.
IV. Relationship Issues: An Experiential Problem
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
- MLMs are "doomed by design" to recruit too many
salespeople, who in turn will then attempt to recruit even more salespeople,
ad infinitum.
- 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.
- The ethical concessions necessary to be
"successful" in many MLM companies are stark and difficult to deal
with for most people.
- 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.
Internet Links for Further Anti-MLM Research &
Information
E-Mail examples, 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.
False Profits, a book exposing how MLM participation can
commandeer and derail people's religious ideals, has a web site at http://www.FalseProfits.com
which includes a sample
Chapter of the book and many other excellent
articles concerning the legality of MLM.
A Christian businesswoman, Athena Dean, exposes the spiritual
cost and compromise of MLM proselytizing within the church in her books
"Consumed by Success" and "All that glitters is not God --
Breaking free from the sweet deceit of MLM," available at http://www.winepresspub.com/
Dr. Jon Taylor of the Consumer Awareness Institute has posted
an analysis of the similarities between MLM and illegal pyramid schemes, which
can be downloaded at: http://www.whatisgood.com/nwm/
Ami Chen Mills "Shaking the Money Tree" is
fascinating journalism that captures the "stink" of MLM pathology and
culture most vividly. Hold your nose, and dive into major deja-vu at http://www.metroactive.com/papers/metro/10.03.96/cover/multilevel-9640.html
FTC warnings on MLM chicanery at http://www.ftc.gov/bcp/conline/pubs/alerts/lotionalrt.htm
and http://www.ftc.gov/bcp/conline/pubs/invest/mlm.htm,
with an excellent legal and historical overview at http://www.ftc.gov/speeches/other/dvimf16.htm
US Government USPS on Employment Schemes, including
Distributorship and Franchise Fraud, Phony Job Opportunities, and Multi-Level
Marketing at http://www.usps.gov/websites/depart/inspect/emplmenu.htm,
or direct to the MLM warning at http://www.usps.gov/websites/depart/inspect/pyramid.htm
Better Business Bureau (BBB) has Multi-Level Marketing Scam
Alerts at http://www.bbb.com/alerts.
This page has become cluttered, so you might want to click on SEARCH and then
type in "pyramid" or "multi level marketing".
Forbes Magazine's article on Herbalife has graphs that show
the "by design" MLM balloon burst, at http://www.forbes.com/forbes/97/1020/6009043a.htm
Inc. Magazine's Norm Brodsky gives us "Multilevel
Mischief" which depicts how MLMs churn through human relationships at http://www.inc.com/incmagazine/articles/details/print/0,7570,ART941,00.html
Dr. Stephen Barrett explores the risks of medical products
being marketed with MLM at http://www.quackwatch.com/01QuackeryRelatedTopics/mlm.html.
Specific examples are given.
"MLM Survivor.com" has some interesting headlines on
the latest MLM lawsuits and legal actions by State and Federal law enforcement
at http://www.mlmsurvivor.com/.
Charles Midgett's "The Other Side of The Plan" page
at http://www.getfacts.com/amway
examines some of the bogus truisms and urban legends taken as fact in MLM
culture, such as "9
out of 10 small businesses fail within the first year" as an excuse for
the ravages of inevitable MLM failure.
Eli Mantel's "Cagey Consumer" has a great set of
research links and concise position statements at http://www.geocities.com/WallStreet/5395/mlminfo.html
For articles on "MLM Harassment" at work, as well as
postings on Amway and MLM in General, see The Skeptic's Dictionary at: http://dcn.davis.ca.us/~btcarrol/skeptic/mlmhar.html
Sidney Schwarz's ever-under-attack "Amway, the Untold
Story" is a treasure-trove of dramatic information not normally disclosed
by your friendly MLM practitioner, at http://www.teleport.com/~schwartz
For a humorous lampoon of some of the goofy
products often peddled via MLM, see "The Laundry Disk 2000"
Website at http://www.worldwidescam.com
For transcripts of discussion group interviews and dialogs
concerning the veracity of MLM, see http://members.aol.com/multisense/home.htm
A book written for Pastors, "Is your Church a Market
Place?" by Kim S. Mather, is posted in part at http://www.newwave.net/~poohbear/chaching/index.html
See another posting by Robert L. Fitzpatrick entitled
"The 10 Big Lies of MLM" at http://members.tripod.com/~nomorescams/fitzpatrick.htm
A MLM Lawyer gives an opinion on what constitutes a
"legal" MLM scheme in the US at http://mlmatty.com/legality.html
Consider Procter & Gamble's perspective on the Amway
"Satan Rumor".
For a survey of lucid reformers within the MLM industry (a
most welcome and cathartic trend) see: 1) "Where Have All the Products
Gone" by Gerald Nehra at http://mlmstartup.com/articles/ramble.htm;
2) A lament of the soaring prices and flimflam nature of a few too many modern
MLM products by Leonard Clements at http://www.profitsonline.com/profitsonline/Articles/ArticlesA-H/Clements7.html;
and 3) A sober assessment of the assertion that "everyone can make money at
MLM" by Tom Schreiter at http://www.mlmcentral.com/library/zerosum.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".
To send E-Mail to author Dean Van Druff on this subject,
PLEASE read the FAQ first and
then send to wwwmlm@vandruff.com.
This document is at http://www.vandruff.com/mlm.html
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