Multi Level Marketing is a Pyramid Scheme
When looking for new ways to make money online we all come across MLM or Multi Level Marketing. But what is an MLM and is it legit? Multi level marketing is a pyramid scheme some would say. Others would argue that it’s a legitimate way of making money and creating a liveable income. So today we’re going to give you our opinion on Multi level marketing or MLM.
MLM or multi-level marketing is the subject of today’s discussion. These companies have never been a favorite of mine, and I often feel bad for the people who get swindled by them. In this post, I’d like to take an in-depth look at where these kinds of companies came from and investigate what eventually evolved into a steady stream of new MLM schemes.
I wanted to make a simple and easy explanation in some comments under the videos I post about MLMs every now and then before getting into the history of MLMs and the possibility that such a thing could even exist. The question I receive often is: what exactly is an MLM, and I usually define it as something in between a pyramid scheme and a traditional direct marketing sales model.
Wikipedia on MLM
According to Wikipedia, an MLM is a pyramid scheme, selling scheme, network marketing scheme, and referral scheme. In the Urban Dictionary, it describes it as a deal where a seller buys something from a distributor, then sells it at a profit. Afterward, he must send a portion of his profit back to his distributor.
Multi Level Marketing Examples
Now let’s describe what a multi-level marketing business is. Have you received a text, Facebook, or Instagram message asking you for some information. In order to hold a party or buy products from companies like sensi, lularoe, Herbalife or a bunch more, an MLM has already been in touch with you. Most of us are familiar with them now as the ever endearing term for a human bot or seller who tries to convince you to buy products or tries to recruit you to sell the same crap.
As a result, they are called hun BOTS, since usually, they will start off a message by saying, “hey hon” or “hi hon”, but the message is always the same. The company hasn’t all appeared overnight. We are not saying these companies are the same, but we are saying that they are extremely similar.
All of them began somewhere, but where did they come from? I suppose it’s pretty hard to pinpoint the precise moment at which MLMs went from selling products to conducting manipulations, to understanding where that came from. It’s time to examine a very important business model: the pyramid scheme. This model is the backbone of some of the greatest financial scams, and it is in its details that MLMs are able to ride the line between scam and legitimate business.
What is A Pyramid Scheme?
Pyramid schemes take the obvious shape of a pyramid or triangle. Here’s the basic idea of how they work: you start with one person like Tom, and then you bring on two people, Loren and Karen, to sell his supplement to help him earn a commission.
Afterwards, each of these individuals recruit two more individuals and so on. Where do you find these people? Well? Try to target college students, middle-aged moms, and young adults who are insecure. The middle-aged, moms or adults, on the other hand, tend to feel insecure and anxious about their finances because they do not have much money.
Tell them there’s $150 to sign up, to get the selling kit. Once they have purchased those supplements, they can recruit their friends, family members and even roommates to buy those supplements, or sell them using your referral. This example wasn’t an accident if it sounds similar to you. An actual case study about a company called Vemma is described here.
What will the FTC Do?
Benson, Borya Co. was formed in 2004 by a man named Benson. It was his idea to start a company that sold dietary supplements. Their company Vemma, which was shut down by the Federal Trade Commission in 2015, had two right-hand ladies, Lauren and Karin, who rounded out the pyramid at the top.
The company was in court attempting to show it is not running a pyramid scheme when Devin Conley, a reporter for the FTC Cronkite news, was in the courtroom. They were investigated for operating an illegal pyramid scheme and were placed under an injunction in December of 2016. Vemma agreed to pay a 138 million dollar settlement which also banned the company CEO and its top distributors from recruitment, focused business ventures, and deceptive income claims. Unsubstantiated health Claims a subsection of pyramid schemes is a very particular scheme, known as a Ponzi scheme.
Ponzi Scheme vs Pyramid Scheme
To discuss the history of MLMs without mentioning a Ponzi scheme would be almost irresponsible. What exactly is a Ponzi scheme? It’s defined by the SEC or the Securities Exchange Commission, as the following.
A Ponzi scheme is an investment scam in which money is paid out to investors using funds contributed by new investors. The organisers of Ponzi schemes often entice new investors by offering to invest funds and opportunities that they claim will generate high returns with little or no risk. A Ponzi scheme generally focuses on bringing new money into the scheme to be paid out to earlier investors.This makes the false appearance that investors are profiting from a legitimate business.
Simply put, you promise someone that they’ll make more money than they put into something. You could tell someone that if they invest $100, they will receive 120 dollars back. With no real data, analyze products or services to show how the returns will be made.
Ponzi is now a Meme
The scheme is named after the man who started it Charles Ponzi. Ponzi offered higher returns on money in a short period of time, creating a new form of investment fraud. Investors were promised a 50 % return on their investments within 90 days, and at first he did it, but investors reinvested their money, increasing the overall pot.
What was the source of the 50 percent increase in new investors? It is when new investors are not added to the total pot of money that these schemes collapse. In the 1920s, Charles Ponzi scheme cost all his investors over 20 million dollars when it collapsed.
In today’s cash that’s over 225 million dollars. However, becoming a Herbalife seller does not make you a victim of a Ponzi scheme. What’s the point of mentioning it at all? This is the beginning of other scams and the roots from which they all come.
MLM Business Model
It is common for every MLM to borrow elements from the original Ponzi scheme and follow the basic pyramid scheme structure. Since we’ve looked at the foundations of MLMs, let’s now take a look at one of the earliest MLMs, or what we currently consider to be an MLM.
To get some perspective about how far back we have gone, nutrilite was founded way back in 1934. Additionally, the average cost of a house in 1934 was 5,970. The average monthly income was 133 dollars and a gallon of gas cost 10 cents. A number of other events took place in 1934, including Adolf Hitler’s election as the new Fuhrer of Germany, the murder of Bonnie and Clyde, and the development of the Loch Ness monster’s picture.
Tupperware parties anyone?
The events all took place within the same year the first MLM was born. Since 1945, Neutrally has been selling vitamins directly to customers. It realized it could sell more products if it turned its customers into distributors. It was easy to promote and sell the products to other people.The company claimed their supplements were effective in treating a wide variety of ailments from depression, heart attacks and even cancer.
FDA soon realized that these claims were almost impossible to substantiate and soon investigated the company. Earl Tupper created the Tupperware company in 1945 to make plastic, flexible, storage containers, but realized his products would sell better If there was a demonstration.
Earl Tupper linked up with brownie wise, a Stanley home products show ad and they created the Tupperware party plan. This demonstrated the true effectiveness behind in-home product demonstration and sales. Mary Kay was founded in 1963, and by 1996, the company made over two billion dollars in sales.
Multi Level Marketing Starting to Look like a Ponzi
This brief timeline of MLMs doesn’t include any of the major lawsuits filed throughout the years. Want to know why. One of the biggest reasons for this is that it is a long list. Many of these MLMs have sprouted and grown, and many have very similar, if not identical, fashions, and I could do a separate article on them alone.
Here are some of the common components of MLM lawsuits. This list is by no means binding or definitive. As I’m sure, these companies will try to get more creative as time goes by. Let’s take a look at a few legal claims against MLMs that have included the following similarity to illegal pyramid schemes. Price-fixing of products or services, collusion and racketeering; emphasis on recruitment over initial sales, false product claims,and cult-like techniques,
A lot of new MLMs are starting up in the supplement marketing space.Why do MLM take advantage of the vitamins and supplements market? Let’s. Take a look at what the supplement market is like and how it’s actually regulated in 1994.
Supplement Market Space | Not A good Look
Food supplements are regulated differently than drugs under the dietary supplement health and education act. Supplements under the FDA’s current classifications are considered safe until proven otherwise through multiple test studies spanning years. What does this mean for an MLM company? It means until someone is seriously injured or dies from using their product and that product is perfectly fine to market and sell as a supplement.
It’s a horrendous way for these MLM companies to suck money from their sellers through their up lines. They can easily manipulate buyers to use products that may be harmful to them. and the company can do this virtually forever or at least Until someone dies. When you buy an MLM product that is dietary or supplemental in nature, you are accepting the risk that it may kill you. This would be a tragic event and your name will simply become the title of a new law.
According to the FDA, there are only two ways to get rid of a potentially dangerous supplement. The first is to prove that the product is adulterated or proving that the product is unsafe. The second way is if you can prove that the product is misbranded, that the labeling is false or misleading.
How is Multi Level Marketing not a Pyramid Scheme?
This does not imply that the seller misrepresented. The item is enough to cause concern when your local, crazy, doTERRA lady is claiming her oils can cure autism. This is not a problem according to the FDA. But if the bottle printed by doTERRA itself were to say, this special blend will cure your kids measles, then, yes, you would have a case to bring to the FDA. These companies are very well aware of this and carefully word their products.
In addition to avoiding this, every consultant is listed as an independent consultant. This is how they like to market themselves under the guise of being a hashtag boss, babe or small business owner. Since they file 1099 forms at the end of the year and have business write-offs, they believe that independent contractors exist primarily to protect the company.
This is one reason local product sellers will always be listed as independent contractors: if they disclose inaccurate information about a product and run into trouble, the legal ramifications will fall directly on the seller, not the bigger company.
Apart from the very manipulative and shady practices of the MLM companies that work in the supplement market, what about companies like Lularoe and Cutco? Every single product is bound together by a single string. MLMs have one thing in common: they sell. The version sold by a reputable store made by a reputable company is better and more accessible. MLM does not sell any products that are truly revolutionary or life-changing.
MLM Mindset and How it Works
An additional type of group operates according to this methodology. Most cults follow a social indoctrination process known as the bite model. In the bite model, a person is placed into a herd of mindless, cooperating yes, men or boss babes.
The bite model consists of four different but equally effective components to create a conducive and successful transformation of a free-thinking, independent person into a lifeless follower when we think about cults.
MLMs are similar to Heaven’s Gate and Jonestown, but they are more corporate in nature. The following factors are used very effectively to create these shoddy MLM empires, rather than a cult or new religious belief. Whether the company is an MLM or a cult, the following elements are very effective.
Behavioral control comes first. You will become loyal to your specific MLM as you manage finances and associations. Using a product may lead to frequent thoughts about it and constant need to tell people about it. As you want more money to show off the newest products and services, you will find that people who disagree with you are just antagonists or people who don’t like you.
Don’t Listen to Family or Friends
You would be discouraged to listen to people who tell you it’s a scam. You were shown a chart of what it doesn’t look like or that it isn’t a pyramid or that you sell. It cannot be a scam as it is a product, not people.A seller may attend one of these conferences or receive an exclusive newsletter or go to a special party in this setting.
It is extremely harmful for bosses to only sell this product. The opportunity for a MLM business to fester in these situations and create solidarity amongst new sellers. This is a great way to further encourage their involvement. By changing your mental identity, you align your nature, your existence, and what you stand for with the product you represent.
If you have friends or family members who are opposed to your business opportunity. It is easier to block and get rid of them than to hear their negative remarks constantly. You align yourself as an oily mom or put those details on your car. Becoming a living billboard for this MLM “us vs. them” campaign.
Lastly, we have emotional control. A typical cult activity is emotional control, but there has been such a huge build-up to this point. You become lonely or upset as a seller enters this stage, and you may consult your upline or other sellers for advice. Because there are no other people you can turn to for help.
What Happens to 98% of People in MLMs
You developed a reputation as a leader because your group became so important. Thus, if you stop selling and leave, you won’t be cool, independent anymore. Going through this cycle of manipulation and abuse, and then leaves the company, and stops selling, you become normal. Why would you want to be normal when you have these new friends offering you oils, leggings, or whatever Product.
You may find it challenging to adapt to your old lifestyle. Friends and family close to the sellers have most likely been alienated. Their support system was destroyed in months by knives, body wraps, and nail polish. The consumer gets to overpay for a subpar product that may have dangerous and life-altering effects when you support an MLM. You are supporting a larger company that manipulates and exploits its sellers and buyers.
Whats Next?
Eventually, the company manipulates both emotional and financial aspects of selling until it is no longer profitable. The vicious cycle continues and continues until a new batch of boss babes is ready to replace them. The problem is that I don’t believe MLM will go away anytime soon. At least not until someone is gravely injured or killed by one of these products. Or if they are sued for being a pyramid scheme.
These businesses can be allowed to operate under our current laws and regulations because of too many loopholes. Achieving success by manipulating the American free spirit and their way of thinking. It is horrible to think that most or almost all of them will fail and lose money in the process.
I wish there were a way to stop these companies at a more formal level. But for now, educating yourself on these companies and avoiding them is the best way to counteract them. Keeping them from adding new sellers is the only way to stop their relentless growth. In my opinion Multi Level Marketing is a Pyramid Scheme. Yes theses companies have products or services. However with a high failure rate and the product being the new recruits “YES” is my answer.