MLM (Multi-level Marketing): Why you Shouldn't Join
Multi-level marketing goes by many names - ‘direct selling business’, ‘network marketing’, or even ‘legal pyramid scheme’. Big names like Amway, Mary Kay and Herbalife are found in this unexplored industry packed full of smoke and mirrors and infinite layers of deceptive marketing tactics - all the more hazardous for unsuspecting customers. A staggering number of MLMs are in operation worldwide, and they all seem to share a distinct feature - a lack of transparency and clarity.
So what is an MLM?
On the surface, multi-level marketing seems like an easy cash grab. Picture an MLM as a long, winding ladder. Anyone can join the company from the bottom of the ladder (so long as you can afford the 50-200 USD starter kit). You, a recruit, are then automatically placed in a recruiter’s “downline”. They will earn a percentage of your sales, having successfully expanded their own business and moved up the rungs. All you have to do is to sell your company’s products, form a downline for yourself, climb the ladder, and, paraphrasing from common MLM rhetoric, you’re all set on your road to riches.
To recruit people into their downline, MLM distributors advertise the classic rags to riches story. Luxurious lifestyles filled with flexibility, passive income and exorbitant wealth. Nevertheless, behind this fairytale of incredible glamour lies an ugly truth - the chances of success, of making a six-figure salary (or even a profit), of climbing to the top of the ladder - are next to none.
Dr. Jon M. Taylor conducted extensive research into the success possibility and compensation plans of 600 MLMs. What he found was that losses were experienced by 99% of people who enter MLMs. In addition, distributors spent a minimum of 25,000 USD on expenses over time. Most of the money was put towards buying new products to sell, attending conferences, giveaways. Only 0.14% of distributors were making the promised six-figure salary. Those are the people who joined early on, and are now sitting snugly at the top of the ladder.
Not only do MLMs produce massive loss rates - they are mathematically impossible. A business model based on supposed endless demand is illogical, unsustainable and inherently deceptive. MLMs are designed to transfer money from the bottom 99% to the top 1%. While you fall into the gaping jaws of debt, the company continues to bleed you dry.
Though there are murky areas in most commercial industries, the extent of manipulation and exploitation in MLMs is particularly alarming. At the beginning of an MLM distributor’s career, customers and recruits are relatively easy to find. Soft targets like family or friends make it easy for the monthly sales quota (every MLM has one) to be met. But as months roll by, the supply of targets dwindles, and downlines rake in less and less revenue. Regardless of the distributor’s sales abilities, there are only so many people who are willing to invest valuable money and time. The monthly deadline nears, and the remaining options are either to pull out early...or to pay out of pocket and buy products under recruits’ names. As long as quotas are met and profits are made, MLMs don’t question anything.
Though pulling out early seems like the logical choice, there are still countless horror stories about MLM distributors falling deep into debt.
The sunk cost fallacy sheds some light on this phenomenon. Humans are so bent on averting loss that even after spending money on something undesirable - like tickets to a mediocre movie - we want to see it through. Spend money on something and you desperately want it to come to fruition. Distributors often hang on to the last thread of hope, continuously throwing money into their failing businesses, waiting for some miraculous sale. In addition, MLM leaders are manipulative. One clear example of this is the common sweet-talk, the motivational vernacular heard from leaders. Leaders often tie self-esteem to selling ability in their hypnotizing speeches, targeting the primal fear of failure, landing distributors in vicious spending cycles. Some MLMs draw devoted followers by using religion and labelling themselves as “faith-based” companies. Many have social media presences, promoting products to younger audiences through the usual platforms such as Instagram, Facebook and Twitter. Without enough information, discerning MLMs from genuine businesses is a challenge.
To make their preying on human frailties even more sinister, consider this: a large percentage of those who join MLMs are neck deep in financial struggles. People of low income are prone to purchasing material items as a means to feel in control of their finances. They often buy into the MLM fantasy, seeing it as a profitable side hustle, a lifeline, a way out.
Due to numerous loopholes, MLMs dodge the majority of legal bullets. They can withhold expected profit amounts, omit information in income disclosure statements, and manage to avoid franchise laws. Maneuvers that are unthinkable for other commercial industries. This allows MLMs to thrive on the misinformation and naivety of distributors. With their convoluted history of legal and political battles, a sweeping crackdown on the deeply flawed MLM industry has been made essentially impossible.
Fortunately, the voices of former members, experts and mental health professionals are slowly being heard. The industry is being called out for its unethical behaviors, or even as some claim, cultish practices. Yet, due to the lack of coverage on MLMS, they continue to exploit vulnerable and uninformed groups - older generations, low-income families, unassuming relatives - and may become a presence in your life.
The suitable reaction the next time someone tries to lure you into an MLM? Turn and run.
References:
https://www.diffen.com/difference/MLM_vs_Pyramid_Scheme
https://daily.jstor.org/multi-level-marekting-really-just-pyramid-scheme/
https://medium.com/@pricelindy/why-you-shouldnt-join-an-mlm-730ce7d268e5
Witness Docs from Stitcher. The Dream, Season 1, Spotify, 7 Sep. 2018. https://open.spotify.com/show/69SbOSdWtOYpJArpX6KczL