Multi-Level Marketing (MLM)
(MLM) also known as Network Marketing, is a business
distribution model that allows a parent multi-level marketing company to
market their products directly to consumers by means of relationship
referral and direct selling. For most MLMs,
the product is really a mere diversion from the real profit-making dynamic: the recruiting of distributors.
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"!
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.
Why, you might wonder would you recruit people to compete with you? For,
isn't that what you are doing when you recruit people to sell the same
products you are selling? MLM magic will convince you that it is
reasonable to recruit competitors because they won't really be competitors
since you will get a cut of their profits.
Multi-Level Marketing is a business model requiring you to recruit people,
not only to buy and sell your product, but who will also recruit people who
will not only buy and sell your product but also recruit people... ad
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.
People join an MLM
with high hopes of selling their product and recruiting others so they can
live off the income they get solely from their MLM endeavor. Their
excitement about joining pushes them to purchase the startup kit for their
specific MLM (anywhere from $200 upwards of thousands of dollars) and then
once the actual selling/recruiting comes into place, they lose steam. The
individuals on the ”upward line” of the MLM benefit from the recruit
purchasing the startup kit. In essence, selling a startup kit to
recruits or a yearly fee turns an multi-level marketing operation into
Ponzi scheme. The fee, whatever
from the startup kit or the yearly subscription, is paid to the upline
the same way as a pyramid scheme pays its participants. A non-ponzi MLM would have
multiple levels of compensation, however without any upfront fees.
In a pure multi-level marketing, the more you sell, the more you receive
as compensation however you never have to pay anything to earn the right
to receive a commission for your sales .
Unfortunately, very few MLM schemes are "pure MLM" - the majority are Ponzi. Have you ever asked why would you have to pay a yearly fee
to earn money? When you work for an employer, does your boss asks
you for an upfront payment to start "earning a salary?" MLM
promoters will tell you that you need to invest money to make money.
This is true, however in a real business, you invest in
capital (factors of production to produce
goods and services). When you purchase a startup kit or pay a
yearly fee, you give away your money to your upline so they can earn a
living from your money. If a business opportunity was real, your
recruiter would train you at no cost and provide you a free kit to get
started promoting their products. The truth is 99% of recruits
never earn a penny, so without the upfront payment, the MLM pyramid
would collapse. Also, by paying an upfront free, they have their
recruit on the hook. If the recruit is not successful, they will
sell them seminars and motivational audio material to get started.
The more an unsuccessful recruits invest, the more he/she is likely to
try harder before abandoning the MLM organisation.
There will always be some distributors who will make money in an MLM scheme.
The majority, however, must fail due to the intrinsic nature of all pyramid
schemes. MLM is no different than a lottery, except promising
financial freedom to recruits. The testimonials you read about MLM are
no different than reading testimonials of lottery winners: each
week new millionaires are made from lottery winners, however each week, the
rest of the population got impoverished by greater amounts. The irony
is those testimonials are from online marketing gurus without websites and
without any contact information. If you are new to MLM, would you like
to be recruited by an Internet Guru? The question is why those gurus
have no websites and do not provide any contact information in their
testimonials? Humm... maybe those testimonials are not so genuine....
iGolder prohibits multi-level marketing programs because they are
pyramidal and a close cousin of HYIP.
We consider any business having payouts at multiple levels as MLM.
"So – to be successful
in a recruiting MLM, one must first be deceived, then maintain a high level
of self-deception, and finally go about deceiving others. They must also
remain in denial about the multitude of victims left behind. Some would
label this "theft by deception" except that few of those doing the deceiving
are aware that they are deceiving and defrauding those they are recruiting.
They may even put on a display of being "successful," by buying expensive
cars and homes and inviting others to be like them."
Attributed to Robert
Fitzpatrick of PSA
A variation of "Fake It 'Til You Make It" is the
"Heavy-Hitter" who bounces on the scene and seems very rich, and then
acts as a "closer" of new recruits. Whether or not the "Heavy-Hitter"
will actually have any money is subject to serious doubt: He may be one
of the people living out of his leased BMW! More likely, he has been
hired on a pure salary basis by the Promoters to act as a cheerleader
and "closer" for prospective Distributors.
The "Heavy-Hitters" usually circulate from program to
program, and are often the "Heavy-Hitter" in several MLM programs at the
same time. A good way to identify these scam artists is to inquire as to
what other programs they are in now, and have been in the past. If
they have been in several other programs, you know that you are facing a
"Heavy-Hitter", which when you get down to it is just a professional MLM
scam artist (and, again, probably on a flat salary no matter what BS
they tell you).
At seminars, you will frequently hear the Heavy-Hitter
buildup: "Maybe Mr. Such-And-Such" will be here today!" The excitement
is such that when Mr. Such-And-Such finally appears, you'd think Moses
just came down from the mountain. It is all hype: The Promoters know
exactly who will be at these seminars, and they plant people in the
audience to make statement such as these, so that Mr. Such-And-Such
finally does make his appearance, people attribute to him the
credibility of the Messiah. Don't fall for this ruse.
For reference, the "Heavy-Hitter" is not unique to MLM.
Casinos have for many years employed "Shills", being people who are
hired by the casinos on salary and given a bunch of chips, and sent into
the casino to mingle with the other gamblers and spin a few stories of
the casino's big payoffs (which may or may not have occurred) -- and of
course to gamble the (casino's own) chips and thus encourage others to
gamble with the same enthusiasm and similar better levels.
The "Heavy-Hitters" perform the same function with MLM,
often coming in to tell false stories about themselves hitting it big
with the program. You can admire their gold pinkie rings, and their
expensive leather shoes. But avoid these people, and just chuckle at the
stories they sell. And be sure to ask them about the lease program on
that BMW they are driving!
The worst programs
will promise you some sort of refund if it all doesn't work out.
These are the worst programs
because the refund programs are usually contingent on this-or-that,
require long forms and long waits, often the refund is only 30% or
so of what you spent, and usually the refunds are illusory (meaning
that they company will never pay out the refund to you). The MLM
programs which offer refunds do this to create the illusion that
there is "no risk" to you -- and this is a 100% fraud because as
discussed, you odds of actually getting your money back is
At least the companies which don't offer refunds
tell you this up front so that you are not suckered into believing
Distributors are taught "If
the dream is big enough, the facts don't count".