Why I don't like MLM schemes

I'm not a fan for a number of reasons, most of which boil down to either the product or the business model.

Now, don’t get me wrong, direct marketing can be a valid model with great benefit to all those involved.  In the past, companies such as Tupperware and Ann Summers, who produce useful and good quality products, have found the “party” model to be a valuable route to market.  Things that people want to see, touch, ask questions about before they buy.  You don’t hear much about Tupperware parties these days, as there are other and presumably better routes to market for them, which is kind of a shame.  I'm not knocking these companies or their products; these are the good guys.

A similar model has also proved very successful in the illegal drugs trade.  It’s what made Pablo Escabar so rich, so famous and eventually so dead.

Before I go into the details, it’s important to make the distinction between pyramid schemes, ponzi schemes and multi-level marketing (MLM).  The first two are scams and are illegal, the third is neither.

Pyramid, Ponzi or MLM?

A pyramid scheme is where I offer to sell you the secret of making money for £100.  The secret is to sell other people the secret to making money for £100, half of which you pass on to me.  You make 10 sales, you’re £400 up, plus you get a slice of any sales they make.  Nice and simple.  The people at the top make a lot of money (this fact is used as a marketing tool), but eventually you run out of mugs to recruit and the last people in lose their “investment”.

In a Ponzi scheme, you don’t know you’re part of a scam.  I take your £100 and tell you I’m going to invest it and make fabulous returns.  I don’t invest it, I stash it away somewhere or blow it all on drugs and hookers and fast cars.  A month later I send you an email saying that my brilliant investment skills have grown your money to £200.  Do you want to take it out, or do you want me to double it again?  Greed usually wins and I breathe a sigh of relief.  A few people ask for their money and so long as I’ve fleeced a few new punters this month, I give it to them, they’re happy and they tell their friends.  Good advertising.  Eventually, too many people will be asking for too much money and it all collapses, so I go and hide on the tropical island I bought with my ill-gotten gains.

An MLM is a genuine business.  There is a real, physical product to sell to real customers, with a commission paid on sales.  You also have the added advantage of being able to recruit other people to sell the products and get commission on their sales too.  And on the sales of the people they recruit, and so on down the line.  Everyone’s happy, all above board, great opportunity, what’s not to like?

As I said earlier, the product and the business model

The product

There are many different products sold by MLM schemes.  Most seem to be in the health and beauty category, so I’ll stick with them.

The first question that springs to mind is if these are good quality health or beauty products, why can’t I get them in Boots, or Holland & Barrett, or Tesco?  Surely the company would make more money selling through major high street chains?

Sometimes, the answer is that I can.  An identical product is available from a reputable high street store, usually at a much lower price, so why wouldn't I buy it there?

Often, you can’t.  Why not?  Because it’s “exclusive”?  They prefer this method?  Maybe it’s because the health claims made by these products are rarely if ever backed up by any kind of medical or scientific evidence; the quality might be poor, the price unrealistic.  Maybe it’s because reputable high street stores want to stay reputable and they think this product won’t support that aim.

Of course the people trying to sell you this stuff don’t have the necessary scientific background to answer technical questions themselves, but surely the companies could provide some FAQ website to point to answers, if they exist.

This becomes more of a problem when they’re trying to sell to scientifically-minded people like me, because I tend to ask awkward questions.  I was almost tempted to try a toothpaste sold by one of these companies once, on the promise that it “doesn’t contain any chemicals”.  Ignoring the obvious point that water is a chemical, I assumed it meant artificial chemicals.  “Oh, so they don’t add sodium laurel sulphate?  Fantastic, I’ll be able to drink orange juice after brushing my teeth!”  I was genuinely excited.  Looked at the tube: Contains SLS.  Damn.

If you get involved with an MLM scheme, you have these hurdles to overcome.  You have to rely on selling to people who will just believe what they're told, not ask questions and not check the internet.

Alternatively, you can guilt friends and family into buying some “to support your new business”, which brings me on to the main issue:

The business model

The first issue is the hard sell.  

Every time you do anything near a MLM agent, you hear “ooh, I’ve got a product that does that better”.  No, you don’t.

Then there’s the social media spam.  It starts with a flurry of posts about how excited they are to be setting up their new business, then you start getting added to groups, invited to events, tagged in photos…  Then it’s the sappy posts about how wonderful the product/company is, how it’s changed their life and they've met the bestest friends ever by doing it and you’re all mad if you don’t get involved RIGHT NOW!

*sigh*

Then you run into a mutual friend down the pub.  “Have you seen X lately?  She still flogging that detox crap?”  “Yeah saw her the other day, still at it”  “I had to delete her off Facebook in the end, those posts were driving me nuts.”

Or maybe before you go out “Should I invite Y?”  “Don’t bother, he’ll just spend all night trying to sell us snake oil again.”

If you join one of these schemes and follow their instructions you will lose friends.

The second issue is the structure.  My concern here is that the people involved in MLM schemes tend to spend a lot more time selling the business than selling the product.  It’s all about recruiting more workers rather than building a customer base.  They’re careful to retain some aspect of selling, because if that part falls to nothing, then it becomes a pyramid scheme, which it isn’t.  Definitely not.  Not even remotely.

One way the keep the sales alive is by selling to themselves.  “Turn your home into a Product X household” they’re told.  It shows customers how much you support the product and gives you a way in to talking about it whenever anyone visits.  So you replace all your cleaning products with Product X brand equivalent.  You get your staff discount, but the people up the chain still get their commission slice.  This starts to look more like a sign-up fee than actual sales, but who am I to judge?

Then there are the parties.  Tried and tested by reputable companies for decades.  Get a few of your friends round your house, give them a cup of tea and some cake and show them the goods.  Then ten minutes in, I’ll just pop in this half-hour DVD about how good the business is and how much money you could make if you join me…  You spend ten minutes selling the product, followed by two hours selling the business.  You end up with three new sales reps on your team, but don’t make any actual sales.  But I did try to sell, so it’s still not a pyramid.

It’s got a square base, four triangular walls rising to a point and there may be a Pharaoh buried inside, but you won’t catch me calling it a pyramid.  Not until there’s been a decent test case through the courts.

The next objection is the structure when you’re in. If the Facebook posts are to be believed, everyone is all loved up with their sponsor, parental towards their minions and idolising the higher echelons, who can do no wrong.  It’s like a Family, with a capital F, and I find it a little creepy.  They have conferences and rallies and everyone aspires to ascend the the next level, then the next, then the next until one day the Thetans come to take you back to their home planet.  For some of these schemes that I've read about (but by no means all), there’s a strong whiff of a cult.

(For legal reasons, I’d like to point out that I'm not saying Scientology is a cult.  Unless you’re reading this in France, then it definitely is.)

All this talk of cults and pyramids has the Indiana Jones theme stuck in my head now.

In short, I won’t be joining your MLM scheme, I don’t want to be in your Facebook group or to see the countless posts about it and if you follow my suggestion about what you can do with the products you’re trying to sell me, you’ll wish you were working for Ann Summers.  At least some of their stuff is designed for that purpose.