Business 202: Problems With Multi-Level Marketing (MLM)

Back To Main
Marketing Summarized

The innate problem with MLM is that it creates rapid market saturation

  • Any business must carefully consider supply and demand, since mismanagement of production can ruin a company
    • In MLM, nobody regulates or pays attention to the supply/demand relationship
    • MLM ignores the supply target to meet the demand
      • In effect, the market will oversaturate quickly or demand will drop
      • Reaching any sustainable equilibrium is impossible
      • The shortage from the drop in demand must be compensated in some other way or the company goes under
  • MLM is not new or innovative anymore, and doesn’t adhere to the rules and grace of newer marketing tactics
    • Any brand sold under MLM constantly reboots their image and changes their verbiage, which is normally a sign of a company in severe trouble

The most clear trademark of MLM is its pyramid structure

  • The incentive to join an MLM organization does not come from the product that the sales representatives discuss
    • If the financial statements were transparent, it would be clear that most of the income does not come from product sales
    • In fact, the pricing models demonstrate easily that the customers are actually the group that believes they are the sellers
    • The actual product that makes the most revenue is a “dream” of selling others on selling others that dream
  • MLM always operates to some extent as a pyramid, which is illegal under the SEC
    • MLMs work by geometric expansion (1 to 10 to 100) as opposed to progressive expansion (1 to 2 to 3)
      • On a factor of 10, this makes three levels deep 1000 people selling and six levels deep 1,000,000 people selling
      • Common sense asks the question: to whom are these people selling to?
        • The typical MLMer response will clarify that most will fail
        • This means that it ends up exploiting a majority to fund a very small minority
    • Some modern MLM incarnations limit the number of people who can be sponsored, but the same geometric problems exist
  • The claim that MLM replicates conventional distribution models is false
    • Arbitrary distributor layers are typically taken out of the loop due to free market competition for prices
    • When there is a highly exclusive or competitively priced product, the demand will invalidate the need for additional independent vendors
  • Most MLM is sold through inspiring confidence in its prospective members
    • The pricing models for purchasing products and resources as well as the pay structure are created to be needlessly complicated to give the appearance of a sophisticated product
      • Though conventional sales provides bonuses and incentives for its highest achievers, the lowest contributors still collect the same proportional commission to their sales volume
      • Because of the money paid into the organization, there is an all-or-nothing attitude of “I cannot fail this”
    • This manifests in selling motivational tapes, seminars and videos, which is its own market as they’re considered necessary for success
      • The culture magnifies this by saying “you only get what you put into it”

There are moral ramifications to MLM-style marketing

  • The fraud triangle is necessary to create MLM-type growth
    1. Pressure – people feel a pressure to do something from quotas, someone else or hardship
    2. Opportunity – people feel a chance to take advantage of a very good opportunity that could change their life, even if it’s unethical
    3. Rationalization – justifying it
      • Could be feeling like a victim of overwork or underpayment
      • Saying that there is no victim because the money will somehow be returned someday
      • Claiming that anyone who doesn’t succeed at the program is simply not devoted enough
  • Most marketing will appeal to greed and materialism, but MLM removes any subtlety from it
    • The branding of MLM usually implies a lifestyle of free and liberal excess
      • The only subtlety to it is when it connects to a religious affiliation
    • The emphasis on mass materialism and extreme wealth is required to conform to MLM culture
  • Most strategies to recruit and keep new prospects involves an appeal to the person’s pride and vanity
    • Though they all rearrange the model, any purchase by a new recruit employs high-pressure persuasion tactics to lower the prospects’ initial opposition
      • In a conventional selling environment, the natural scarcity of the job market and the desire to succeed mean that distributors never need to look for sales staff or can post on a job board
    • Goals are established based upon feelings or desires and not very strongly on viability
      • Usually a deeper analysis of the process will be met with an attitude of “you need more intiative”
  • In order to maintain an effective image, MLM companies heavily regulate the materials used, making a representative stuck with company-approved videos, brochures and outlines
    • Outside of the recruitment pitch, the rest of MLM is organized extremely loosely, capitalizing on the “be your own boss” mantra
      • This is ineffective as a sales training method, because marketing and sales are a discipline of their own
      • MLM is usually exempt from a lot of the Federal Trade Commission’s influence
      • The combination of little experience, an oversaturated market and a full-commission income leads to a bad marketing mix
        • Using hyperbole and dishonest claims about the product to sell it instead of facts or data
        • Scathing and dishonorable competitor defamation
  • Though not necessarily intrinsic to MLMs, an MLM’s leaders are placed in a celebrity status, even though many of them are convincted criminals

MLM has issues with how it manages vendor-client relationships

  • MLMs grow by exploiting people’s relationships
    • Inside the company it’s seen as networking or building your business
    • The image outside the company, however, it is seen as a shallow selfish exploitation
    • There is no middle ground to reconcile these views and most MLMers believe anyone who dislikes the product to be an enemy
  • Everyone with experience in MLM has very strong feelings for or against it, which is a problem
    • Even the worst products in most other circles have other redeeming qualities
      • A low-quality product is extremely cheap
      • A service that takes too long to deliver still does its job
      • An overpaid product was still great quality
  • The largest image that MLM provides is through their pre-fabricated parties or home demonstrations
    • These events happen because of a few factors
      • Most MLMers are not salespeople by nature
      • Most new MLMers don’t have experience in selling that particular product or service
      • A commission of the sales representative’s sales are collected from the one that recruited them and it’s the easiest way to close a deal
  • Outside of a higher risk of making unreasonable claims, selling MLM product is functionally similar to any other sales work
    • However, to get someone signed up as a distributor an MLMer will use socially unacceptable sales tactics and deception
    • There is an end-justifies-the-means mentality that handwaves any questions about the tactic
      1. Get people to come to the meetings
      2. Charge them for joining their business
      3. Get them to do the same
  • Most MLM culture is set up where you are either “in” or “out”, and it operates similarly to how most cults run
    • An MLMer will claim to have made new friends in other MLMers or prospects
      • However, the conversations with “old friends” become awkward
        • The MLMer will be oblivious to how much shame they are bringing on themselves
      • In the long-term, lifelong friendships unravel and groups of friends will be poisoned
      • An MLMer will avoid family and friends, but will never hold MLM responsible for the decision
    • Pointing out the behavior of an MLMer will be met with dismissal, then resentment
      • MLM meetings and its culture will often vilify these people and their claims based on faulty logic
  • The MLM experience for most people typically ends in quick financial failure and is then sidelined, and then two possible options arise:
    1. Embarrassment about the participation
    2. Becoming an even more difficult person to get along with
  • MLM may not necessarily be the cause for someone’s alienation and corruption and could just be a vehicle for their decisions
    • Many have left high-paying jobs to join MLM, and because of the scale of being deceived do not easily admit defeat
    • The only people who like MLM are followers who want to feel like leaders, since it promises the benefits of leadership without any of the attributes for success

In summary, being an MLMer is to be part of a unique and devious culture

  • Encourages people to be more materialistic and greedy
  • Sells a product in a semi-legal way
  • Is associated with an enterprise famous for slander, libel and rumor and may employ criminals as marketing experts
  • Makes money off of the ability to convince people that an unsustainable marketing system is viable
  • Has a reputation among friends and family as a person who tried to con people with a thinly veiled pyramid scheme
  • Success by the group’s standards will destroy a lifetime’s worth of friendships and family bonds in a matter of months
Next: Everett Rogers’ Innovation Adoption Curve