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

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Marketing Summarized

Multi-Level Marketing (MLM) creates rapid market saturation

Mismanaging production can ruin a company, so a company must carefully consider supply and demand

  • MLM companies don’t observe or regulate the supply/demand relationship
  • MLM ignores the supply target to meet the demand
    • Eventually, the market will quickly oversaturate, or demand will drop
    • MLM makes sustainable equilibrium impossible
    • The company must compensate for the drop in demand in some other way, or the company goes bankrupt

MLM doesn’t adhere to the rules and grace of newer marketing tactics

MLM brands frequently redesign their image and change their product story, which is usually a sign of a company in severe trouble

MLM always uses a pyramid structure

The incentive to join an MLM company doesn’t come from the representatives’ discussed product

  • If their financial statements were transparent, most of the income doesn’t come from product sales
  • Pricing models and marketing attention show the customers are the group who believe themselves as the sellers
  • MLM’s product that makes most of its revenue is a “dream” of selling others on selling others the dream

MLM always operates 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, three levels deep create 1,000 sales staff and six levels deep create 1,000,000 sales staff
  • Common sense asks whom those people are selling to
    • Most MLM representatives say that most will fail, which is exploiting a majority to fund a tiny minority
  • Some modern MLM incarnations limit the number of people someone can sponsor, but they have the same geometric problems

MLM doesn’t replicate conventional distribution models

  • Free market competition for prices usually take arbitrary distributor layers out of the chain
  • A highly exclusive or competitively priced product doesn’t need additional independent vendors because of market demand

MLM sells through inspiring confidence in its prospective members through motivational tapes, seminars, and videos

  • The culture heavily emphasizes that MLM materials are necessary for success

MLM makes pricing models and pay structures for products and materials needlessly complicated to give an appearance of a sophisticated product

  • Though conventional sales provide bonuses and incentives for its highest achievers, low contributors still collect the same proportional commission to their sales volume
  • Starting costs paid into the organization give an all-or-nothing attitude where the new representative believes they can’t afford to fail

MLM-style marketing is immoral

MLM-type growth uses the Fraud Triangle

  1. Pressure – comes from quotas, other people or hardship
  2. Opportunity – a chance to seize an opportunity which could change their life, even if it’s unethical
  3. Rationalization – justifying their decisions
    • Might feel like a victim of overwork or underpayment
    • Believing in no victim because they will somehow return the money someday
    • Claiming anyone who doesn’t succeed at the program isn’t devoted enough

Marketing sometimes appeals to greed and materialism, but MLM doesn’t hide it

  • MLM’s only subtlety in appealing to selfish ends is when it connects to a religion
  • MLM branding usually implies a lifestyle of free and liberal excess
  • MLM culture emphasizes the desire for mass materialism and extreme wealth

Most MLM recruiting and retention strategies appeal to pride and vanity

  • Recruit purchases employ high-pressure persuasion tactics to lower the prospects’ initial opposition
  • Conventional sales never need to devote time to find workers from a natural job market scarcity and applicants’ desire to succeed before applying for the job
  • MLM goals are often established on feelings or desires more than viability
  • Anyone who questions their decisions or the MLM structure will receive community shame

MLM companies heavily regulate their image by constraining materials a representative can use to company-approved videos, brochures, and outlines

  • Beyond recruitment, the rest of MLM is structured very loosely, capitalizing on the “be your own boss” mantra
  • Self-starting is an ineffective sales training method because marketing and sales are a disciplined trade
  • MLM is usually exempt from most of the Federal Trade Commission’s influence

Minimal experience, an oversaturated market, and a full-commission income create a marketing mix which inspires dishonesty

  • 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 made into celebrities even while many of them are convicted criminals

MLM poorly manages vendor-client relationships

MLMs grow through exploiting representatives’ relationships

  • Members justify exploiting relationships as networking or building a business
  • Outside the company, potential recruits believe MLM pitches are shallow, selfish exploitations
  • Most MLM representatives treat anyone who dislikes the product as an enemy from how the internal and external views of the company vary so dramatically

MLM brings strong feelings for or against it to anyone who has experienced it, which is a problem

  • Terrible products usually have other redeeming qualities
    • A low-quality product is extremely cheap
    • A service that takes a long time to deliver often does an adequate job
    • An overpaid product can still be high-quality
  • Critics of MLM usually have nothing positive to say about it

Most people don’t enjoy repeating MLM branding for a few reasons

  • MLM’s primary marketing channel is through prefabricated parties or home demonstrations that feel phony or staged
    • MLM representatives usually sell with their recruiter present, and they both receive a commission
  • Most MLM representatives are not naturally salespeople and have zero experience selling that particular product or service

Selling MLM product is functionally similar to most other sales

  • However, MLM representatives often use socially unacceptable sales tactics and deception to sign up a new prospect as a distributor
  • Most MLM representatives respond to criticism of their tactics with an end-justifies-the-means mentality
    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 operates similarly to many cults and forces an “in” or “out” stance

MLM representatives usually claim other representatives or prospects are their new friends

Conversations with “old friends” become awkward

  • Most MLM representatives are oblivious to how much shame they bring on themselves
  • Lifelong friendships unravel, and groups of friends can separate
  • A long-term MLM representative will avoid family and friends but won’t hold MLM responsible for the decision

Calling out an MLM representative’s behavior is usually a waste of time

  • The depth of their belief means they will dismiss it, then grow resentful if they don’t drop the conflict
  • MLM culture, especially meetings, often vilify critics and their claims on faulty logic

Most people end their MLM career with a rapid financial failure followed by setting the MLM aside with two possible developments from the experience

  1. Embarrassment about the participation
  2. Character defects enhanced to where they’re even more difficult to get along with

MLM may not necessarily cause someone’s alienation and corruption

  • MLM might be a vehicle for someone’s pre-existing decisions, like joining a cult or feeding an addiction

Many people have left high-paying jobs to join MLM and can’t admit defeat because of the scale of how much they’ve damaged their reputation

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

Being an MLM representative is sharing in a uniquely devious culture

It encourages people to be more materialistic and greedy

It sells a product with semi-legal methods

It associates with an enterprise famous for slander, libel, and rumor and might employ criminals as marketing experts

It makes money off the ability to convince people that an unsustainable marketing system is viable

MLM representatives have a reputation among friends and family as a con artist with a thinly veiled pyramid scheme

The group’s standards for success will destroy a lifetime’s worth of family bonds and friendships in a few months

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