Multi-level marketing: what's wrong with it

I am dismayed by the continuing existence (and proliferation) of multi-level marketing (MLM) schemes like ACN, Melaleuca, Omegatrend (New Image International) and, of course, Amway.

I am fundamentally opposed to such schemes for the principal reason that they are immoral. Here is why I think so:

In an MLM scheme the focus of your “business” is not to provide goods or services to people. The focus of your “business” is to rope other people into your “business”. The provision of goods or services is incidental.

Whenever a friend or acquaintance plucks up the courage to talk to me about their new “franchise” in an MLM scheme they usually say: “You haven’t heard of the company because they channel money that would have gone into advertising into making their product or service cheaper/better etc.” This is usually the first and last time any mention is made of the product or service. Instead the focus shifts to making you a part of the “business”.

Why is the above such a problem?

Imagine if I ran a martial arts school.1 Imagine that it had NO students. Imagine then that I went to my family and friends and said:

    “My business needs customers – I need you to become paying students to support my business”.
In that event you would be correct in pointing out that I was “sponging off” my family and friends (who probably never wanted or needed martial arts lessons). You could rightly point out that if my business were worth anything it would be able to get customers of its own – it wouldn’t need “charitable” support from loved ones.

But it gets worse. Imagine if I said to my friends and family:

    “It’s not enough that I’m sponging off you. Ideally I want you all to become just like me. I will teach you how to run a “business” just like mine - relying solely upon friends and family. You must pay me a percentage of whatever you get from them. But relax guys; you can ask your friends and family to enter into a similar deal. That way, you needn’t rely merely on their charity – you can rely on their greed as well!”
Where does the “martial arts” feature in this analysis? Nowhere really. It wouldn’t matter what you were peddling – it could be cosmetics, vitamins, household cleaning products or telecommunications networks. The product is incidental. People aren’t flocking to your product. You are corralling family and (often former2) friends into supporting your (otherwise non-competitive) “business”. Obviously the less attractive your product, the harder it is to corral friends and family; a telephone connection (which most people have/have to have) is probably easier to foist upon your loved ones than a particular vitamin or cosmetic (which is “non-essential”).

If, as an MLM marketer, you doubt this analysis consider this: if you were cold-called by someone selling an MLM brand of telephone connection, would you change from Optus, Telstra, Virgin, iiNet, iPrimus etc.? To get me to change my connection you’d have to show me some serious savings and/or vastly improved service and features.3 If you are honest with yourself you’ll agree that the afterthought given by your entire organisation to the product ensures that it provides neither. If it were a truly competitive product it would “swim” on its own.

Consider this also: do YOU really care what product you’re selling? If someone came to you tomorrow and said (convincingly): “We’re changing to detergents – it is much more profitable” would you give the change a moment’s thought? The particular product means nothing to you. If you don’t care about your product, why should I? Oh yes, that’s right – you’re not asking me to care about the product. We skirt right over that. You want to focus on the business and making me part of your “team”!

In terms of their products, MLM schemes are “failed businesses”. They make money despite the fact that they are not competitive enough to sell their products on the open market. They do so because of “propping up” by friends and family – particularly if the friends and family also have $ signs in their eyes.

So the “business” of an MLM scheme consists principally of scamming people into becoming people who scam others into becoming people who scam others etc. ad infinitum.4 The product is mentioned at the start – somewhat fleetingly; it exists only because without it the scheme would be an illegal pyramid scheme.5

If you’re lucky you might make money from an MLM scheme (although the likelihood of doing so is debatable6). However I, for one, think it is morally reprehensible to make a living off the charity or greed of one’s friends and family (and, in turn, the charity or greed of their friends and family etc.).

In the end, this is all that an MLM scheme is.

Footnotes

1. As it happens, I do teach at my brother’s martial arts school. Family have always trained for free. Otherwise the school pays its own bills. Take a look at my other blog "The Way of Least Resistance".

2. The risk of alienating your friends is very real. I have generally remained on good terms with my unfortunate friends who have gone into MLM schemes. All I can do is watch them get increasingly desperate as they try to make a “go of it”. Many others are not as forgiving of their MLM “friends”, particularly if they have parted with hard cash under pressure. Here is a good example of how “wrong” it can go.



3. In fact, MLM marketers are often forbidden by the terms of their contractual agreement with the MLM company from expressing that their particular product is better than others! As an example, ACN has the following as one of the terms of its agreement:
    "E. Earnings/Income Claims and Savings, or Rate Guarantees
    ACN prohibits Independent Representatives from making any promises or guarantees related to earnings/income of an Independent Representative, whether expressed or implied. This prohibition extends to written, electronic and verbal communications and also applies to hypothetical earnings calculations other than those contained in official ACN marketing material. ACN Independent Representatives may not make any references to specific or numerical saving guarantees, whether expressed or implied, with respect to ACN’s products and services. For example, it is a policy violation to use verbiage such as “ACN will save you $X or x% on your telephone bills.” An example of acceptable verbiage is “Many customers of the major telephone carriers will save on their monthly bills with ACN’s service.” This limitation extends to both written, electronic and verbal communications. Independent Representatives are at all times prohibited from publishing comparisons of the prices of ACN’s services and those of other telecommunication providers. This is because such comparisons are invariably incorrect due to the complexity of telecommunications service pricing and lead to legal disputes with other telecommunications providers."
4. I have discovered that Dean Van Druff makes virtually the same point in "Morality and Ethics: A Problem of Greed", part of the marvellous article to which I refer in footnote 6 (except that Mr Van Druff somewhat kindly refers to "salespeople" rather than "scammers").

5. Wikipedia defines a pyramid scheme as "a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service being delivered". If the sale of a product is largely incidental to your "business plan" you should ask yourself whether there is really any difference between your scheme and the illegal kind. Your scheme might not land you in court, but is it really any less objectionable on ethical/moral grounds?

Dean Van Druff also points out that if most of your income is made through signing up new representatives rather than selling a product/service, the authorities might well decide that you are operating an illegal pyramid scheme despite the existence of the product/service.

6. For an excellent overview on MLM, take a look at Dean Van Druff's article:
"What's Wrong With Multi-Level Marketing?".

I also like the video about ACN below which provides a clear insight into your likely profits to be gained from selling the product:

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