Ten Big Lies of Multilevel Marketing
by Robert L. Fitzpatrick
Date: 9/28/2007 1:03:01 AM ( 15 y ) ... viewed 15152 times
Lie #1: MLM offers better opportunities than all other conventional
business and professional models for making large amounts of money.
Truth: For almost everyone who invests,
MLM turns out to be a losing financial proposition. Fewer than 1% of all MLM
distributors ever earn a profit and those earning a sustainable living at this
business are a much smaller percentage still.
Extraordinary sales and marketing obstacles account for much of this
failure, but even if the business were more feasible, sheer mathematics would
severely limit the opportunity. The MLM business structure can support only a
small number of financial winners. If a 1,000-person downline is needed to
earn a sustainable income, those 1,000 will need one million more to duplicate
the success. How many people can realistically be enrolled? Much of what
appears as growth is in fact only the continuous churning of new enrollees.
The money for the rare winners comes from the constant enrollment of armies of
losers. With no limits on numbers of distributors in an area and no evaluation
of market potential, the system is also inherently unstable.
Lie #2: Network marketing is the most popular and effective new way to
to market. Consumers like to buy products on a one-to-one basis in the MLM
Truth: Personal retailing -- including
nearly all forms of door-to-door selling -- is a thing of the past, not the
wave of the future. Retailing directly to friends on a one-to-one basis
requires people to drastically change their buying habits. They must restrict
their choices, often pay more for goods, buy inconveniently, and engage in
potentially awkward business relationships with close friends and relatives.
In reality, MLM depends on reselling the opportunity to sign up more
Lie #3: Eventually all products will be sold by MLM. Retail stores,
catalogs and most forms of advertising will soon be rendered obsolete by MLM.
Fewer than 1% of all retail
sales are made through MLM, and much of this is consists of purchases by
hopeful new distributors who are actually paying the price of admission to a
business they will soon abandon. MLM is not replacing existing forms of
marketing. It does not legitimately compete with other marketing approaches at
all. Rather, MLM represents a new investment scheme couched in the language of
marketing. Its real products are distributorships that are sold through
misrepresentation and exaggerated promises of income. People are buying
products in order to secure positions on the sales pyramid. The possibility is
always held out that you may become rich if not from your own efforts then
from some unknown person ("the big fish") who might join your "downline."
MLM's growth does not reflect its value to the economy, customers, or
distributors, but the high levels of economic fear, insecurity, wishes for
quick and easy wealth. The market dynamics are similar to those of legalized
gambling, but the percentage of winners is much smaller.
Lie #4: MLM is a new way of life that offers happiness and fulfillment.
It provides a way to attain all the good things in life.
Truth: The most prominent motivational themes of the MLM
industry, as shown in industry literature and presented at recruitment
meetings, constitute the crassest form of materialism. Fortune 100 companies
would blush at the excess of promises of wealth, luxury, and personal
fulfillment put forth by MLM solicitors. These appeals actually conflicts with
most people's true desire for meaningful and fulfilling work at something in
which they have special talent or interest.
Lie #5: MLM is a spiritual movement.
Truth: The use of spiritual concepts
like prosperity consciousness and creative visualization to promote MLM
enrollment, the use of words like "communion" to describe a sales
organization, and claims that MLM fulfills Christian principles or Scriptural
prophecies are great distortions of these spiritual practices. Those who focus
their hopes and dreams upon wealth as the answer to their prayers lose sight
of genuine spirituality as taught by religions. The misuse of these spiritual
principles should be a signal that the investment opportunity is deceptive.
When a product is wrapped in the flag or in religion, buyer beware! The
"community" and "support" offered by MLM organizations to new recruits is
based entirely upon their purchases. If the purchases and enrollment decline,
so does the "communion.'"
Lie #6: Success in MLM is easy. Friends and relatives are the natural prospects. Those who love and support you will become your life-time customers.
Truth: The commercialization of family
and friendship and the use of"'warm leads" advocated in MLM marketing programs
are a destructive element in the community and very unhealthy for individuals
involved. People do not appreciate being pressured by friends and relatives to
buy products. Trying to capitalizing upon personal relationships to build a
business can destroy one's social foundation.
Lie #7: You can do MLM in your spare time. As a business, it offers the
and personal freedom of time. A few hours a week can earn a significant
and may grow to a very large income, making other work unnecessary.
Truth: Making money in MLM requires
extraordinary time commitment as well as considerable personal skill and
persistence. Beyond the sheer hard work and talent required, the business
model inherently consumes more areas of one's life and greater segments of
time than most occupations. In MLM, everyone is a prospect. Every waking
moment is a potential time for marketing. There are no off-limit places,
people, or times for selling. Consequently, there is no free space or free
time once a person enrolls in MLM system. While claiming to offer
independence, the system comes to dominate people's entire life and requires
rigid conformity to the program. This is why so many people who become deeply
involved end up needing and relying upon MLM desperately. They alienate or
abandon other sustaining relationships.
Lie #8. MLM is a positive, supportive new business
affirms the human spirit and personal freedom.
Truth: MLM is largely fear-driven.
Solicitations inevitably include dire predictions about the impending collapse
of other forms of distribution, the disintegration or insensitivity of
corporate America, and the lack of opportunity in other occupations. Many
occupations are routinely demeaned for not offering"unlimited income." Working
for others is cast as enslavement for "losers." MLM is presented as the last
best hope for many people. This approach, in addition to being deceptive,
frequently discourages people who otherwise would pursue their own unique
visions of success and happiness. A sound business opportunity does not have
to base its worth on negative predictions and warnings.
Lie #9. MLM is the best option for owning your own
business and attaining real economic independence.
Truth: MLM is not true self-employment.
"Owning" an MLM distributorship is an illusion. Some MLM companies forbid
distributors to carry other companies' products. Most MLM contracts make
termination of the distributorship easy and immediate for the company. Short
of termination, downlines can be taken away arbitrarily. Participation
requires rigid adherence to a "duplication" model, not independence and
individuality. MLM distributors are not entrepreneurs but joiners in a complex
hierarchical system over which they have little control.
Lie #10: MLM is not a pyramid scheme because
products are sold.
Truth: The sale of products does not
protect against anti-pyramid-scheme laws or unfair trade practices set forth
in federal and state law. MLM is a legal form of business only under rigid
conditions set forth by the FTC and state attorneys general. Many MLMs are
violate these guidelines and operate only because they have not been
prosecuted. Recent court rulings are using a 70% rule to determine an MLM's
legality: At least 70% of all goods sold by the MLM company must be purchased
by nondistributors. This standard would place most MLM companies outside the
law. The largest MLM acknowledges that only 18% of its sales are made to
Mr. FitzPatrick consults and writes about trends in manufacturer/distributor
relationships. He founded and is president of
Pyramid Scheme Alert, a
consumer advocacy group focused on exposing and preventing pyramid schemes. He
has served as an expert witness in several cases involving pyramid schemes and
MLM companies. He writings include False
Profits (a book about MLM deception) and "Pyramid Nation" (a booklet that
laments the growth and "legalization" of pyramid schemes.)
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