Today we will talk about Multi-Level Marketing or MLM. You probably know about it from a hyped friend or relative who is trying to make some income on the side by selling products of the MLM company they represent.
And while most sellers are decent, some people from MLM companies can be quite aggressive and inappropriate in their sales tactics. Here are some examples:
- A therapist that tried to convert a patient into a client;
- Selling MLM to a woman about to have a c-section the next day.
And those are just a few out of hundreds, maybe thousands of stories you can find online – this Reddit community alone has almost 800k people.
What is MLM and why don’t I like it?
The definition of MLM is network marketing or “pyramid selling”. Investopedia gives a proper explanation – this is “a business model that depends on person-to-person sales by independent representatives.” Companies that sell in the MLM model use consultants or distributors. They would buy the products with a discount and then sell them for a profit. The model is open to anyone interested. Representatives will often try to hook you to join their network. When you accept – everyone in the network will get a percentage of your sales.
The person who “hooked” you will get a commission from your sales and from all the people you recruit. This is the main thing that brings cash flow to consultants/managers in MLM. The goal often isn’t to bring new consumers – but target new consultants.
Pros and cons of Multi-Level Marketing
I have studied the industry for a long time, however, the positive sides that I see are just two:
- Some legitimate companies sell high-quality products;
- You have the chance to sell those high-quality products to people that find them useful and have the money to afford them.
The bad sides take the spotlight:
- A lot of companies use MLM to sell lies presenting them as promises for financial freedom and a better life;
- Many people have no ethical boundaries when they sell;
- Sometimes you might be tricked to sell a product that doesn’t have the licenses obtained to be promoted and sold in your country;
- MLM is advertised as a passive income opportunity but in reality, there is no such thing;
- People often need to achieve near to impossible results to get a bonus and that turns everything into a game they can’t win;
- Pyramid scheme manipulations – often MLM companies may be just the cover for financial fraud;
- Bad reputation – the industry is not respected by the majority of people.
There is a wonderful article on vandruff.com on the topic you should read. A distributor in MLM, will likely:
- Not make any money;
- Will probably ruin important relationships with the people they care about;
- Feel bad once they fail.
The Federal Trade Commision of the USA gives detailed consumer advice about MLM (also asks some legit questions) on their website.
Why are people attracted to MLM?:
The psychology behind network marketing
If you look at the numbers from the outside the industry seems quite huge and attractive – millions of people are involved, the market cap of the biggest companies is in the billions, and networking marketing revenue goes up. (Statistics from TrueList show).
It is easy to get misled by the perspective of “being your boss”, “working the hours you want” and “making unlimited cash” (similar phrases are used in MLM advertising to recruit people). The idea that you will be a representative of a company, sell their products for a profit (after you buy them) or for a commission and require more people to do the same may sound appealing. However, there is more to that. MLM companies use an interesting mix of marketing and psychology to target new distributors.
A review from March 2022 by Claes Bäckman and Tobin Hanspal from March 2022 gives an interesting comment that the MLM industry shows signs of growth despite the majority of negative publicity and all the legal troubles. And what you can actually see from the review is that in the USA from a social-economic and demographic perspective, people that fit in a vulnerable group (minority, single parents, low-income households) are more likely to become a representative of an MLM company.
In my opinion, while the research does a terrific job of researching the social-economic and demographic background of the people that get involved in MLM they miss something very important. The way MLM companies do marketing. They learn from the best – the church. And MLM like the church reaches millions of people all over the world.
I came across an article that outlines that resemblance in more ways than one. Let us just go over a few main points:
- Both MLM and Christianity have their content in almost liturgical form when it comes to phrasing;
- Both MLM and Christianity strive for fantastic goals to get people and both fend off the naysayers in a way that is “us against the world”;
- Both MLM and the church require people to fully commit themselves to the cause. In MLM the consultants are the “family” and in religion, the believers are “the flock of sheep”;
- Both MLM and Christianity promise that you will be reborn in some way and that you will tap into something that will make you a better person.
The article has one particular paragraph where specific examples are shown of how MLM uses the same rhetoric as the Bible. But the networking marketing industry has a lot in common with other societies of believers – cults. Grace LaConte from laconteconsulting.com explains how:
- The person in charge is represented as a guru;
- They make promises close to utopia;
- By joining you will gain access to information and knowledge that will help you succeed;
- There will be a strong argument to avoid all critics (again);
- You are not sure about the way they are structured and how you progress in the organization;
- The ways they recruit people are similar;
- And of course (like religion) – you have to be devoted to them.
All of the points are explained in detail by LaConte + there are a few more in the article I referenced above. From a psychological point of view there is a brilliant piece in Psychology Today that dives deep in the resemblance between MLM and cults:
- Both use manipulation messages to control their members;
- If someone fails it is their fault – they are just not good enough or not devoted enough;
- If you try to question how they operate, you will be drowned in word vomit of whataboutism;
- The recruiters of new people can use manipulative (to say the least) tactics and promises to get people to join.
The “good practices” MLM companies take from the church and cults do not limit the marketing efforts of the industry to sell their products or recruit new people to join them. While the main channels remain the consultants/representatives themselves, other methods are:
- Celebrity endorsements in advertising – you can see the likes of Cristiano Ronaldo and Chuck Norris promoting some of the MLM companies;
- The owners use catchy techniques and inspirational speeches to convince people. A great example is the guy in charge of a company called MarketAmerica. You can see what he does in the video of Last Week Tonight with John Oliver (play the video from 04:07 minute).
Of course, the promises for a better life are at the center of communication when it comes to joining. Expensive cars, financial independence, lots of money, yachts, and so on. And it all boils down to this – follow your dreams and live the life you deserve.
The thing that irritates me personally is that MLM is being marketed with the message that If you work hard and make sales you will succeed. Which automatically means that if you fail, you’re not good enough. And then you would feel guilty. Although it might be the fault of companies with a doomed business model and commercial and marketing practices that can be defined as controversial.
What is wrong with MLM in general
As you know need MLM is not something new. It has been around for almost three decades. And although it is attracting many people from what we have seen it is not working as a business model (even for the companies with a great product). But why is that?
The article in the vandruff.com that I mentioned above provides a few key takeaways that show us that MLM in general is a doomed concept:
- In MLM there is no proper way to plan supply and demand. That means MLM companies, in general, don’t have the means to make a proper economic prediction on the number of units from their product they need to produce. It might be too little and they would miss on profits, or it might be too much and this will result in a loss;
- Hiring people without skills and limitations. What is the sense of recruiting representatives constantly? In most cases without even proof of qualification? Flooding the market with sales agents doesn’t guarantee more sales. Unless, the goal is the one I already described above – to get more people hooked;
- The managerial structure of most MLM companies is a pyramid. And as you probably will hear in their pitches, the people offering you “the chance of a lifetime” will tell you that the big profits are often not from sales but from recruiting more people. And you will tell the people you try to hook the same, and so on. Often the logic is that you need to join at the start. But how does that make sense if the product goes great? Often you will hear the targets are also not possible if you know basic math and have some common sense.
There are many issues with MLM as a concept in general – the ones I mentioned above are just the main problems. But don’t take my word for it. Let us see
What do the research and data say?
Probably one of the most important e-books on the topic was written by Jon M. Taylor, MBA, Ph.D. in 2011. It is called The Case (for and) against Multi-level Marketing. As he writes: “…MLM as a business model is fundamentally flawed, uneconomic, and deceptive, predicated as it is on an endless chain of recruitment, as are “pay to play” chain letters and no-product pyramid schemes.”
One of its main points is something that I have mentioned – that MLM profits not from sales but from recruits. Here are some of the key findings of his research:
- Almost all MLM companies that were researched have huge losses;
- The MLM concept relies on that in the world exist economic situations like “infinite markets” and “virgin markets”. And clearly, there are no such things;
- MLM companies benefit from lobbying to create a gap in legislation related to consumer protection (at least for the USA market).
The more recent review from March 2022 by Claes Bäckman and Tobin Hanspal that I already mentioned goes over the losses of MLM companies with specific data and cites some interesting facts from lawsuits, public and financial records, research, and MLM company statements like:
- almost 86% of U.S. members did not receive any money (Herbalife, 2016). In the report, it is mentioned that Herbalife settled a case with the FTC for 200 million dollars;
- “Bosley and McKeage (2015) report that almost 50% of the net earnings went to the 4 top earning people, while the majority of participants (94 percent) registered average losses of 260 dollars of participants;
- “Lamoreaux (2013) reports similar findings for Arbonne, a beauty MLM: In 2011 only 10 percent of the consultants in Arbonne that were active at the time earned any commisions (out of more of 220 000 people).
If you are interested in their findings, be sure to check the report. It has tons of relevant and important information about MLM losses based on demographic, social-economic, and labor market relations. And also a lot of references to the 2016 case between the FTC and Herbalife Nutrition.
A way to make money? Nope. A way to lose your friends.
Often discounts on products and good commissions are associated with buying or selling more (as John Oliver mentions in his video), but this can be difficult or even impossible for some people that work as consultants for network marketing (MLM) companies. This puts them under pressure and makes them resort to desperate sales pitches and tactics.
The bad thing is that the most common target group of potential customers is the people closest to them. And recruiting them or applying aggressive sales attempts is something that can ruin those close relationships.
As you already saw a lot of people involved in network marketing lose money or make little to no income. The examples are countless. What you have not seen so far is how due to MLM sales you can end up alone. In the book I referenced above, Jon M. Taylor, MBA says that he was close to a divorce with his wife because he was obsessed with MLM at the time. On Reddit, many people share stories about losing friends or even ending relationships with their partners. You don’t even have to look that hard to find some personal stories that will make your stomach hurt. Here are a few examples I came across:
However, not all stories end badly. Although a lot of people get sucked into the MLM industry because of the promises of a better life, some realize that was a mistake. And when they quit they spread the word. Like Jon M. Taylor, MBA, who even wrote a book and is quite vocal about it. Which goes to show us that
It is never too late to walk away from MLM
One article on BuzzFeed shares the stories of 15 people that quit MLM for good. Some got off easy, while others lost quite a bit of money. Here are some examples:
- A guy spent a lot of money to make it work, but quit because he didn’t want to harm their friends;
- A woman quit when she realized when she was meeting new people her first intention was to have a business prospect, and not a friend;
- A person lost 2000 dollars, but when he/she got out also managed to convince two people to do the same.
Even if you fall into the trap of network marketing, you can still get out. Don’t be ignorant about the red flags. Observe the facts and the promises. In the whole picture, the biggest losers are not the people buying the end product. It is the consultants who are being pressured, to buy, sell and recruit new people so they can make money (that eventually also rarely happens).
There is one moral to the story.