Is Multi-Level Marketing A Big Scam?


Whatpyramid is Multi-Level Marketing (MLM)?


In its primary format, companies have followed this basic concept to where rather than opening a “brick and mortar” retail chain, have relied mainly on “direct sales.” Using direct sales requires the recruitment of independent distributors to not only sell company items, but to recruit others into this matrix to create a “downline” of other distributors to increase awarded profit margins in order to supplem
ent or become a primary means of income while enjoying the benefits of working at home, or “being your own boss.”

There have been many instances to where some MLM companies have perverted this into what is more commonly known in a negative light as a “Pyramid Scheme.”

Being that the term “Scheme” is a shortened version or slang for schematic, many legitimate companies that follow this format stay far away from this term.

Due to the illegitimate, or illegal, companies that formed and have been sued or organizers have been jailed for fraud, the legal courts and the US Federal Trade Commission have changed the accusation to “Illegal Scheme” in attempts to bring pyramid references back to the positive arena that it should have never left.

Involvement with these business entities, you are considered an Independent Business Owner (IBO) to where you sell your product, to you discretion, to friends, family, neighbors, or others you come in contact with. Some can even use e-commerce websites to sell their products.

Further on, while selling your products, you recruit others to become IBO’s and train them to sell, as well as recruit to create a “chain” of IBO’s to do the same to where you gain a percentage of their profits to add to your income.

 

Is it Legit, or Scam?

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This is where the lines can be blurred. Some are completely legitimate, well known, and have been around for awhile.

The most well-known are companies like Avon, Tupperware, and Mary Kay Cosmetics.

Many IBO’s representative of these companies have been very successful and have reaped several benefits of hard work, network marketing, and referral marketing, as well as being aided by the reputation and known quality of the products.

Some are specialized to a certain demographic. For instance, Herbalife is strictly targeted to the Health and Wellness dynamic.

One MLM based company that has been in the spotlight off and on due to internal practices is the well-known (both positive and negative) is Amway. This company has been in and out of legal battles for its practices and influences to its IBOs to where “Upline Supervisors” (for lack of a better term, or my lack of knowledge for their positional titles) would highly encourage their downline to sign up for business training courses with the allure of “making your business more profitable,” when in fact these entry level IBOs were not making much at all. As a matter of fact, more was being paid out of pocket rather gaining profits.

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In an article from Jayne O’Donnell of USA Today from 2/10/11 quoted Jim and Lori Wittlich, being two-year Amway IBO’s about their experience:

Wittlich says they weren’t forced to pay for marketing materials and meetings but were told repeatedly that these “tools and functions” were necessary for success in the multilevel marketing organization. They would be “looked down upon and chastised” if they didn’t buy them, Wittlich says.

This situation was brought into a class-action suit against Amway to where was settled due to Amway wanting to focus on better business practices:

Amway general counsel Mike Mohr says “the case was not proven” and that Amway chose to settle because “we’re focusing on building a healthy business.” In the settlement agreement, the company said it was not acknowledging “any fault, liability, or wrongdoing of any kind.”

In lieu of this and other matters concerning the internal actions of Amway, the company is still strong and up with the other leader in the MLM based companies.

 

There are absolute MLM scams out there to watch for.

These scams lure you in with the promises of riches, just like any other scam. In most cases, the scam MLM’s want you, or require you to buy their products (whether you need them, like them, or not). In addition, you are encouraged (to the point of thinking it’s a requirement) to go to training seminars to learn business success.

There are many that “pop-up” to make their money, then disappear just as quick with all of the money to be never heard from again.

They follow the same patterns of recruiting, making promises of huge profits, early retirement, and a fantastic life. But really, they are talking about themselves after they have relieved you of your savings.

 

 

Is There Opportunity With an MLM Format Business?


Absolutely!

As with any entry to having your own business, you must go in with your eyes open. You have to ask questions and really listen to the answers.

Here are some questions you must consider:

  1. What can you seriously afford for your initial investment?
  2. What training is offered?
  3. Who will be your direct contact for information and answers?
  4. What are expectations to start seeing profits?
  5. Are the expectations realistic for what amount of time and effort you are able to commit?
  6. Is there a money-back guarantee if you feel later on this opportunity is not suited for you?
  7. What is the lowest cost “package” you can enter in with?

 

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at home parents

Now with the possible opportunity, you must weigh in the amount of time you are able to give against your income expectations. This is why in many cases, retired individuals or stay-at-home parents have the better advantage.

When most of your interaction with other is in a social setting, this is when you can do subtle marketing and establish a customer base. On the same note, you can build your network in a variety of ways by either using the internet by building a webpage to generate interest through traffic, or some of the “old school” methods of using the phone to call interested parties or posting flyers on local interest bulletin boards (yes, you can still find them around).

 

 

 

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Using Logic In Your Decision Process


With any business venture, you must take a look at yourself first.

As with any activity, whether it be leisure or business, you need to know if you are going to enjoy what you are doing.

 

Do you like the product?  Do you use the product?

This is going to make things easier to grow your business. Think about the cliche “Used Car Salesman,”

 

Does the product or company that you want to represent fit in with the “demographic” that you are most comfortable with?

With the social setting groups, or people that you hang around with have (or could have) a genuine interest or need for what you are trying sell. This will allow you to settle in a bit quicker due to the “trust factor” you have already established.

 

Do you research well before you make your decision, but be “intelligent” about it.

There is a certain “mindset” you must have with this approach.

Many people, before you, jump into this arena with immediate dollar signs in their eyes with thoughts of instant riches. Without the understanding of the proper work ethic on how to build a business are the ones that place the “bad review” or “This is a Scam!” posts on the internet. You will have to read between the lines to see the underlying motivation for the negative post.

Take a look at the business history of the company that you are interested in.

There will always be lawsuits against MLM format companies. Don’t let it scare you off. Look at what the case was, the legal ruling, and what the company did to solve the problem, or if they denied the problem. This will give you insight to what the “Internal Corporate Morals” are of company that you are looking into.

If you decide to join a company that offers a health, fitness, or cosmetic product, check the safety record.

 

My Overall Opinion


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The MLM format companies of long-term establishment (Avon, Amway, Herbalife, Tupperware…to name a few well-knowns) have been around for a long time. There have been many people that have gone into business and have made an excellent living.

Like with any business person, their niche was found and became great at it. Along with the long term MLM’s, there are many new start-ups that are getting into the market. I mentioned before that the term “Pyramid Scheme” got a bad name from many of the fraudulent companies that ripped off innocent people that wanted to work for themselves. But looking at the true dynamic of the Multi-Level Marketing format, this is truly one of the most profitable for both the company and the representatives by creating lower overhead and operating costs, in-turn allowing the representatives to make an attractive profit.

In addition, when the representative recruits a network of representatives, thus becoming a team manager, gains additional profits from their downline.

Just like with starting any business, it will take a lot of work and time to establish yourself. You have to put into perspective the time that you are able to invest to achieve goals. The less time you are able to set aside………the longer it will take. With this thought process in mind, you will be able to justify the length of time it takes.

Also remember, you will get some negative feedback.

Not everything sold on the open market is for everyone. Just for example, in the weight loss industry you have Weight Watchers, Jenny Craig, and so many others that are successful businesses. They all do the same thing, but go at it in different ways. It works for some, but not others. Everyone is made up differently and have different opinions.

So if you are thinking of working for yourself in the MLM format industry, go into it thinking that you want to build a business, not that you are going to get rich quick.

If you have had any experience, good or bad, please share and make a comment.

 

 

 

Article Reference:

http://usatoday30.usatoday.com/money/industries/retail/2011-02-07-multilevelmarketing03_CV_N.htm

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