MLM (Multi-Level Marketing)

Multi-Level Marketing (MLM) is an absurdly volatile domain:

  • In the first year of an MLM operation, at least 50% of representatives drop out.
  • After 5 years of operation, at least 90% of representatives leave the company.
  • By year 10, only those at or near the top are still in the organization and at least 95% of its original representatives have dropped out.

Market Over-Saturation

A company must carefully consider their production because mismanaging supply will drive demand down.

MLM disregards any supply target.

  • Without a supply target, sustainable equilibrium is impossible.
  • The market quickly saturates or demand eventually drops.

The company must compensate for that demand drop relative to supply in some other way, or it goes bankrupt.

Bait-and-Switch Product

MLM’s primary profit doesn’t come from its advertised product.

  • If their financial statements were transparent, most of their income wouldn’t come from product sales.

Instead, MLM’s incentive to join is to become a consumer-seller.

  • MLM pricing models and marketing attention demonstrate the primary customers are the group who believe themselves to be sellers of the stated product.
  • Most MLM sales are delivering a vision of selling others with a dream.

MLM inspires confidence in its members through motivational tapes, seminars, and videos.

  • The culture of MLM heavily emphasizes that their materials are absolutely necessary for success.

Pyramid Structure

Conventional sales never need to set aside time to hunt for workers:

  1. Even wage slave jobs have a natural scarcity from requiring certain necessary pre-existing skills.
  2. For any branded product, some people will already believe in it enough that they’d be happy to sell it.
  3. Before applying for a conventional job, applicants already want to succeed at it.

MLM, on the other hand, devotes a lot of effort towards the recruiting process.

MLMs scale with geometric expansion (1 to 10 to 100) as opposed to progressive expansion (1 to 2 to 3).

  • At a factor of 10, three levels create 1,000 sales personnel and six levels create 1,000,000, which is impossible to sustain.
  • Some modern MLM incarnations limit the number of people someone can sponsor, but any limit above 1 fails to address the geometric issue.

Who do these sellers sell to?

  • Most MLM representatives say most people will fail.
  • With the most idealistic thinking, the model exploits a majority who will fail to fund a tiny minority.

Distribution Models

MLM makes needlessly complicated pricing structures for products and materials to make products appear sophisticated.

Free market price competition and technology usually takes arbitrary distributor layers out of the chain.

  • Over time, this creates a faster, cheaper service.
  • A highly exclusive or competitively-priced product doesn’t need additional independent vendors because the market demand is already there.
  • MLM, however, never removes the role of the human seller, even when it’s 100% unnecessary.

The model is also questionably legal.

  • The pyramid distribution model is illegal under the SEC.
  • MLM is usually exempt from most of the influence of the FTC.

Low Pay

MLM provides bonuses and incentives for its highest achievers, like conventional sales.

  • But, while conventional models give the same commission percentage irrespective of sales volume, MLM gives commission proportional to sales volume.

Here’s an example:

  • In a conventional sales model, sales would be an even 10% of commission, with maybe a flat bonus when hitting a specific preferred metric (e.g., selling 30 items will give a $200 incentive).
  • In MLM’s model, selling up to 30 items per month may give a 1% commission, with it being moved to 5% until 60 items, 10% until 200, and scaling upward to 1,000 gives a 40% commission.
    • The sales numbers of subordinates is usually part of the calculation, but it doesn’t remove the fact that it’s a lot of sales.
  • In this example, the MLM model would need to sell 214 units just to break even with the conventional model, and selling 15 fewer would only give 3/4 of the income.

Shady Marketing

While marketing sometimes appeals to greed and materialism, MLM embraces it.

  • MLM branding usually implies a lifestyle of free, liberal excess.
  • Its culture emphasizes the desire for mass materialism and extreme wealth.
  • Its only subtlety arises when it associates with religion, and usually attaches generosity into that wealth lifestyle.

Most MLM recruiting and retention strategies appeal to pride and vanity.

  • Sales for recruit purchases are high-pressure persuasion tactics that lower the prospects’ initial opposition.
  • MLM often establishes sales goals based on feelings or desired income much more than aptitude and capacity to sell.

Along with vices, MLM also fear-mongers prospects.

  • The prospects are often pressured to make a decision quickly on the premise that the organization’s model is a new trend that will take off and leave them behind.
  • Representatives usually sell the starting costs as an all-or-nothing decision to make recruits believe they can’t afford to fail.

The marketing mix of minimal experience, a saturated market, and a full-commission income motivate representatives to be dishonest.

  • Instead of facts or data, many sellers use hyperbole and dishonest claims about the product.
  • Further, many of them dishonor and falsify competitors.

Obsolete Marketing

MLM’s primary marketing channel is through prefabricated parties or home demonstrations with the recruiter and their recruiter.

  • Most MLM demonstrations feel phony or staged because the representatives have little sales experience and aren’t familiar with the product.

Selling MLM product is functionally similar to most other cold-call sales.

  • MLM doesn’t adhere to the rules and grace of newer marketing tactics such as relationship marketing or data mining.

Poor Vendor-Client Relationships

MLM entities blur the line between vendor and client, but also inconsistently manage their public relations.

  • MLM brands frequently redesign their image and change their product story, which is usually the mark of a struggling company.
  • They strictly constrain their image to company-approved videos, brochures, and outlines.
  • Most of them don’t even directly confront others’ claims that they’re a pyramid scheme.
  • MLM leaders are often portrayed in their content as celebrities, even though many of them are convicted white-collar criminals.

Beyond the extreme emphasis on recruitment, the rest of MLM capitalizes on the “be your own boss” mantra and structures itself very loosely.

MLM growth sabotages representatives’ personal relationships with family members and friends.

  1. Members will justify exploiting relationships as networking or business-building.
  2. Outside the company, most people believe MLM pitches are shallow, selfish exploitation.
  3. The dramatic discrepancy between internal and external views of the company inspires most MLM representatives to treat anyone who dislikes the product as an enemy.

Cult-Like

MLM uses the Fraud Triangle:

  1. Pressure – comes from quotas, other people or hardship
  2. Opportunity – a chance to seize an opportunity that could change their life, even if it’s unethical
  3. Rationalization – justifying decisions
    • May 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

Even terrible products usually have other redeeming qualities:

  • A low-quality product is also extremely cheap.
  • A service that takes a long time to deliver often does an adequate job.
  • An overpriced product can still be high-quality.
  • Awful products often have well-designed packaging.

People who have experienced MLM never feel ambivalent about it.

  • Anyone who has experienced MLM directly has strong feelings about it, either for or against it.
  • Critics of MLM usually have nothing positive to say about it.
  • MLM advocates usually can’t express their company’s shortcomings.

Most of MLM is held together with shame.

  • If recruiter-vendor-clients want to develop their skills outside the company (which is an industry-standard practice in sales) the culture shames them.
  • Like any other cult, anyone who questions organizational decisions or requests more input will receive shame from the community.

Conversations with “old friends” tend to become awkward.

  • Most recruiter-vendor-clients are oblivious to how much shame they bring on themselves.
  • Lifelong friendships often unravel and groups of friends can separate.

MLM representatives, like cult members, often don’t hold MLM directly responsible.

  • A long-term MLM representative will avoid family and friends, but won’t hold the organization responsible for influencing their decision.
  • They’ll typically blame themselves, blame their family and friends for not supporting them, or blame the economy.

Addressing an MLM representative’s behavior is usually a waste of time.

  • If anyone asks about their lost friendships, they’ll claim the other representatives or prospects are their new friends.
  • They’ll usually dismiss or justify any criticisms at the organization, then grow resentful if the other person doesn’t change the subject.
  • MLM culture, especially large-scale events, often vilify critics and their claims with faulty logic.

Most people end their MLM career the same way:

  1. Rapid financial failure
  2. Setting the MLM aside for at least a few months
  3. A divergence based on whether they’ve learned a lesson:
    • Embarrassment about participating in an MLM and hesitant shame to openly discuss it.
    • More insufferable from their character defects intensifying.
    • If they come into wealth again and really haven’t learned, another MLM attempt.

The MLM organization is simply an enabler, not the cause.

  • MLM is often someone acting from a pre-existing mental disorder.
  • Many MLM members transition into other addictions or cults, including other MLMs.

Leaving MLM is difficult.

  • Many people who leave high-paying jobs to join MLM have to admit many painful realities.
  • The people who like MLM want to feel like leaders without its required risk or sacrifice.

In Summary

Being an MLM representative is sharing in a uniquely devious culture that encourages people to be more materialistic and greedy.

MLM enterprises become famous for slander, libel, and rumor, sometimes with criminals as their marketing experts, by selling a product with semi-legal methods.

MLM’s largest profit comes through the ability to convince people that an unsustainable marketing system is sustainable.

MLM culture will destroy a lifetime’s worth of family bonds and friendships in as little as a few months, and they will quickly be seen as either a con artist or a fool.

Often, someone in MLM will try to convince you that it’s not MLM. They’ll usually use the words network marketing, direct selling, referral marketing, affiliate marketing, and pyramid selling.

Known Offenders

This is only a partial list, with constant rebranding and new MLM endeavors all the time.

Health products

  • AdvoCare – dietary supplements
  • Arbonne International – vegan skincare, cosmetics, nutrition
  • Avon (formerly California Perfume Company) – cosmetics, skin care, fragrance, personal care
  • Beautycounter – skin care, cosmetic products
  • Grupo Omnilife – dietary supplements
  • Herbalife – dietary supplements
  • Isagenix – dietary supplements
  • Juice Plus – dietary supplements
  • Medifast – nutrition, weight loss
  • Oriflame – beauty, personal care
  • Protandim – dietary supplements
  • LimeLife – cosmetics
  • Mannatech – dietary supplements, personal care
  • Mary Kay – cosmetics
  • Monat – haircare, skincare, wellness
  • Nature’s Sunshine Products – dietary supplements
  • Neal’s Yard Remedies – cosmetics, skin care, essential oils
  • Nu Skin Enterprises – personal care, dietary supplements
  • Nutrilite (formerly California Vitamin Company) – dietary supplements
  • Rodan + Fields – skincare
  • SeneGence – skincare, makeup
  • Shaklee – natural nutrition supplements, beauty, household
  • The Beachbody Company – fitness and media
  • The Body Shop – cosmetics, skin care, perfume
  • Usana Health Sciences – nutritional, dietary supplements, skincare
  • ViSalus – nutrition, weight loss
  • Wakaya Perfection – nutrition
  • Younique – beauty products

Utility markets and telecom

  • 5Linx – telecom equipment
  • ACN Inc. – telecom, energy, merchant services
  • Ambit Energy – natural gas and electricity
  • Stream Energy – retail electricity
  • Telecom Plus – gas, electricity, landline, broadband, mobile services, home insurance

Consumer products (in general)

  • Amway + Amway North America (formerly known as Quixtar)
  • Qnet (formerly known as QuestNet and GoldQuest)
  • Longrich
  • Lyoness
  • Market America
  • Sunrider
  • Watkins Incorporated

Synthetic products

  • Amsoil – synthetic lubricants, fuel additives, filters
  • BioPerformance – fuel additives
  • Fuel Freedom International – fuel additives

Insurance, investing, financial services, legal

  • American Income Life Insurance Company – life insurance
  • LegalShield – legal services
  • Primerica – insurance, investing, financial services
  • World Financial Group – investment, insurance, financial products

Adult products

  • Ann Summers – sex toys and lingerie
  • Pure Romance – adult products

Self-help

  • Educo Seminar – expensive guided meditation
  • Success University – success

Children’s products

  • Barefoot Books – children’s books
  • Usborne Publishing – children’s books
  • Discovery Toys – educational toys
  • Southwestern Advantage (formerly Southwestern Company) – educational materials

Food-based products

  • Cutco (with Vector Marketing as a subsidiary) – knives
  • Pampered Chef – food preparation
  • Tastefully Simple – meal kits, seasonings, sauces, baking mixes
  • Tupperware – food storage products

Essential oils

  • doTerra
  • Young Living

Other specific niches

  • LuLaRoe – women’s clothing
  • Scentsy – scented products
  • YTB International – travel, excursions, lodging

Very specific technologies

  • Forever Living Products – aloe vera, bee-based
  • FreeLife – goji juice
  • Melaleuca – melaleuca plant
  • Morinda – noni juice
  • Seacret – Dead Sea minerals, mud, nutrients
  • XanGo – mangosteen juice blend

Further Reading

BehindMLM – MLM news and reviews