Multi-Level Marketing is a style of direct-selling that has seen a huge boom with the advent of Internet social networking.
The strategy has as many critics as it does supporters, but it’s important to understand the appeal of such a setup. Marketing is always evolving, that we know, but is the MLM setup truly a progressive system that represents the future of retail or is it more of a regressive strategy that seeks only to fill the pockets of its upper-echelon? Let’s dive further into the world of Multi-Level Marketing, and just what makes it tick.
The idea behind your average direct-marketing company is quite evident: build your success from the ground-up, become an entrepreneur, live the “American Dream”, and prosper by assembling your very own company. Sounds appealing, doesn’t it? When the late 2000’s recession is hitting you hard, the global economy seems like it is about to collapse in the clutches of Neoliberalism, and the prosperous America of the Truman/Eisenhower 1950’s is disappearing in your rear-view, the MLM offers a sort of “hope” for us. Yet, how come every time we talk to one of these direct-marketing sellers they are constantly trying to recruit us? Well, that deserves its own explanation entirely.
Multi-Level Marketing companies stay afloat by recruiting new members, who must (somehow) pay to be “employed” by direct-sellers.
Technically, MLM sellers usually aren’t even employees of the company that they are apart of, but rather independent contractors who receive a 1099-MISC (or some variant) instead of a W-9, must report their taxes quarterly, pay a self-employed tax, and are generally not considered associated with the company with which they do business.
Next, we will move on to the image. Direct-selling companies are nothing without their image.
They often have inspiring quotes from rich/successful individuals such as Ronald Reagan, Warren Buffet, or even Bill Gates (who all, in their right mind, would never be caught associating with an MLM company) at presentations, et cetera. This is what gets you interested: of course these people are inspiring, and wanting to be just like them (i.e. rich, professional, and a captain of industry) is what fuels their pyramid.
Let it be known, however, a Multi-Level Marketing company is not a pyramid scheme for a few reasons. First of all, pyramid schemes require individuals to pay up the ladder while selling nothing. While network-marketing/referral-marketing (or whatever it calls itself) does require a sort of payment to be a member of the group, it does offer services/goods to justify its business. Secondly, MLMs are legal, pyramid schemes (almost always) are not. Lastly, it’s important to realize that pyramid schemes offer get-rich-quick rhetoric; of course while direct-sellers do play that note to a small degree, they generally emphasize that work is required to make it up the ladder.
That being said, the Federal Trade Commission has warned that some Multi-Level Marketing “companies” are in-fact pyramid-schemes. The FTC has said that people should shy away from any plan that places more emphasis on recruiting than on selling (or working, for that matter). The recruits are often called the “down-line” according to the Commission’s website while it also calls direct-marketing companies, in general, “pyramids” because of their design and overall structure. The FTC does, however, say that Multi-Level Marketing might not be a bad idea in some instances.
Finally, let’s end this overview of Multi-Level Marketing with a few of the culprits, shall we?
While they generally avoid breaking the law, per se, the following companies have had a few ‘run ins’ with the law (to say the least) in the past: Amway, Zrii, Melaleuca, MonaVie, Ameriplan, Evolv Health, XOWii, Zer01, Fortune Hi-Tech Marketing, and Max International. There really is not enough time to explain the abundance of lawsuits that encompasses this barely-legal marketing design (just Google “MLM lawsuits”). Of course, while lots of industries face tons of lawsuits nowadays those industries don’t make people pay to work for them, give them fake promises, and exaggerate prospects for personal gain.