Multi Level Marketing (MLM) / Pyramid Selling – 1 Dec 2013

Posted on November 30th, 2013 in Caution Ahead

 

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Do you know that Singapore regulates Multi Level Marketing (MLM) and Pyramid Selling?

MLM activities in Singapore are governed by the Multi-level Marketing and Pyramid Selling(Prohibition) Act. The Ministry of Trade and Industry administers the Act.

In general, under the Act, all persons who participate in multi-level marketing or pyramid selling would commit an offence. This is because the participants would have played an active but destructive role of attracting others into the scheme.

We are heartened that our Government takes such a strong stand in the interest of the public.

Let’s us explain why MLM/Pyramid selling is against the public interest.  The piece below is adapted, edited and abridged from a piece by www.vandruff.com titled “What’s Wrong with Multi-Level Marketing”.  A great piece worth sharing.  The original article runs into 7,000 + words but we’ve summarised it to less than 1,500 words.

 

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1)     Designed to Fail

MLM is set up by design to blindly go past the saturation point and keep on going. It will grow till it collapses under its own weight.  Every product and service has a finite market saturation point.  Let’s just call it “X”.

Suppose that “X” has been reached today for a particular MLM product.  Unfortunately you happen to be a naive prospect sitting in an MLM meeting listening to the pitch.

Does the MLM promoter know about “X”? Does he even care?  Assuming that the market saturation number “X” has been reached, everyone joining the MLM from henceafter is buying into a false hope.

Of course the MLM promoter will be telling you something different, “Get in now! Get in early and start selling and recruiting.  You’ll be in our incentive trip 6 months from NOW! ”

Yet, the total available market “X” has been reached and nobody noticed. All the distributors will lose from here on out. Could this be you?

2)     Does an MLM system take care of you?

When will the MLM promoter say, “Enough.  We have enough sales people recruited. We have to take care of them and let them have the chance to close some sales first…”?

The answer is NEVER.  An MLM is a human “churning” machine that does not switch off.  Eventually it will grind up the money, time, credibility, and entrepreneurial energy of well-meaning people who joined (usually the late joiners) merely to supplement their income.

If a company chooses to market this way like a MLM, it will eventually “hire” (with no base pay and “charging” to join) far too many untrained sales people.  If there is a product, the product is usually a mere diversion from the real profit-making recruitment dynamic.

The product or service may well be good, but most of the time, it is not the incentive to lure you to join an MLM.  The product is usually the excuse to attempt to legitimate the real money-making engine. It’s “the cover.”

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3)     The usual pitch (Yes, I’ve sat through a few, trying to keep a straight face)

“You see, if you can convince ten people that everyone needs this product or service,  and they can convince ten people, and so on, that’s how you make the real money. And as long as you sell to a few people along the way, it is all legal.”

So the way to make money in all this is clearly not by only selling product, but also through selling “the dream.”

MLMs work by geometric expansion, where you get ten to sponsor ten to sponsor ten, and so on. This is usually shown as an expanding matrix with corresponding kick-backs at various levels.

So which is it? Is an MLM recruiting “winners” to build a real business, or planning by design to profit off “losers” who buy into the success dream?

During “the pitch,” you will hear things like “Anyone can make it work…It’s the opportunity of a lifetime….Just look at the math (making reference to the pyramid matrix)!”

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If you are a starry-eyed recruit, you will buy into the pitch.  If you try to object and point out flaws in the MLM, the experienced MLM recruiter will tell you, “No, it will be sustainable…You are a winner…I see the energy in you…You will surely succeed.” Then when you resist further, you get loaded with personal anecdotes of successful recruits and get pointed once again to their brochures of numerous pictures of happy smiling people who have joined the MLM and boast of how they have made.

The claim then that an MLM is merely a “friend of friend referrals” implementation of a normal real-world distribution channel through retail stores sounds pretty absurd. Imagine buying a product or service in the real world and having to pay overrides and royalties to five or ten uninvolved “distributor” layers. Would this be efficient? What value do these layers of “distributors” provide to the consumer? Is this rational?

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4)     Another Lucrative Side Income for the MLM

When you join and are all primed up, you get introduced to a parallel or “shadow” pyramid of motivational tapes, seminars, and videos emerges. These are a “must for success,” and recruits are strong-armed into attending, buying, buying, and buying all the more. This motivational “shadow pyramid” further exploits the flagging recruits as they spiral inexorably into oversaturation and failure. The more they fail, the more “help” they need from those who are “successful” above them.

So, MLMs profit by getting in recruits up-front with a “distributorship fee,” and then make further money by “confidencing” these hapless victims as they fail via the “sale” of collateral material.

What do you think? Is this a good “opportunity” or a recipe for collective disaster?  Where is the money coming from for those at the top? From those at the bottom… as in every pyramid scheme. The product could be, and lately has been, anything.

Pick up any brochure or DVD for an MLM and you are more than likely to see a cheesy, obvious, and blatant appeal to greed and materialism.  Usually there will be a mood shot of a large new home, a luxury car, a boat, perhaps a beautiful couple boarding a Lear jet, and so on.  While this need not necessarily be part of the MLM approach, it usually is.

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Such a transparent appeal should make you suspicious. “Why the bait?” “Are they trying to ‘get my juices going’ so that my brain turns off? If this is really a legitimate opportunity, why not focus on the market, product, or service instead of people reveling in lavish materialism?”

But you know as you are reading this, sober and alert why the distraction is needed. Unbridled greed suspends good judgment. When the eyes gloss over in a materialistic glaze, common sense disappears.

5)     Once you are in…

Do you want to be involved in the blatant promotion of values contrary to your basic belief system?  In most MLMs you have no choice. You are going to have to sit through meeting after meeting after meeting after meeting. You are going to be “motivated” to coerce your friends and family to hear “the pitch.” This is the way the “dream” is planted and fertilized. Get used to it.

Hyperbole is a given in an MLM. When inexperienced salespeople are turned loose to sell on full commission without supervision or accountability, what else could happen?

Perhaps you would wonder why a company would choose to market its products and service via an MLM?  Perhaps it’s to promote sales using word-of-mouth testimonials, supposed “studies” done by scientists, fabricated endorsements, rumors and other misrepresentations that would never be allowed to see the light of day in a regulated environment?

MLMs can be used to sell products that could not be sold any other way. An MLM is a way to gain credibility by using people’s personal friendships and relationships via “networking.” This is an intrinsic moral difficulty with MLMs.

Pyramid schemes are illegal. They are illegal because they are exploitative and dishonest. They exploit the most vulnerable of people: the desperate, the out-of-work, the ignorant. Those who start and practice such fraud, should, and increasingly are, being punished for their crimes.

But add a product for cover, and call it an MLM, and people are willing to swallow its legality. Really? No. Not even the Ministry of Trade and Industry is fooled.

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6)     But I see some large MLM companies still operating?  

A few large MLMs have survived against the best efforts of law enforcement officials, spending millions of dollars to protect, lobby, and insulate themselves.

7)     A Sour Taste

MLMs grow by using people’s relationships. If you are going to be in an MLM, you swallow hard and accept this as part of “building your business.” This is “networking.” But to those not “in” the MLM, it seems as if friendship is merely a pretext for phoniness, friendliness is suspected as prospecting, and so on. There is no middle ground here, try as you might.

 

==== A Summary of What’s been discussed about Multi-Level Marketing ====
a) MLMs are “doomed by design” to recruit too many salespeople, who in turn will then attempt to recruit even more salespeople, ad infinitum.

b) For many, the real attraction of involvement in multi-level marketing is the thinly veiled pyramid con-scheme made quasi-legal by the presence of a product or service.

c) The ethical concessions necessary to be “successful” in many MLM companies are stark and difficult to deal with for most people.

d) Friends and family should be treated as such, and not as “sales targets” for a product that you yourself will never touch with a 10 feet pole.

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