January 30, 2011

Consumer Safety & Awareness Part 14

The Truth About Multi-Level Marketing (Part 1)

6uccessLine (spelled with a “6” rather than with an “s)” is a gateway for multi-level marketing. The site says, “Get Paid Working from Home! All you have to do is take a FREE Video Tour and afterwards, we'll call you to see if you have any questions. It's that simple! Just fill out the form above.”

It continues, “Jump onboard the next big Internet wave. Get paid up to five times each and every month. Be mentored by millionaires who have walked the walk. Start living the lifestyle you’ve always dreamed.” If that was not enticing enough, there are testimonials. “Since joining this company at age of 20-years old, I have been empowered to positively impact and motivate people while enjoying a great income and lifestyle from networking.” Yip, that’s the exact quote. The web site’s privacy disclaimer leads right back to the same page. The only way to proceed is to submit your personal information.

“Our opportunity provides the following: Work when you want, where you want, with who you want and even how you want! Get paid monthly residual income, month after month, year after year! Promote yourself up the ranks at your pace! Work part-time or full-time! Time-freedom you never had!” They go on to provide you with services they use. “Our services include the following: Digital Phone Service Wireless/Cellular, Local Calling Service, Long Distance Service, Internet Service.” Gee, I use them too, don’t you?

Other statements fall directly into the pyramid scheme format: “Not only can you work here in the U.S., but you can also build your business all over the world. Who would have thought that a multi-billionaire (Donald Trump) would be recommending people who are looking to be their own boss and start their own business to seriously check out the network marketing industry? Well, it's the truth. Because of the low cost - high return, people who have a strong burning desire can become very successful in a relatively short period of time.”

So what is this “network marketing industry?” If you Google those three words you get 300,000 hits. Most are similar to the one I just presented: join and make a mint without working hard. Fast Company, one of the participants explains what it does this way: “

“Network marketing, or multi-level marketing, is one of the fastest-growing business models of the past few decades. The most prominent examples of direct selling companies include Amway, Avon, Mary Kay, Nu Skin, and Herbalife. In 2003, U.S. total direct selling sales totaled more than $29 billion. Any business model that has achieved this kind of success probably has lessons that all business people can learn from. We define this family of business models as a method of distribution in which people are paid for sales volume generated by people they have recruited into the distribution network.”

“A significant number of network marketers have negative experiences with the industry. That is why 70% of all people who have ever been a direct selling representative are no longer in the industry. One of the things that make the sector most attractive, the low barrier to entry, also creates some its greatest dangers. Many people get into it without the necessary skills to run a successful business. Successful salespeople penetrate an untouched market, and then work to gain a high market share in that market. This is easier to do if everyone in it knows all the players. Why? Because word of mouth in that type of network will spread more rapidly about the value of your product or service.”

"If you think of the whole process like dating, we bring someone to our Web site, and then we ask them to have sex immediately. There has to be some courtship first." One of the delicate aspects of network marketing is that people leverage their personal relationships to sell a product. Although that leverage makes some people queasy, the success of the network marketing model shows that many people do comfortably build multiplex relationships: Their friends are their customers.”

Wikipedia puts it quite simply, “It is sometimes difficult to distinguish legal and reputable multi-level marketing companies from illegal pyramid or Ponzi schemes. MLM businesses operate in the United States in all 50 states and in more than 100 other countries, and new businesses may use terms like "affiliate marketing" or "home-based business franchising". However, many pyramid schemes try to present themselves as legitimate MLM businesses.

The key distinction between these illegal schemes and legitimate MLM businesses is that with legitimate companies a meaningful income can be earned solely from the sales of the product or service to customers who are not themselves enrolled in the scheme. While some of these MLM businesses also offer commissions from recruiting new members, this is not essential to successful operation of the business by any individual member. The distinguishing characteristic is whether the money in the scheme comes primarily from the participants themselves (pyramid scheme) or from sales of products or services to customers who aren't participants in the scheme (legitimate businesses).

The distinction, though, is far murkier. The FTC has found that the vast majority of products sold by multi-level marketing companies fall into a narrow range. They include unproven nostrums that are sold by testimonial rather than by proven scientific studies. Many also sell trinkets as if they are special more expensive objects. Those that have products of value, sell them for a far higher cost than compatible products, thus providing a nice profit for the company and a reasonable income for the lower level salespeople.

Jon M. Taylor, who has an MBA and a Ph.D in business marketing, has spent over 20 years studying multi-level marketing. He states, “Law-enforcement agencies seldom require honest and understandable disclosure of essential information to MLM prospects. I have examined the compensation plans of more than 250 leading MLMs and found that virtually all hide the near-zero odds of making a profit, and in fact almost certain loss. Here are the typical ways they exaggerate to new recruits.”

Continued in February

 (All consumer articles are archived.)