“Multi-level marketing” scam? I say yes.


OPINION: Don’t mention the ‘P’ word

Egypt, the spiritual home of multi-level marketing.

Egypt, the spiritual home of multi-level marketing. Source: Getty Images

HERE we go again.

Another p— sorry, “multi-level marketing” scheme convincing people they’ll get rich by flogging — what is it this time? Protein powder? Makeup? Toilet rolls? — to their friends and acquaintances.

US weight-loss company Isagenix was slammed by Consumer group Choice this week for allowing unqualified operatives to spruik its products and provide diet advice while recruiting new sellers into the scheme.

Multi-level marketing, network marketing, direct selling, call it what you will. Whatever you do, don’t mention the ‘P’ word. You wouldn’t want to get sued.

ASPIRE LOYALTY SCHEME UNDER INVESTIGATION

LYONESS TAKEN TO COURT BY CONSUMER WATCHDOG

MLM companies like Amway, Avon, Herbalife and Isagenix present themselves as legitimate business opportunities. Maybe, but that depends on your definition. Of all three words.

Yes, multi-level marketing is technically legal. But — and this is my opinion, so feel free to tell me why I’m wrong in the comments below — that doesn’t make it a good investment, either of your time or money.

These companies lure people with big promises (“Be your own boss! Work from home! Make passive income!”) that almost never eventuate.

It sounds great: using your network of friends and acquaintances to sell products that people want. Win-win. But as Robert L. Fitzpatrick, author of False Profits, says, the reality of MLM recruiting is, on the whole, “disruptive and destructive”.

“At best it is awkward, annoying and manipulative. It could not be otherwise since it is based upon commercialising and exploiting relationships of love and trust, the so-called ‘warm list’ for recruiting,” he writes on his blog.

Olympic athlete Jana Pittman promotes Isagenix.

Olympic athlete Jana Pittman promotes Isagenix. Source: Supplied

“With a 99 per cent failure rate, it is inevitable and understandable that recruiting friends, families and neighbours into such losing propositions leads, almost universally, to rancour, alienation and the loss of trust. Divorces are a common outcome.”

Yet, he goes on to note, the private language of multi-level marketing — “network” marketing, “relationship” selling, “personal” referrals — disguises its true nature. “Such terms indicate cooperation, mutual support and a smooth blending of commercial and non-commercial values — the opposite of what actually occurs.

“MLM is, in fact, the only business on earth based entirely upon the commercialisation of personal relations, a fundamental contradiction that obviously could not work.”

Gerard Brody, chief executive of the Consumer Action Law Centre in Melbourne, warns consumers to be very wary of multi-level marketing schemes. “They tend to overpromise what they deliver, even potentially mislead people about the sorts of income generation they can obtain,” he says.

“Our concern is that they can target some pretty vulnerable people, maybe low income earners but also those potentially easily persuaded by pressure sales or marketing claims.”

Many employ psychological techniques to encourage an in-group, out-group mentality, not unlike a cult. “They encourage a sort of family or team-like atmosphere, so people tend to think they’re getting something out of it beyond the business outcomes that it’s delivering,” Mr Brody says.

CONFEDERATED PRODUCTS

AN INDUSTRY IN CHANGE

Of course, like any industry, there is good and bad to be found.

The Direct Selling Association of Australia, the peak body which represents around 70 companies including those mentioned above, is working to reform an industry long plagued by these “reputational issues”, as it puts it.

DSAA chief executive John Holloway is candid in acknowledging there have been problems in the past. “You’re quite entitled to make the observations you’ve made, and when you look at some companies from past experience — and I’m including DSAA members — you may be entitled to draw those conclusions,” he says.

But the industry is changing. The old stereotypes no longer apply, and for every negative experience, there are many positive ones, Mr Holloway says. First and foremost, actual network marketing now represents just a part of a bigger picture for these companies.

“They use an increasingly omnichannel presence, so not just direct selling but other aspects of retailing such as distance selling and online selling. The entire channel is changing.”

Herbalife has been dogged by controversy in the US.

Herbalife has been dogged by controversy in the US. Source: News Limited

A December 2013 report by Deloitte Access Economics, commissioned by the DSAA, estimated that there were around 478,000 “independent sales people” associated with direct-selling organisations.

Roughly 250,000 were considered ‘active’, defined as having made a sale within the prior three months. Of those, 32,000 worked nine hours per week, and 7,700 worked 37.5 hours per week. Overall, Deloitte estimated the total economic contribution of the direct selling industry at $1.165 billion for 2012.

“We’ve got a good message to sell, but we’re also realistic in knowing there are excesses out there, certainly they are out there,” says Mr Holloway.

The DSAA maintains very strict membership standards, he says, to avoid any suggestion of the ‘P’ word. So what are the red flags?

“If there’s a high cost of joining — what are you getting for your money? What representations are being made about earning potential? What, realistically, are the prospects of success? Direct selling is not unlike any other small business. You only get out what you put in.”

But at the end of the day, Mr Holloway says, it has to be a “real, quality product, competitively priced”, that people will actually want to buy.

Fair enough. But personally, I’ll just wait to get it at Woolies.

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Comments on this story

  • Deb of Sydney NSW Posted at 4:12 PM Today

    Be your own boss…equates to ‘do all the work and get nothing for it’. Passive income is actually very true…it’s perfectly still..you start with a dollar and 12 months later, it’s still a dollar:) Although, great for tax…all your expenses make it a good loss:) Opportunity equates to being alone, as all your friends avoid you like the plague and even strangers will cross a busy expressway to avoid you! Having been through the Avon, Tupperware, Nutrametics, Amway and a few others I can’t remember…I can quite honestly state that when 29 year old son rang me up to mention ‘business opportunity’ in something like Jurlique (whatever the name), I sprouted ‘will cost you about $1500 or more (think inflation) and all of the above…it was actually $1800….he didn’t sign:) I have four children….not one of them will ever sign up. Pity, because most of the products are good, but the prices ridiculous. When someone states ‘I have a business opportunity I would to share with you’…I state…’there are times in one’s life, when they shouldn’t share…consider this one of them’.

    Comment 1 of 26

  • oh dear, another MLM beatup of QLD Posted at 4:07 PM Today

    If you don’t like pyramid schemes you better not work in a traditional business where they are…..a pyramid…..boss gets rich at the top, managers next, then employees, not much!!! Isagenix is obviously doing well because I’m seeing lots of noise about it……thanks for the info, I’m going to check it out! I’m happy to support a friend trying to get ahead in MLM….better than supporting a multinational traditional pyramid scheme, I mean company!!!

    Comment 2 of 26

  • petey of morley of perth Posted at 3:37 PM Today

    Moral of the story? “If it was that easy to make so much money, everyone would be doing it”

    Comment 3 of 26

  • Chris of Reality Posted at 3:31 PM Today

    Ok, so lets review. MLM is waste of time because it has a 99% failure rate… and 75% of small business in Australia fail within the first five years… MLM means selling to friends and family first… and if you opened a traditional bricks and mortar store front you wouldn’t tell your friends and family?? Yeah, I thought not. Which leads to the final sobering fact glossed over by this useless opinion piece. Woolworths CEO Grant O’Brien was remunerated $4.2million last year… the average Australian full time wage is $74,000… your “non-pyramid” Woolies CEO makes 56 YEARS of your average Australian wage earners salary in a SINGLE year… now tell me about pyramids again.

    Comment 4 of 26

  • Mark Posted at 3:26 PM Today

    These MLM’s are prolific and work in small groups social groups. i.e. I’m an ex mormon with mormon family members that flog MLM weight loss programs and products.. They work their fellow member contacts and family members to ad nauseam using every opportunity to sell their wares i.e. social media like Facebook. dumb dumb dumb

    Comment 5 of 26

  • Danny Posted at 3:16 PM Today

    That’s like saying people who go to school is not a good investment because the ideal mentality is that when you study a certain course and practice your going be doing that your whole life yet almost 80% of students after grad don’t even end up in their practice that they studied for and spend thousands of dollars on. Multi level marketing compared to anything is a better way. Don’t look at is as a lotto or your going to get rich quick because it requires work like ANYTHING in life, but does that mean you shouldn’t do anything with your life? Idk. Simply I think this article — http://buildingabrandonline.com/BrandosBlog/how-to-sponsor-people-into-your-mlm/ sums up what it takes to make it in MLM which is selling and recruiting.

    Comment 6 of 26

  • Nicki Keohohou Posted at 2:36 PM Today

    Frank: I can tell that you have a very strong opinion of what direct selling is about. I commend you for reaching out to John Holloway of the DSAA – he is a very knowledgable man and a good resource for anyone wishing to understand this profession. According to wikipedia the definition of a pyramid scheme is: an unsustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public. In other words, it is an opportunity to sell a business opportunity. I have worked with thousands of distributors in AU and NZ who have contributed to their family income or been the sole provider of their family as single parents. They are thankful for the opportunity to work from home and grateful for their companies. I am on a mission to educate the public about this amazing profession and the people in it. I would be happy to speak with you at any time to discuss any aspect of the business model if you are open. Sincerely, Nicki Keohohou

    Comment 7 of 26

  • Professor Frink Posted at 2:30 PM Today

    Vitamin supplements = Expensive wee! Unless directed by your doctor or some other qualified health professional, there is no need to take vitamins. If you insist on taking them without a genuine reason, do not take them everyday, but cut it down to three times per week.

    Comment 8 of 26

  • Richer of Hobart Posted at 2:22 PM Today

    One very Rich deVos – if you think business longevity or success equals ethical sales then you are beyond stupid

    Comment 9 of 26

  • Rocket of Scarborough WA Posted at 2:19 PM Today

    I’m keeping my Avon Lady. I think they she makes that much money off the prices they charge.

    Comment 10 of 26

  • Tony of Bne Posted at 2:16 PM Today

    1. Surely a journalist does not start a sentence with But. 2. The business training we received for around $1,000 pa was an option we chose and helped us develop an income which meant we were able to afford a full time parent. It also gave us the skills to develop a $200k + traditional full time business – so at $10k over the time we were active in MLM it was well worth it compared to a $100k uni degree

    Comment 11 of 26

  • Roger Posted at 2:15 PM Today

    If the products work/are high quality, I see no issue with recommending them to friends, colleagues and family members. In the nutrition/health food/weight loss categories there are products sold through pharmacies and endorsed and marketed by pharmacists that are no better than the stuff sold by MLM companies. Tony what’s his name is a good example. The difference is that the only people who can make money by selling through pharmacies is the pharmacist and the inventor of the product. With MLM it is actually possible to make a living and, in some cases quite a large amount of money. The issue is that most people who take up MLM opportunities don’t have what it takes to succeed. This is no different to real estate sales. Most people don’t last in the industry because they don’t have the attributes needed for success in that kind of job. And if you want to use the P word, what large company isn’t a P? You have the CEO and other senior execs making millions while the worker bees are just getting by. I was involved in a MLM business for a year or so. I didn’t succeed because I lacked what was needed to succeed. Most people are the same.

    Comment 12 of 26

  • tony of bne Posted at 2:11 PM Today

    Whilst there are some good elements to this story – lets look at the facts. Whether you like it or not or fits your coy description. A pyramid scheme involves putting money in and the people at the top always making more – there is rarely a product involved. Direct selling may involve MLM but not always and may be only one tier – MLM or network marketing always involves products – yes some may be highly priced some may be good or bad. John this will answer your request too. Amway is the biggest and oldest MLM company in the world. I joined in 2003 but have not been active since 2009. You have to understand the structure and the is not enough space here. For a long time I made way more $ than the person who introduced me and the next people up who were “diamond” made more the their sponsor. Making $$ is directly related to the work you do – not your group. now if you find develop 3 good groups you can make heaps- if only 1 you will get a great discount but not a lot more. in my peak I made $50k pa part time – I left because my full time business bloomed and we were making heaps more Amway is in decline & they have not moved with the times but you can still make it work.

    Comment 13 of 26

  • Terribla Posted at 1:53 PM Today

    No Pyramids please! They’re only in Egypt

    Comment 14 of 26

  • David of P-town Posted at 1:39 PM Today

    They target most peoples dreams and desires. pay of your parents mortgages, live carefree with constant income travel the world earn more to give more.. pffft if that was the case it would flip the system upside down on itself and the more people who join the less they would pay to help the world get “fit” and beat “obesity” Cleanse away with un-natural products lol

    Comment 15 of 26

  • Anna Trigg of Adelaide Posted at 1:37 PM Today

    Agree totally. Have been targeted by many “friends” on recruitment drives. Don’t think so much of them any more.

    Comment 16 of 26

  • Dave Posted at 1:35 PM Today

    unethical and hilarious to witness!!

    Comment 17 of 26

  • Alain Millett of Glenmore Park Posted at 1:29 PM Today

    It is not a pyramid – but then a traditional company is a bit like a pyramid – boss at the top and various levels of management going down with a wide base of workers at the bottom. I know people who are making hundreds of thousands in income every month from reputable Network Marketing Companies, but they are the rarity, these people have treated these business’s just like any other business, they work full time at them and operate with honesty and credibility. Disclaimer I am involved in a Network Marketing Company (not one of the ones mentioned) and I remain loyal to that company as the products are the best I have ever seen or can get anywhere else.

    Comment 18 of 26

  • chellmc of Sydney Posted at 1:17 PM Today

    Read Fraser Beath McEwing’s book ‘Cafe’ it’s a satirical tale of ‘P’ oops I mean multi-level marketing. Written by someone who has been there and done that and can see the funny side of the tales that are told to hook us all in.

    Comment 19 of 26

  • Brad of Adelaide Posted at 12:45 PM Today

    If you haven’t figured it out, the P word is Pyramid. As in ‘Pyramid selling’

    Comment 20 of 26

  • im not home Posted at 12:45 PM Today

    Is distance selling like those people that come to your house drop a penny miller brochure at your door and leave without you knowing? P selling – a great way to lose friends, collegues and family! and dont get me started about telemarketers…

    Comment 21 of 26

  • GeoffU of Narangba QLD Posted at 12:43 PM Today

    I’ll get what I need at Aldi.

    Comment 22 of 26

  • But That’s Just One of Many Online Scams Posted at 12:41 PM Today

    If I can’t buy it in a store than it can’t be that good. Anything decent has multiple sellers, a unique product/opportunity is usually a con. Caveat Emptor

    Comment 23 of 26

  • sam Posted at 12:34 PM Today

    I had an old friend who worked for a company called Infinity International – whenever I asked what they did he would be broad and secretive – turns out they just sell vitamins, but those vitamins are so good they don’t use traditional marketing, only word of mouth (sell to your friends and family) – just made no sense to me that if vitamins were so effective make a radio ad, a TV ad, don’t keep that a secret and try to seem legit

    Comment 24 of 26

  • Lauren of Melbourne Posted at 12:32 PM Today

    Not to mention that a huge number of these people selling herbalife and isagenix are firness trainers providing nutritional and dietary advice which falls outside their scope of practice as set by Fitness Australia. I’d hate to see what happens if something goes wrong and there is a lawsuit. Their insurance won’t cover them as they’ve been acting outside something they’re qualified to do

    Comment 25 of 26

  • John Posted at 12:30 PM Today

    “Of course, like any industry, there is good and bad to be found.” Tell us about the good. One example will do.

    Comment 26 of 26

One thought on ““Multi-level marketing” scam? I say yes.

  1. Sorry but I don’t have much pity for people that fall for these scams, like how many warnings do they need to be aware of these scum-bags. People’s stupidity never ceases to amaze me

    Like

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