Scam Alert – Multi Level Marketing (MLM)

Scam Alert - Multi Level Marketing (MLM)

Network marketing, multi level marketing or MLM is a type of organisational structure that has made some individuals very wealthy, but most have been left disappointed, deflated, fooled and some even broke. The business structure itself is not a scam, but the way it has been presented to the public, and the promises that have been made to lure people in, have left many believing that they have been victims of a scam.

There is a great deal that I can discuss about multi level marketing. In fact, I am writing a book about it. A lot of detail is presented in my book, so I will keep this scam alert nice and brief…but to the point.

I will start by explaining that network marking, MLM or whatever you want to call it (it goes by a number of names) is a type of business structure. These names refer to the way the organisation is operated and how it functions. It is a business structure that operates at multiple levels in terms of marketing and uses networks of people for direct selling. This in itself is not a scam. It is no more of a scam than is a hierarchical business structure or an organic business structure. The problem lies in the fact that the multi level marketing structure is obsolete. It is not a business structure that is relevant or useful to today’s business environment. Without wanting to sound like I am forcefully pushing the sale of my book, I need to explain that the detailed reasons for this are presented in the book. In this scam alert I will just say “trust me”. Multi level marketing is as useful and relevant as using horse and buggy for transport. Can it be used? Yes it can. Does it have novelty value and is it exotic? Yes it is. Is it practical for its intended purpose? Not for 99% of the population. This is where the problem lies.

Imagine a car dealership offering a variety of horse and buggies for sale. Imagine curious consumers coming along to the dealership. What is the dealer’s natural instinct? Obviously he will want to sell the horse and buggies to potential buyers. This is his business and that is how he makes his livelihood. He will explain all the benefits of a horse and buggy. He will explain the low cost of maintenance i.e. no need for petrol, servicing or expensive repairs. He will talk about the environmental benefits. He will discuss the low purchase prices compared to the car. He will talk about the fringe benefits of having a pet as well as form of transport. Will he be right in his sales pitch? Certainly yes. However, the reality is that the OVERALL picture is not as positive as he makes out. Horse and buggy is not actually a great vehicle for a family holiday. Where does one “park” the horse? What about when it rains, what about the horse droppings etc etc etc. We get the point. Most people would see through the salesman’s talk, smile, pat the horse and just walk away. Most of those who do get suckered in by the hype and vision of a horse and buggy for transport will end up with a problem later on. This is what multi level marketing is.

Multi level marketing sounds good, but it’s not. You do NOT operate your own business. You have no control over inventory, margins, payroll or financial distributions. You are just a pawn. It is not a franchise since franchise owners have a dedicated territory which is protected so that their incomes are protected. You are an unpaid stooge who takes on all the risk with little reward. Your success is based on your ability to distribute. You are nothing more or less than a distributor. Now, the reality is that the common man has a poor distribution channel, which is a real bummer, since distribution channels are the key to success in this “system”. What is the common man’s distribution channel? It will be his parents, brothers and sisters, best friends, work mates and neighbours. Once he exhausts these prospects he moves further down the list to acquaintances, club members and long lost friends. ¬†All in all, how much washing powder, shower gel, cleansers, vitamins and energy drinks can you sell to mum, dad, brother, sister, lover, neighbour, work mates and best friends?? Considering you will get a tiny margin on sale you need to sell these in mass quantities on a regular basis if you want serious income. Ok, so the advocates will say that they don’t have to sell much since they also get paid on sales of their “downline”, or the people they have brought into the “system”. Most probably your “downline” used to be your prospect who will no longer buy from you so there goes the profits from those sales. Also, since you already know him, chances are that he knows other people that you know and so he will now be cannibalising your sales there. You gain a few cents on his sales but lose a few dollars on your sales. In the meantime on each and every sale the company for whom you are distributing is making more margin than both you and your downline mate together. Now, there is nothing wrong with that, except for the fact that you were promised fast cars, faster women, luxury goods and mansions and were given the business founders as the examples of what can be achieved. Yeah, but the problem is that they are the business owners and you are the distributor. Think of this as the employer/employee relationship, except that you are the unpaid employee until you earn the employer some money from which you will get a small cut. Then realise that you are just one of thousands of employees who has to give a cut, and then understand where the boats, cars and gold furniture comes from – and you aren’t in the picture.

I don’t care what the products are. I know they are expensive and overpriced. Reflect on your initial consultation with your “upline” who showed you how many people make cash on every one sale. Remember how he told you that when your mate makes a sale you get a cut? Then the sale of the mate of your mate means that your mate gets a cut and so do you. All these cuts on one sale. Sure, the supermarket has to pay store rent, insurance and other overheads which are incorporated into the costs of the stocked items. But supermarkets don’t have to payout 10 levels of people for each and every sale made. So the numbers don’t stack up. You can’t sell the MLM concept by explaining that there are 10 levels of payouts per sale and five minutes later argue how low priced the goods are. That’s like giving birth without being pregnant.

Let’s say you are the 1% who has a serious distribution channel which can shift mass volume of product. My question is “why would you want to join ‘the system’ when you can create you own”? Go direct to a distributor, buy at wholesale prices and push the volumes through your mass distribution channel. You control your inventory, you control your pricing, you control the payroll and you cut out the 9 levels of middlemen. Pretty simple, really.

In conclusion, if you think that multi level marketing will make you a winner, then you must be a bit of a loser.

Peter Solanikow
Peter Solanikow
Peter Solanikow is a tertiary educated and qualified business consultant and options trader based in Melbourne, Australia.
Peter founded A1 Tuition, an education resource provider, in 1997 at the age of 23. Peter has written a number of educational books as well as presented seminars in accounting and economics.
Over time Peter developed an interest in business management and has assisted hundreds of clients from various countries around the world in management, marketing, strategy and finance matters.
Peter travels to Europe annually and has knowledge and experience in business matters relevant mainly to Poland.

Leave a Reply