MLM Misrepresentations & the Truth behind them | The Entrepreneur's Corner | PinoyExchange


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  1. #1

    MLM Misrepresentations & the Truth behind them

    MLM misrepresentation: MLMs are not pyramid schemes, but legitimate direct selling programs. People that work hard can reap the rewards for the rest of their lives.

    The truth: MLMs, or product-based pyramid schemes, have been found to be the most extreme of all the types of pyramid schemes, by any measure - loss rates, aggregate losses, number of victims, and degree of leverage. MLM loss rates (approx. 99 %) – are far worse than for no-product schemes, or even than most gambling casino games. These catchwords are used by MLM promoters to appeal to the desires for "easy money" that keeps on growing and providing for the comforts of life – and the resources to do what we want, when we want. However, one of the stark realities of MLM is an extremely high attrition rate.
    Available statistics suggest that 90-99% of recruits terminate or are inactive within a few years of joining. Those few who "succeed" must be constantly recruiting others to replace a revolving door of hapless victims of these deceptions. This can become totally consuming, leaving little time or energy for anything else.

  2. #2
    MLM misrepresentation: What's all the fuss about pyramid schemes, anyway? Almost all major organizations are organized like pyramid schemes, with many (even thousands of) workers at the bottom, two or more levels of middle managers, some vice-presidents, and then the president or CEO at the top. Even the federal government could be said to be a pyramid scheme.

    The truth: This observation shows an almost total lack of understanding of what makes a pyramid scheme an unfair and deceptive practice. It isn't the pyramidal structure that is the problem, but the endless chain of recruitment of participants as primary customers. Persons are not appointed to ascending levels in the pyramid, but must recruit their way up. And in the case of recruitment-driven MLMs, the compensation plan rewards TOPPs (top-of-the-pyramid promoters) the bulk of the commissions, which drives them to place almost total effort on recruitment and not on selling products to non-participants.
    Primary income from commissions on sales to downline participants makes it a money transfer scheme, transferring money from those at the bottom to those at the top.

  3. #3
    MLM misrepresentation: Sure, many fail at MLM and leave the business, just like in any business. In fact, statistics show that 90-95% of all small businesses fail.

    The truth: These kinds of statistics are bandied about by MLM defenders who supposedly have valid data to back them up. But they are way off on their statistics. Failure and loss rates for MLMs are not comparable with legitimate small businesses, which have been found to be profitable for 39% over the lifetime of the business; whereas less than 1% of MLM participants profit.

  4. #4
    MLM misrepresentation: “This MLM is not a pyramid scheme because you can make more than the people above you."

    The truth: While there may be instances where the income of someone at a lower level exceeds the income of some above them in the pyramid of participants, this does not negate the reality of top-weighted programs where the compensation plan rewards those who build large downlines at the expense of those beneath them. Those at or near the top get the lion's share of the rewards.
    Last edited by jong_deleon; Jul 23, 2011 at 08:45 AM.

  5. #5
    MLM misrepresentation: "You can't count on an employer to offer any stability. MLM offers reliable, leveraged, long-term, permanent, residual income."

    The truth: MLM is far more risky than the job market. There is no real security in MLM comparable to a typical employment arrangement, however unstable. With over 90% attrition within a few years, long-term residual income from recruiting a downline is a myth for new MLM recruits.

  6. #6
    MLM misrepresentation: Unlike dead-end jobs, MLM offers everyone an unlimited opportunity to earn what they want. With MLM, you are only limited by the time, effort, and money you put into it.

    The truth: This is one of the biggest lies of MLM promoters. Think about it – an unlimited MLM income assumes an unlimited market, which does not exist. In fact, markets quickly become saturated, as fewer and fewer suckers can be found who have not been inundated with MLM offers, been burned by prior participation, or have family members who have been victimized.
    Perhaps even more important than time and effort is the willingness and skill to deceive prospective recruits into believing the same falsehoods you are being fed. And as a general rule, with MLM, the more you invest, the more you lose – with the exception of (1) the founders, (2) those who joined at the beginning of the endless chain of recruitment, and (3) TOPPs (Top-of-the-Pyramid Promoters), or “kingpins” - often all three of whom are the same persons.

  7. #7
    MLM misrepresentation: The market collapse predicted for MLMs never happens. Many MLMs have been around for over 40 years and are still going strong.

    The truth: In MLM, market collapse is manifested in CONTINUOUS COLLAPSE, meaning that the market is constantly collapsing, requiring constant recruitment to replace those continually dropping out - with recruits willing to make “pay to play” purchases in hopes of cashing in. MLM leaders have learned other strategies for circumventing market collapse. They find new markets in which to recruit, or recycle through old markets with new generations of prospects, or with new products. Without these efforts, an MLM could collapse fairly quickly.

  8. #8
    MLM misrepresentation: “If not legal, our [MLM] program would have been shut down long ago.”
    “MLMs have survived many legal challenges. The fact that they are still around tells you they are legitimate.”

    The truth: Consumer protection officials are typically reactive, not proactive. Since victims of endless chain schemes rarely file complaints, law enforcement seldom acts against even the worst MLM schemes. Victims don't complain because they blame themselves, and they fear self-incrimination or consequences from or to their upline or downline – often close friends and family.

  9. #9
    MLM misrepresentation: The demand for these MLM products is growing at a rapid rate. “They literally sell themselves.”

    The truth: The sale of products is distributor-driven, not market driven. In spite of all the “outstanding products” hoopla, what is sold is the “opportunity,” not the products. New recruits soon learn that it is easier to buy than to sell – in order to meet their quota.

  10. #10
    MLM misrepresentation: Our high quality products are less expensive than elsewhere when sold through MLM because they cut out the middleman.

    The truth: MLM creates thousands of middlemen, with few real customers outside the network of “distributors” (or “consultants,” “demonstrators,” etc.) Due to a bloated hierarchy of participants, MLM products are very expensive and cannot compete with comparable products from alternate sources. And anyone who believes that MLM products are less expensive than comparable products elsewhere has not shopped around much.

  11. #11
    MLM misrepresentation: MLM products may cost more for reasons of superior quality or service. The decision to sell a product through direct selling is often based on very specific factors. For example, products that require demonstration to convey the finer points of their operation are ideal for direct selling because a knowledgeable salesperson can personally conduct that demonstration for every customer. In a traditional retail setting, consumers might not understand the product‟s unique qualities based on appearance or packaging. It‟s true that some direct selling products are priced at the upper end of the retail market‟s acceptance level, but there is higher acceptance based on the value-added incentive of the demonstration and personal service. Lexus brand cars are also at the upper end of the retail market acceptance level, but superior performance and service after the sale make that higher price reasonable. Each customer needs to weigh the price, quality and desirability of a given product and make a purchasing decision accordingly.

    The truth: MLM products are pricey to satisfy not only costs of production and infrastructure, but also huge individual commissions for TOPPs, aggregate commissions for thousands of downline participants, and often substantial skimming by founders.
    And here again, no distinction is made between MLM and legitimate direct selling. In some cases, this position could make sense for the latter category. But just because a new strain of apples has blue stripes does not justify charging four or five times as much. MLMs promoters typically use the blue stripes type of rationale to justify products that could not compete with retail shelf products.
    Last edited by jong_deleon; Jul 23, 2011 at 08:49 AM.

  12. #12
    MLM misrepresentation: We have Dr. so-and-so as our vice-president of product development, and he has a whole team of qualified scientists and technicians working with him to assure that our products are the very best and safest on the market.

    The truth: It should come as no surprise to anyone that scientists like to eat and enjoy the good things in life like everyone else. If they are offered enough money, top flight scientists, engineers, technicians, etc. can be found to add credibility to an MLM's product line – no matter how good or questionable they may be.

  13. #13
    MLM misrepresentation: These products* can give your greater vitality, can protect you from disease, and can keep you young longer.

    * Typically “pills, potions, and lotions”

    The truth: MLM companies have done at least one of the following:

    Made misleading statements that could frighten people into taking dietary supplements they do not need.

    Made misleading statements of product superiority that could induce people to buy products that retail stores sell more cheaply.

    Made unsubstantiated claims that their products would prevent or remedy health problems.

    Uses research findings to promote products without noting that the findings are not sufficient to substantiate using the products.

    Uses deception by omission by making statements about the biochemical properties of various substances without placing them in proper perspective. An example would be stating that a certain nutrient is important because it does this or that in the body but omitting that people who eat sensibly have no valid reason to take a supplement.

    Exaggerated the probability of making significant income.

  14. #14
    MLM misrepresentation: MLM is like insurance, investing, inventing, acting, and writing in that hard work at the outset yields residual income for the rest of your life. This is done be “leveraging” the efforts of your downline – so you can retire early, travel, etc.

    The truth: The odds of success in MLM is more like gambling than legitimate residual income. It appeals to the “something for nothing” mentality. A kind of MLM addiction has been observed in some “true believers.” The large residual incomes reported are as much the result of time of entry and willingness to deceive prospective recruits as of payoff for hard work. To succeed in MLM, one must leverage one's deceptive recruiting through others who can be persuaded to do the same.

  15. #15
    MLM misrepresentation: Standard jobs are not rewarded fairly. In MLM, you can set your own standard for earnings.

    The truth: Fair? Most MLM compensation plans are weighted heavily towards those who got in early or scrambled to get to the top of a pyramid of participants. MLM is the epitome of an unfair and deceptive practice.

  16. #16
    MLM misrepresentation: “Anyone can do this" (i.e., earn a very large residual income like these top participants we are showing off that come to opportunity meetings in their Hummers and luxury cars.).

    The truth: Holding up top earners as examples of what others can do is deceptive. It is unfair to sell tickets on a flight after the airplane has already left the ground.

  17. #17
    MLM misrepresentation: The “passive income” of successful MLM business builders is like that of a very successful author or inventor, yielding royalties or “residual income” forever without having to put forth any additional effort.

    The truth: The royalties coming from intellectual properties such as inventions or books is totally passive, once the work is done, except for a few speaking tours and interviews, etc. But with MLM, the work is anything but passive. One's downline must be carefully tended and encouraged to buy products and recruit others to do the same – often with aggressive and expensive recruitment campaigns to replace those who are dropping out at a rapid pace.

  18. #18
    MLM misrepresentation: If you fail at this program, it is because you failed to properly “work the system.”

    The truth: The system itself dooms nearly all participants to failure. MLM is built on an endless chain of recruitment of participants as primary customers. It assumes both infinite markets and virgin markets, neither of which exist. It is therefore inherently flawed, fraudulent, and profitable only for founders and those at or near the top of their respective pyramids of participants. Even with their best efforts, the vast majority will always lose money.

  19. #19
    MLM misrepresentation: “In any business, one must invest time and money to be successful.” Like anything else, you can expect to get out of it what you put into it.

    The truth: Independent research, supported by worldwide feedback, suggests that the more a person invests in an MLM in time, effort, and money, the more he/she loses – which is true of any scam. Committed MLM participants may continue investing thousands, and even tens of thousands of dollars, over many years before running out of money or giving up. Conversely, in legitimate companies, sales persons are not expected to stock up on inventory or subscribe to monthly purchases. But in MLM, incentivized purchases (required to participate in commissions and/or advancement) are merely disguised or laundered investments in a pyramid scheme.

  20. #20
    MLM misrepresentation: You will belong to a great support team. In MLM, you have a whole network of people willing to help you succeed and be your friends.

    The truth: Some MLMs operate like a cult with an “us vs. them” mentality. Watch how quickly the team ostracizes you when you quit or discover contrary information about the legitimacy of the program.

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