We may all be familiar with several multi-level marketing (MLM) companies such as Mary Kay, Amway, Avon, Tupperware, Herbalife among others. But what may seem unfamiliar to many is the marketing strategy used behind the sale of every MLM product.
Every MLM company has two noticeably common characteristics:
- You never see them on the shelves at stores.
- Distributors, (relatives, neighbours and friends) are usually actively seeking to get people into the same business.
MLMs paint an enticing picture, literally offering to sell the ‘American dream’ and great reactions do follow through, with appeals such as, “Why Herbalife? Work from home, raise your children.” “You’re your own boss!” “They want what we have. We got it.”, all of which helped contribute towards a 36.12 billion in USD revenue of MLM’s retail sales.
Distributors, regular people such as you and I, are expected to sell the product, earn money by the sales of the said product, and when we recruit our friends and family, we get a commission based on their sales. In such a sense, MLM strategies are also called network marketing, akin to pyramid schemes.
Contributing to their marketing efforts are high profile celebrity endorsements, their biggest celebrity usually being their CEO or the company’s founder. Herbalife, a very popular American MLM company, sells nutritional supplements, with net sales averaging up to 4.5 billion dollars in 2015, many of which could be owed to endorsements by Cristiano Ronaldo and Madeleine Albright, the first female Secretary of State in U.S. history. In what is presented like an interview, Madeleine Albright talks to the CEO of Herbalife, and comments that she is a “product of the product.”
Herbalife was accused of overselling / overstating their product as a report of 1982 exists stating “…said one product helped relieve a host of problems such as venereal disease, tumors and bedwetting.” Even today, Herbalife uses the same sales pitch as distributors testify of people overcoming an inoperable brain tumor with Herbalife products, or helped with the treatment of heart disease, and even helped a woman with fertility issues.
Distributors can get massive bonuses and discounts based on how much they buy which gives them an incentive to buy in bulk, as they assume that with a reduction in cost price per product, their profit margins will skyrocket significantly. But to keep this going, their sales have to be along the same numbers. This eventually leads to an accumulation of the product, and often results in losses for distributor himself.
In essence, if the distributors earnings comes primarily from sales outside of the company, i.e., actual customers. But if you’re selling your business products to someone in the company below you, and they are selling it to recruits below them, all within the same company, that forms a pyramid, and a cycle of internal cross-selling.
Every MLM company is stuck in the same rut, existing even behind your tupperware. To get technical, almost all these schemes tell you that you can make money by just recruiting 5 people. Then you let these 5 recruit their 5, which gives you 25. But what they don’t tell you is that if you do that for 13 cycles, then you technically exceed the population of the earth. You will literally run out of people.
After a multi-year investigation into the company, the FDC filed a blistering complaint against Herbalife, the content of which walked up to the line of calling it a pyramid scheme, stating,
“[herbalife] doesn’t incentivize retail sales, but rather the recruiting of additional participants who will fuel the enterprise by making wholesale purchases of product” and ending with “distributors make little or no money and a substantial percentage lose money.”
In an interview, when questioned of the several hallmarks Herbalife seems to exhibit of the pyramid scheme, an FDC chair responded with “We don’t focus on the label… they are not determined to not be a pyramid scheme,” after a 200 million dollars settlement alongside the agreement to “significant changes” and a statement saying, “Herbalife is going to have to start operating legitimately.”
With plenty of examples to draw from, it’s safe to infer that most, if not all, MLM schemes benefit only the people who sit at the top of the pyramid, with the likelihood of extreme failure for any others involved.
*The quotes mentioned in this blog were sourced from the USDC (information is public) and are retained as it is. The views and opinions in this blog are solely those of the original authors and other contributors. *