Multi-level marketing, an all-around bad deal

Here is an interesting piece on multi-level marketing. Is it a pyramid scheme? According to the law, not if you are selling an actual product. Is the product being sold actually worth it? Is it legit?

The money behind Herbalife, Mary Kay and others

Lately, all eyes have been on Herbalife, a $4 billion weight loss and nutritional supplement company that hedge fund manger Bill Ackman has attacked as an alleged “pyramid scheme.”

Herbalife (HLF) contests those charges, saying its multilevel marketing strategy is above board. But the headlines have brought this huge industry into the spotlight.

From lipsticks sold by iconic “Avon ladies” to the popular P90X workout system, multilevel marketing companies represent nearly $30 billion in annual U.S. sales and enlist tens of millions of Americans as independent salespeople. Here’s a look at how the industry works.

What is multilevel marketing?

Multilevel marketing companies employ a network of independent salespeople who sell products directly to people in their community. These salespeople earn income based on their personal sales, as well as the sales of people they recruit to work for the company.

While critics accuse multilevel marketing companies of being pyramid schemes, the Federal Trade Commission says that a company only qualifies as a pyramid scheme if its salespeople are paid primarily on the basis of recruitment, as opposed to the sale of a retail product or service.

Herbalife dietary supplement, Avon, Amway, P90X workout system. Are they worthwhile products? Or are they hyped, overpriced or worse than the same stuff you can buy cheaper directly? I’m skeptical they are worth it. When profit comes via other means (like convincing others to sell it instead of BUY IT), then the product quality is secondary.

Herbalife has detractors for decades clearly establishing that their premise of the products are not good nutrition, and do not do anything worthwhile for diet and health.

Avon has a few iconic products but quality is generally NOT better than those brands you find in the store. Amway products are certainly overpriced in order to give the seller a tidy profit. Some multi-level marketing companies are CERTAINLY pushing nonsense products.

This article notes that this type of business venture is becoming more popular due to economic times. There is every reason to believe that you will NOT get your money’s worth out of this, only a few do. And to be successful take a lot of work and, in reality, are not about selling a product you believe in but amassing a troop of subsidiary sellers who do work for you. It’s not a good deal.

More: Hedge fund manager Bill Ackman says Herbalife is a scam and is shorting the company’s stock

I’m looking for examples. What are some good ones? Please provide links if you can.

Tip: Jim Lippard

  13 comments for “Multi-level marketing, an all-around bad deal

  1. Chris Howard
    January 10, 2013 at 10:40 AM

    Isn’t capitalism the ultimate pyramid scheme? ;-)

    • Mr. Shreck
      January 10, 2013 at 11:42 AM

      No, but there are critiques that Social Security is.

      • November 22, 2013 at 7:50 PM

        I think that’s Ponzi scheme, to be more precise. ;-)

  2. Mr. Shreck
    January 10, 2013 at 11:45 AM

    When the fellow walks up to me with a wink and says “You look like a sharp guy…” I know to run screaming.

    That said, I recall the Tupperware, Pampered Chef, and Avon parties my mom used to participate in, and there was a social aspect to those that arguably offsets the simple cost vs. traditional retail consideration if quality is comparable.

  3. Stevarious
    January 10, 2013 at 12:38 PM

    “This is not – I repeat, not! – a multi-level marketing program. This is an ALL NEW program to bring products to market that works on multiple levels!

    (If the previous statement just insulted your intelligence, please change the channel now.)”

    - Howard Taylor

  4. One Eyed Jack
    January 10, 2013 at 5:20 PM

    The important distinction is cited “While critics accuse multilevel marketing companies of being pyramid schemes, the Federal Trade Commission says that a company only qualifies as a pyramid scheme if its salespeople are paid primarily on the basis of recruitment, as opposed to the sale of a retail product or service.”

    While I don’t know about P90X, I am somewhat familiar with Avon, Amway, and Herbalife. Although success in these companies requires recruiting to build your sales force, ultimately the majority of revenue comes from product sales, not recruitment.

    Whether you think the products have value is not a factor in examining their sales structure. It is a pyramid structure, but not in the realm of a ponzi-type pyramid.

    The value of the product is a separate question.

    • January 10, 2013 at 5:40 PM

      Thus my point about the crappy products. Have you ever used Amway stuff? Junky.

      • One Eyed Jack
        January 10, 2013 at 6:16 PM

        Agreed. :)

    • Andrew
      January 11, 2013 at 3:51 AM

      “While I don’t know about P90X, I am somewhat familiar with Avon, Amway, and Herbalife. Although success in these companies requires recruiting to build your sales force, ultimately the majority of revenue comes from product sales, not recruitment.”

      That’s a bit of circular reasoning though, isn’t it? We’re not talking a traditional brick and mortar store. The products only sell when there are recruits out on the street pushing it. The more recruits pushing the product, the more product will be sold.

      What would happen if recruitment wasn’t allowed? Would sales figures climb, remain steady or fall off?

      • One Eyed Jack
        January 11, 2013 at 7:34 PM

        I don’t understand your point. My point is that the revenue comes from sales, not the pockets of the recruits.

        There’s nothing wrong with not being a brick and mortar POS company. The only problem is if the company revenue is primarily from recruiting and not product sales.

  5. January 30, 2013 at 3:17 PM

    Work-from-home schemes are pretty big scams going on now, just do a youtube search and you will find many videos touting claims of making huge money but once looked into further you must recruit others. They even have flow charts. Sorry no links.

    For the previously mentioned is capitalism a pyramid scheme, I think the confusion is that corporations are similar to pyramid schemes. One begins on the bottom and works their way up to the top. If you are at the top then you make 33% more than those on the bottom, or instead you spend the extra money pay for an education and get recruited into the middle. They still need the bottom feeders to do all the dirty work, make all the sale, and continue the customer service but you get all the glory for ‘running’ things. True story.

  6. wyrdwyrd
    November 25, 2013 at 12:50 PM

    Leave us not get confused or off topic. I am not going to get into “capitalism in general har har” because to do so would be to make MLMs appear to be on an equivalent level with “capitalism in general”… and that’s simply not the case.

    Sharon, you asked for examples. The Salty Droid has examples.

    This article
    http://saltydroid.info/herbalife-profit-and-loss/
    links to this pdf of a (I believe class action) case
    http://saltydroid.info/wp-content/uploads/2013/09/Herbalife-Newest-Way-To-Wealth-Complaint.pdf
    against Herbalife for misrepresentation.

    A lot of middle class families lost *a lot* of money in a short amount of time.

    I have no idea as to the current status of the case. A win is certainly *not* guaranteed even though it should be.

    MLMs are basically pyramid schemes with window dressing put on them to make them look legit. The lame products and the very over complicated compensation plans allow the MLM to appear to mostly just be selling products when in reality it’s all about recruitment. One more bit (this is important) is the side-ventures. There will always be a few people at the top of the pyramid of course. So some or all of those folks run their own side “businesses” in which they sell gobs of info-products on how “you can too” etc.

    This side venture aspect is handy because that way if the authorities actually wake up, decide to care, and attempt to crack down, the mother MLM can just disown those naughty top distributors or at least wag a finger at them saying “no no–don’t do that.”

    One may wonder “how do people fall for this sort of thing?” The answer is: they get you when you are vulnerable. Also the answer is: most people don’t notice just how insidious this stuff really is. From the outside, it doesn’t *look* so bad.

    But try seeing it from the inside (link below)

    http://saltydroid.info/confesstimonial-collateral-damage/

    Yes, yes–anecdotal does not equal evidence. Personal stories can sometimes be useful though. In this case, IMHO, one person’s account gives a good explanation for why this stuff is so very, very pervasive. Note the person didn’t give a real name. Why is that? Well.. real names have real consequences. Sometimes, and kind of frequently including being sued.

    I’m kind of passionate about this topic. My apologies if I seem too not-neutral or whatever. I personally feel that MLMs and scams in general are run amok and that they do a lot more harm than is commonly known/noticed.

    Thanks for reading this.


    Furry cows moo and decompress.

  7. WMcCreery
    January 8, 2014 at 12:38 PM

    Wasn’t there a Tea party nut that was into the P90X?

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