Business Opportunities: Who Doesn’t Love? Especially with the advent of social media, one business opportunity after another is thrown at you. Sometimes they are actually very nice opportunities, but sometimes you are fooled. This is the case, for example, with Multi-Level Marketing.
Multi-level marketing is a business model in which sellers can be rewarded by selling products, but also by introducing new sellers. Although this sounds like a great form of marketing at first glance, and sometimes it is, there are certainly problems with this model.
But what exactly is multi-level marketing? Why is it dangerous and what are its risks? How do you recognize MLM? And what are some well-known examples inside and outside the crypto world? Get answers to those questions and more today. Let’s get started quickly!
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- What is Multi Level Marketing?
- Why is Multi-Level Marketing Dangerous?
- How do you recognize Multi-Level Marketing?
- Well-known examples of Multi-Level Marketing
- A good example: Amway
- A bad example: LuLaRoe
- A bad example: Rodan + Fields
- A bad example: Herbalife
- Example MLM within crypto: BitConnect
- Conclusion
John Oliver already covered the subject, multi-level marketing, extensively in his television program. Very interesting:
What is Multi Level Marketing?
Multi-level marketing, also known as network marketing, is a business model in which sellers can earn their income by selling products or by recruiting new sellers . Multi-level marketing uses a personal relationship between buyer and seller. It is therefore unusual for you to order on your own from a brand that uses network marketing. Instead, you are often approached by a salesperson of such a company.
A seller of such a company can therefore earn their income in 2 ways: 1) by selling the products of the company they are employed for, and 2) by recruiting new sellers for the company, because they then receive a commission . What they are also allowed to do is resell products to other sellers so that they can resell them again. They may also sell the products themselves at a discount to buyers.
Basically, this doesn’t sound so bad, you might think. That is in principle correct. A company employs salespeople to sell their product. That’s not necessarily different from a television ad, or a sponsored post from an influencer, right? This is basically correct. There are certainly companies that apply multi-level marketing, where this goes very well. So there is nothing wrong with this. However, multi-level marketing can cause problems .
Why is Multi-Level Marketing Dangerous?
One of those problems is that it can very quickly look like a pyramid scheme . A pyramid scheme, also known as a ponzi scheme, is a “business form” where “sellers” earn a commission for recruiting new sellers . This also happens in multi-level marketing. The problem with a ponzi scheme, however, is that this is the only way the sellers can actually earn a serious income. So they recruit people because they earn money from this themselves, while they actually know that the only way these people can actually earn is by recruiting new people.
In this way, a pyramid is created in which sellers keep creating a new layer of new ‘sellers’, who then do their best to create a new layer of ‘sellers’. You do understand that things will go wrong here. When you are at the top of the pyramid, you can actually make good money, because then you rake in the commissions that are earned everywhere. However, if you’re at the bottom somewhere, you’re screwed. It is becoming increasingly difficult to earn something there, while you often had to make an investment to become a seller in the first place. So you actually have to recruit people to earn back your investment in this way.
Where multi-level marketing is intended to become a new marketing channel within a company, you quickly run the risk of it becoming a pyramid scheme. These types of pyramid schemes also occur within crypto. So you have to watch out for this. But how do you recognize such a wrong multi-level marketing model?
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How do you recognize Multi-Level Marketing?
So getting involved in a multi-level marketing system can have detrimental consequences. You often have to make an investment to become a part. At that moment you think you are making a good investment, but it may just be that you are working yourself into a complicated system. A system that you will later convince people to become a part of.
You’d better stay far away from such bad multi-level marketing. To be able to do this, you must of course know how to recognize them, but how do you do this? How do you spot a bad MLM so you can stay far away from it? There are several signs that show a company is a bad MLM:
- The company has no real product.
Often you will be approached by an employee of an MLM. If this person seems focused on “building a team,” or making statements like “you’re a perfect fit for us,” chances are they’re an MLM. The seller does not really sell a product, but tries to make you part of the team.
- Absurd claims about the product.
MLMs are often used in the health and wellness industry. When absurd claims such as ‘works wonders, all your gray hair suddenly gone’ are made about the product, there is a chance that it is an MLM. So watch out for this!
- ‘You have to buy a good stock’
Often you will be persuaded by the sellers of an MLM to buy a good stock of products so that you can “start selling well”.
There are many other signals that can warn you of the possibility that a company is a bad MLM. For example, it is also important to follow your gut. When you have a bad feeling about a company, it may just be that this feeling is right.
Well-known examples of Multi-Level Marketing
By now you know what Multi-Level Marketing is, but also how to recognize such an MLM. However, you will understand all this even better when you have also seen some examples of MLMs. So now let’s look at some examples. We look at both bad and good examples.
A good example: Amway
Amway is a company that sells food and beauty products and works according to the principles of MLM. However, the focus of Amway’s sellers is entirely on selling the products. The employees do not work for a salary, but purely on the basis of the number of products they sell.
The company was founded in 1959 in the United States and it costs $100 a year to become a seller with Amway. Amway has an annual turnover of $8.8 billion, purely in product sales.
We don’t have much to tell you about a company like Amway, a company that makes good use of MLM. It is simply a company that uses a certain marketing strategy, which of course, if executed properly, there is nothing wrong with it .
A bad example: LuLaRoe
A bad example of a company using multi-level marketing is LuLaRoe. LuLaRoe is a company that sells casual wear for women. Their slogan is: “ Creating Freedom Through Fashion ”, as can be found on their website. It would therefore be their goal to offer women the chance for (financial) freedom through their fashion.
However, to become a sales clerk at LuLaRoe, women must pay a start-up fee of as much as $6,000 . In order to get the chance for this financial freedom, the women have to hand in several monthly salaries before they even have the chance to earn their first cent.
If you do decide to do this, you can’t even choose what kind of clothing you’re going to sell. You just get a package that you have to sell. So you have no input in this yourself.
The company now has several lawsuits to deal with after thousands of women filed complaints. These women call the company a scam .
A bad example: Rodan + Fields
Rodan + Fields is another company that still exists, but of which there are many complaints about the company using the multi-level marketing method in the wrong ways. Rodan + Fields is a skincare company that was founded in 2007.
The company promises a wonderful life for people who join them as a salesperson . They could have a lucrative but flexible career at Rodan + Fields . They would get free vacations and could earn ‘6 figures’ ($100,000 or more) without too much effort . All they should be doing is promoting Rodan + Fields products to people so that they are sold.
However, Rodan + Fields is also currently involved in a number of lawsuits . The most important of these is the lawsuit regarding their product the Lash Boost. This product would be falsely promoted. The product has many side effects. For example, your iris color could change and your eyes could start to itch, for example. However, nothing was said about this on the packaging or anything like that. Everything goes wrong with this company.
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A bad example: Herbalife
Another company that often comes under fire for being a pyramid scheme is Herbalife. Herbalife is a well-known company that deals with nutritional supplements, such as meal replacements. The company is even listed on the stock exchange, but is still under fire.
Herbalife was never officially called a pyramid scheme by a court or other official party, but it is certainly accused of being such by ex-employees, for example. It’s so bad that the Federal Trade Commission, a US government agency that protects consumers from monopolistic companies, for example, has compensated as many as 350,000 people who lost money as sellers for Herbalife. This is one of the largest actions the agency has ever taken .
It has also been the case for a long time at Herbalife that the majority of sales came from new salespeople being recruited, rather than products being sold. A clear signal of being a pyramid scheme of course.
Example MLM within crypto: BitConnect
The best-known example of what appears to be multi-level marketing within crypto is BitConnect. BitConnect, was an open-source cryptocurrency , associated with a high-yield investment program , that was founded in 2016 and was taken offline in 2018.
If you were to invest in BitConnect, you could lock it into the platform and receive 1% per day . This would compound daily , allowing you to get bizarre returns on your investment. This attracted many investors. The token was released at a price of $0.17 and was worth a whopping $463 at its peak a year later.
However, it turned out to be too good to be true. The amounts that came in from new investors turned out to be used to pay the interest of existing investors . In this way the money moved up the pyramid and this was a certain ponzi scheme.
The lawsuits that followed revealed that BitConnect had defrauded their investors out of as much as $2 billion. The founder of BitConnect, Satish Kumbhani, should therefore be prosecuted for this, according to the Securities and Exchange Commission (SEC). If he came to the US, he would reportedly face up to 70 years in prison.
Conclusion
Multi-level marketing is basically just one of the many marketing methods that exist. In multi-level marketing, salespeople are recruited to promote the product directly to the customers. However, in addition to a commission that can be earned on the sale of a product, a commission can also be earned from recruiting a new seller.
A problem arises here. In this way, a real pyramid scheme can arise. Something that is not positive, and even illegal. Many companies, including a crypto company, have already been convicted of being a pyramid scheme.
However, it can also be a nice form of marketing. Hopefully today we taught you what multi-level marketing is, but also what its dangers are.
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