by Robert L. FitzPatrick
The multi-level marketing (MLM) field grows and its member companies multiply. Solicitations to join the movement seem to be everywhere. The impression accordingly grows that it is indeed the "wave of the future", a business model that is gaining momentum, growing in acceptance and legitimacy and, as its promoters claim, willeventually replace most other forms of marketing and sales. Many are led to believe the assertions that success can be found by anyone who faithfully believes in the system and steadfastly adheres to its methods and that, eventually, all of us will become MLM distributors.
My analysis of the MLM business is based upon fourteen years experience in corporate consulting specifically in thedistribution field and more than 10 years of research and writing about the MLM model. This has included serving as expert witness in state and federal court cases, corresponding directly with more than 1,500 participants, writing a book, being interviewed for local and national radio, television, newspapers and magazines, and carefully studying numerous MLM marketing and pay plans.
This research hasshown that the MLM business model, as it is practiced by most companies, is a marketplace hoax. In those cases, the business is primarily a scheme to continuously enroll distributors and little product is ever retailed to consumers who are not also enrolled as distributors.
In general, MLM industry claims of distributor income potential, its descriptions of the 'network' business model and itsprophecies of a reigning destiny in product distribution have as much validity in business as UFO sightings do in the realm of science.
Financially, the odds for an individual to achieve financial success under those circumstances rival the odds of winning at the tables in Las Vegas.
The very legality of the MLM system rests tenuously upon a single 1979 ruling on one company. The guidelinesfor legality that are set forth in that ruling are routinely ignored by the industry. Lack of governing legislation or oversight by any designated authority also enables the industry to endure despite occasional prosecutions by state Attorneys General or the FTC.
MLM is not defined and regulated like, for instance, franchises are. MLMs can be established without federal or state approval.There is no federal law specifically against pyramid schemes. Many state anti-pyramid statutes are vague or weak. State or federal regulation usually involves first proving that the company is a pyramid scheme. This process can take years and by then, the damage to consumers is done. Indeed, even when MLM pyramids are shut down, often the promoters immediately set up new companies under new names andresume scamming the public.
MLM's economic score card is characterized by massive failure rates and financial losses for millions of consumers. Its structure in which positions on an endless sales chain are purchased by selling or buying goods is mathematically unsustainable and its system of allowing unlimited numbers of distributors in any market area is inherently unstable.
MLM's espousedcore business - personal retailing - is contrary to trends in communication technology, cost-effective distribution, and consumer buying preferences. The retailing activity is, in reality, only a pretext for the actual core business - enrolling investors in pyramid organizations that promise exponential income growth.
As in all pyramid schemes, the incomes of those distributors at the top andthe profits to the sponsoring corporations come from a continuous influx of new investors at the bottom. Viewed superficially in terms of company profits and the wealth of an elite group at the pinnacle of the MLM industry, the model can appear viable to the uninformed, just as all pyramid schemes do before they collapse or are exposed by authorities.
Deceptive marketing that ably plays upon...