The Modern Pyramid Scheme

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Network marketing methods are characterized by a low open venture capital and the prospect to vend a commodity straight to acquaintances, family, and other individual associates. Moreover, most of such programs require members to recruit other salespeople (“Network Marketing”). That being said, MLM is associated with problems, such as market saturation, pyramid structure, morality and ethics, and relationship issues.

Submitted: December 13, 2016

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Submitted: December 13, 2016

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Multi-level marketing is an approach employed by direct sales companies in encouraging their existing merchants to enlist new distributors by giving them a fraction of their recruits' vending. All distributors earn through direct sales of goods to consumers. An example of an MLM(Multi-level marketing) is World Financial Group (WFG), an American multi-level marketing business which sells investment, insurance, and various other financial products through a network of distributors in the United States, Canada, and Puerto Rico. (Bloomberg)  Besides World Financial Group, Herbalife International is an American multi-level marketing company that makes and sells diet supplements and personal-care products in 95 countries (as of July 2015) through a network of approximately 3.2 million independent distributors. (HLAR)

Network marketing methods are characterized by a low open venture capital and the prospect to vend a commodity straight to acquaintances, family, and other individual associates. Moreover, most of such programs require members to recruit other salespeople (“Network Marketing”). That being said, MLM is associated with problems, such as market saturation, pyramid structure, morality and ethics, and relationship issues.

Market Saturation

To start with, the MLM practice is primarily impaired. It is worth noting that all goods and services have restricted market infiltration. For instance, if an enterprise opts to sell in such a way, it will ultimately employ a lot of people. As a result, the control system will involve unavoidable losses and subsequently lead to a bad image to the firm after its decline. Apart from restricted market infiltration, MLMs resemble pyramid schemes in which the structure creates false confidence in their idea by digression of thought. Accordingly, the victim receives an assertion in a false plan and in return, the culprit acquire their reward. During this process, a parallel scheme of motivational talks and videos are produced, thereby further exploiting the recruits. In other words, MLMs gain by luring recruits into accepting their proposal and thereby obtaining the recruits’ “negligible membership fee”. Furthermore, they make additional earnings by deceiving these unfortunate victims as the recruits nose-dive through the sale of the products upon themselves and others. (Vandruff)

Morality and Ethics

Other than market saturation, multi-level marketing schemes face the challenge of morality and ethics. In their marketing, MLM brochures and videos are cheap and discernible. Moreover, they allure depicting greed and materialism, which raises questions as to why they will not focus on the goods, services, or their target market in these adverts. They are aware of the fact that “when the eyes gloss over in a materialistic glaze, common sense is a stranger”. (Vandruff)

Generally, all businesses are obliged to have control over the way they portray themselves to the public; thus, an MLM has the right and obligation to dictate what material is used. Otherwise, any vendor could say anything they liked about the features of the firm, thereby causing problems. Moreover, it would take a lot of time to audit and commend each person's idea for a staging where the main objective is mass publicizing. As a result, the MLM reputation is upheld by the company- ratified video, pamphlet, or exhibition outline. Herbalife for example has run into morality and ethical issues continuously and in the past couple years has been under fire from the Federal Trade Commission(FTC) due to many allegations and complaints associating their company being akin to a pyramid scheme. Just recently in July 2016 did Herbalife come to an agreement to pay a settlement of $200 million to the FTC. Many were unsatisfied with the result due to the lack of change within the workings of Herbalife besides the settlement payout and even associating the result of the lawsuit to Herbalife being too “rich” to take down. If anything the lawsuit was a triumph for Herbalife as seen by their stock prices skyrocketing afterwards. (Bloomberg)

Pyramid schemes are prohibited because they are manipulative and deceitful. They take advantage of vulnerable individuals who include the desperate, the unemployed, and the uninformed (D. Vandruff and L. Vandruff). MLMs are similar to such schemes; however, in theirs, products for cover-up are included, thereby luring people to fall into their trap.

Furthermore, ethical conflicts are norms in the mind of the distributor. They will do anything possible to earn the huge commissions that are held out to new recruits. By doing that, they are forced to recruit people using convincing projections. Such prospectuses lead them into believing that they too can achieve what the distributors claim to have attained or are on the road to reaching them. For them to obtain the income, the money will have to come from somewhere. In MLM it will come from purchases of downline distributors since few products are sold to non-distributors. Moreover, they are obliged to continue insisting that MLM strategies are not illegal pyramid schemes but genuine direct marketing programs.

Relationship Issues

In addition to market saturation, morality, and ethics, multi-level marketing strategies experience relationship problems as well. MLMs expand by taking advantage of people's relations. Meanwhile, they do not make the bulk of their money from selling products to the public; however, goods are brought in incidentally to make the business appear authentic. They make their profits by selling hefty sign-up fees to the new recruits who, in most cases, tend to be close acquaintances of the one recruiting them. Basically, a person’s job does not rely on selling the products; on the contrary, it is to recruit their friends, trap them if it necessitates, take them to the meetings, and let the “seniors” lie about what their allies should expect (Taylor 4). Consequently, MLM has considerably contributed to ruining treasured relationships with no remorse or conscience. Undoubtedly, MLMs turn the neighborhoods into a marketplace. As a result, relationships are significantly affected as neighbors turn to foes rivalry prevails. Thereafter, the consequences are irreversible. That is why, before indulging in the aspect of the MLM, one should reflect and broadly think about the value of acquaintances, family, society, and the other people who are close to them.

Conclusion

In conclusion, it is worth noting that MLM is often coupled with personal development and financial wellness. Accordingly, many individuals acquire confidence and ascertain precious networking experiences by actively being engaged. However, if one is involved in MLM or is presented with a chance, they should consider all the information discussed and use their cognizance to choose the value of the opportunity, whether to fall for it or not. Apparently, a conscious individual would not get involved in multi-level marketing platform based companies.

 

Work Cited

“Network Marketing”. Entrepreneur. Entrepreneur Media, Inc., n.d. Web. 30 Mar. 2015.

Taylor, Jon M. "The Case (for and) against Multi-lLevel Marketing." Consumer Awareness Institute, Bountiful (2011). Print.

Vandruff, Dean, and Laura Vandruff. “What's Wrong With Multi-Level Marketing?” Dean and Laura Vandruff. N.p, n.d. Web. 30 Mar. 2015.

"Herbalife Forced to Retool After FTC Review Sought by Ackman." Bloomberg.com. Bloomberg, 15 July 2016. Web. 19 July 2016.

Puzzanghera, Jim, and Melody Petersen. "Herbalife Agrees to Pay $200-million Settlement and Change Its Business Practices." Los Angeles Times. Los Angeles Times, 15 July 2016. Web. 19 July 2016.

"Herbalife 2012 Annual Report - Form 10-K - February 19, 2013". Herbalife. Retrieved 2013-04-11.

"Aegon in Missouri Provokes Regulators Finding Sales Deceptions". Bloomberg. May 28, 2008.


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