Everybody knows that pyramid schemes are illegal, and as a society we have accepted they are bad. Right? So why are so many people (including what seems like everyone I went to high school with) joining MLMs and starting network marketing ‘jobs’?
MLMs (or multi-level marketing schemes) are businesses in which you are a seller of a particular product (usually things such as vitamin tablets, jewelry, weight loss products, make-up, or skincare products), but you are also a recruiter of other members of the business. This is where the ethical problem of MLMs comes in. You will often see people selling and recruiting online, often appearing on Instagram stories or inviting you to Facebook groups.
Pyramid schemes are defined by the Federal Trade Commission as a company that promises ‘consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public.’ Simply put, you earn money by recruiting, not selling. Furthermore, ‘employees’ are often required to pay a fee to join the company which is then used to pay higher ranked members.
The main difference between a legitimate business model and a pyramid scheme is that in a legitimate business, the primary source of income is by selling products to customers outside of the business.
Many MLMs also require you to pay to enter the business. Scentsy, a company that sells wax products, has starter kits from £85 plus shipping. In this you receive sample products to help you begin selling. Avon offers a more affordable starter kit at £10 and one at £30, again paying for the product you are ‘employed’ to sell. Reminder: if you are paying, you are a customer – not an employee.
Another aspect of MLMs that seems eerily similar to pyramid schemes is the compensation plan. Almost all MLMs have this information on their website (and often a payment disclosure), which does make me question why people still buy into these schemes. Looking again at Scentsy their compensation plan uses lots of jargon such as ‘PRV’ and ‘Frontline SuperStar Consultant’. But it is clear that the only way for consultants to earn significant amounts of money (as is promised when they join up) they must recruit a downline. To qualify for the ‘lead consultant’ rank (and earn more commission) you must have recruited an active member, and to advance further you need more recruits in your downline. When you recruit people you can earn more ‘volume points’ and bonuses. Then as an upline consultant you are encouraged to have your recruits recruit more people, therefore promoting you further. Ultimately, what this means is that money is being made by recruiting members, not selling products to the customer. A defining feature of a pyramid scheme.
As recruiting is the most important part of network marketing, consultants will do nearly anything to encourage you to join. One such is online recruitment; you will often see this on Instagram stories, Facebook groups, and all types of social media. They often use language such as ‘do you want to earn money from your phone’ or ‘anyone can do it’. This is designed to make you feel that joining the MLM will enable you to have a full time job selling and recruiting. Whilst most of this recruitment is mostly harmless and is worth little more consideration than a little chuckle before moving (swiftly) on, there is also a very insidious side of this. Valerie Lysakowski told Refinery-29 the story of how a college friend tried to recruit her despite Lysakowski explaining that selling weight loss supplements would be detrimental to her eating disorder recovery. She found that despite her concerns her friend continued to pressure her into joining; eventually Lysakowski ended her friendship to protect her own mental health. There are numerous similar stories of people who have lost friends and have developed strained relationships with family due to being ‘too deep’ in their MLM.
As well as damaging the personal relationships of consultants in their quest to recruit everyone in their contacts, MLMs have been proven to significantly affect women and people of colour in low socio-economic communities. With 74% of MLM sellers being women, and 20% being of Hispanic origin, Time suggests that MLM deliberately target “economically vulnerable communities”, as they are more likely to be tempted by the big promises and get-rich-quick ‘guarantee’. The Chicago Tribune says that MLMs are particularly attractive to women as they are typically underpaid in most industries or are underappreciated as stay-at-home mothers. They often also target the fears that women have about weight gain, aging signs, and loneliness.
As well as the terrifying recruitment methods and the targeting of people who are vulnerable, the products themselves often leave something to be desired. Sometimes the products are nothing more than expensive placebos; however, other companies have received some exceptionally damning reviews. Monet, an MLM that sells hair ‘care’ products, has been to civil court numerous times over accusations that their products cause hair loss and scalp burning.
In conclusion, MLMs and other network marketing companies are little more than a rebranding of pyramid schemes. The FTC says that only 1% of people who participate in them will make any profit. Scentsy consultants in 2020 who were with the company for the full 12 months earned an average of £1106 – this is significantly lower than the highest earner at £268,654. They take advantage of women, vulnerable people, fears of failure, and currently the COVID-19 pandemic. If you are considering joining an MLM I would highly recommend doing a lot of research into what you are actually being paid for. Furthermore, we should all be having conversations with our friends and others about pyramid schemes and help them to make good and ethical decisions.
Below you can access the sources I used in this article but I would also recommend watching John Oliver’s segment on Multi Level Marketing which puts lots of information into an easily consumable and understandable video.
But today, on International Women’s Day, stop supporting systems that intentionally target vulnerable women but preying on their insecurities and loyalties.
Federal Trade Commission: https://www.ftc.gov/public-statements/1998/05/pyramid-schemes, https://www.consumer.ftc.gov/articles/0065-multi-level-marketing-businesses-and-pyramid-schemes
scentsy.com: https://imagelive.scentsy.com/cmsimages/files/Join/Income-Disclosure/2021/021521/R2-UKEN-2020-IncomeDisclosureStatement-Final.pdf, https://imagelive.scentsy.com/cmsimages/files/Join/Compensation-Plan/R2-CompensationPlan-UKIE.pdf
The Chicago Tribune: https://www.chicagotribune.com/business/ct-biz-mlm-female-friendship-costs-20190122-story.html