Multilevel Marketing

Herbalife, Forever Living, Amway, eCosway. All of these multilevel marketing (MLM) companies promote themselves as great business opportunities – invest a small amount of money to register as a distributor and set up your own business! Earn profit from the products you sell, sometimes even without having to purchase the goods yourself. Recruit more people and get a cut of their commission too! The companies have turnovers of many billions of dollars a year. Sounds great, doesn’t it? But is there more to them than meets the eye?

What are the products?

No, there is no way to tell if these two photos are of the same person. I strongly suspect they aren’t.

With many MLM companies, the products sold tend to be nutritional supplements, weight loss products and herbal medicines. For example, Forever Living sells aloe vera gel, a 9 day “detox” weight loss pack, bee pollen products and other supplements.

Straight away, we have many problems to deal with. Detox is a wholly bogus idea. Sense about Science have produced an excellent dossier on detox, explaining why it’s such a fraudulent idea. Simply put, our kidneys and liver already do a great job at detoxifying the body and most detox kits don’t even state what they’re going to allegedly detoxify. Just vague “toxins”, whatever that might mean.

A large number of Forever Living’s products are sold with medical claims on their website. These are small claims such as “boosts circulation” and “boosts the immune system”, but claims nonetheless. They leave the making of bigger claims, such as direct claims to be able to treat and cure named medical conditions, to their distributors, moving much of the risk to the distributors.

A long list of unverifiable claims

A couple of my friends have recently, unfortunately, signed up to become Forever Living distributors as part of a team. Inevitably, my Facebook timeline became clogged with adverts for the many gels, pills and weight loss products they’re trying to sell. Their team leader runs a Facebook page which contains claims that the products can treat named medical conditions ranging from IBS to arthritis. They’re all ridiculous claims. Many of the weight loss advertisements don’t even appear to use the same two people in the before and after comparison shots. After researching the ingredients, as I suspected, there’s very little to no evidence to back up the claims being made. For example, there is evidence that aloe vera is an effective laxative and some studies have suggested that it may help burns, but there’s no evidence it’s effective for any other use. A few more of my friends went to an informal seminar, in a coffee shop, by this team leader in which it was strongly implied the products can treat even more serious medical conditions such as paralysis and cancer.

It’s hard for me to emphasise just how wrong this is. It’s illegal to promote a treatment for cancer, under the Cancer Act 1939 s4. 1a which states “No person shall take any part in the publication of any advertisement containing an offer to treat any person for cancer, or to prescribe any remedy therefor, or to give any advice in connection with the treatment thereof…” The only exception is when the advertisement is published in a technical journal aimed at medical professionals.

I wanted to find out for certain if these products had any sort of marketing approval, as medicine law is fairly complex. I put in a Freedom of Information request to the Medicines and Healthcare Regulatory Agency (MHRA) to find out what information they held on Forever Living’s products (whether they’re licensed in any way, if they’re allowed to be sold with claims that imply effectiveness in treating a condition etc.). They responded telling me “There are no current Marketing Authorisations in the UK for products under the Forever Living brand, according to our licensing records. These products would not be able to make medicinal claims.”

And yet, they and their distributors do anyway.

The problem with multilevel marketing

Multilevel marketing companies often advertise becoming a distributor as great business opportunities, as if you’re becoming a self-sufficient business person. This isn’t really true. You have the main company who provides the products and then you have distributors. As I mentioned before, to become a distributor, you often “invest” a small amount of money and receive some products to sell or an online store front with your name on it. After this, you continue to sell products and are pushed to recruit more distributors. You then get a cut of their money. They recruit people; you get a cut of the new person’s money as well. You’re encouraged to recruit more and more people to set up a “down-line”. This set up is unsustainable for a number of reasons.

First and most obviously, there is a finite number of people in the world. If each distributor recruits ten people, just six levels down gives you a million distributors – over three times the population of Cardiff! Having more and more sellers is beneficial for the main company as any sales distributors make, the company profits from. Theoretically, the more sellers, the more sales are made. If a distributor even sells just one or two items to their friends and family, for the main company, it all adds up. The distributors don’t benefit though, as they’re not recouping their initial cost.

Besides that, there will be no more room for expansion. Ten levels down and you have 10,000,000,000 people, about 3,000,000,000 more people than there are in the world today. And that’s not considering that many of the remaining 7,000,000,000 won’t want to be part of the company or can’t be part of the company because they’re too young or already have a job etc.

This ignores the even bigger problem that there’s nobody to sell to. When the main focus of MLMs for distributors is recruiting more people, there’s a problem. Eventually, the pyramid will collapse and only those on the top will profit. When there is unlimited recruiting, the supply of products inevitably and invariably outweighs the demand.

Given the above, it’s perhaps unsurprising if not downright obvious that MLM companies have been compared to, or straight out called pyramid schemes. Bill Ackman, a billionaire hedge fund manager, has famously rallied against Herbalife, explicitly referring to it as “the best-managed pyramid scheme in the history of the world.”  He argued, using calculations he published and presented in December 2012, that most of the money paid to distributors is payment for recruiting new distributors. For this reason, he’s called on the Federal Trade Commission in the US to investigate Herbalife. He also stated that if the FTC did investigate and found in Herbalife’s favour, he would lobby Congress to change the law, in the hopes of ensuring that Herbalife would not be able to continue to operate. The Commercial Court in Belgium agreed with Ackman’s assertions as they ruled that Herbalife is an illegal pyramid scheme, in a judgment in the case of Test-Aankoop v Herbalife International Belgium in November 2011.

Outlandish claims about potential earnings

In the current job market, it’s not surprising that people will want to work for a company that provides them a guaranteed job. But expectations need to be managed. In the vast majority of cases, working as a distributor for an MLM company won’t provide people with anywhere near enough money to live on. According to a publication called Business Students Focus on Ethics, the average annual income for MLM members is US $5,000, while USA Today have published an article in which the Direct Selling Association has stated the median annual income is as low as US $2,400. The costBill Ackman also pointed out that less than 1% of people who join Herbalife will ever join the “Millionaires Team”, distributors who have earned over $100,000 from Herbalife in their lifetime.

These figures don’t really surprise me, given the problems outlined above with market saturation, trouble recruiting more people and the impossibility of actually convincing people they need these products. When you’re constantly hard selling to friends and family, you’re going to end up annoying them. This doesn’t stop distributors from making outlandish claims about potential earnings, however. The need to set up a “down-line” ensures ridiculous adverts will continue to be published online in the hopes of recruiting equally desperate people.

The problems with multilevel marketing companies are numerous, from their doomed-by-design infinite expansion set up and the fact that they mostly sell useless products. Multilevel marketing is an unsustainable, exploitative idea that unfortunately hasn’t been stamped out yet. Raising public awareness to these problems is a vital step to take to ensure fewer people are exploited and protect them from harm. These schemes need to be examined with much more skepticism in all that they do.

36 Responses to “Multilevel Marketing”

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