Common Misrepresentations by Recruiting MLMs

mlm-scheme-pyramidThe lies that multi-level marketing recruiters use to con people into signing up for their scams change little from company to company. Dr. Jon Taylor, a noted expert on MLMs, put together a list of common misrepresentations (found in Chapter 8), and here are some of my favorites.

I bet all of us have heard most of these at one time or another in our Mary Kay experiences, either when we were being recruited or when others were being sucked into the pink vortex…

Presented as a great “income opportunity,” with huge incomes reported for many.

Recruiting MLM’s nearly always lead to certain loss for new recruits. A few are at the top of a pyramid of participants are enriched at the expense of a multitude of downline participants, about 99% of whom lose money.

“Everyone can do this” – and earn a good income.

Holding up top earners as examples of what others can do is deceptive. It is unfair to sell tickets when – for nearly everyone – the ship has left the port.

Average earnings statements on official reports make MLMs appear highly profitable.

Reports of average incomes are full of deceptions – (Example – 20 on one page for Nu Skin’s report of “Actual Average Incomes.” See “Report of Violations” of the FTC Order for Nu Skin to cease misrepresenting earnings of distributors.)

Products can be resold at retail prices for a handsome profit.

Products are high priced and sold primarily to recruits to “do the business,” rather than to persons outside the network of participants.

Presented as a legitimate business – “not a pyramid scheme.”

Product-based pyramid schemes have been found to be the most extreme of all the types of pyramid schemes, with the highest loss rates (approximately 99 %) – far worse than for no-product schemes, or even than most games of chance in casinos.

Work for only an hour or two a day, and build up a “residual income” that will allow you the “time freedom” to quit your job and spend more time with your family or do whatever you want.

To profit at a recruiting MLM, one must work long hours and be willing to continue to recruit to replace dropouts. One must also be willing to deceive large numbers of recruits into believing it is a legitimate income opportunity. Recruits are only fattening their upline’s commissions. And is there anything immoral about hard work for honest rewards?

“The job market is not secure.” The stock market is even shakier. MLM offers a much more secure and permanent (residual) income.”

MLM is far more risky than either the stock market or the job market. It even makes gambling look like a safe investment by comparison. Residual income for almost all MLM recruits is a myth.

Standard jobs are not rewarded fairly. In MLM, you can set your own standard for earnings.

Fair? Most MLM compensation plans are weighted heavily towards those who got in early or scrambled to get to the top of a pyramid of participants.

“If not legal, the program would have been shut down long ago.” MLM’s have survived legal challenges. The fact that they are still around tells you they are legitimate.

Consumer protection officials are reactive, not proactive. Since victims rarely file complaints, law enforcement seldom acts against even the worst schemes. Victims don’t complain because they blame themselves, and they fear self-incrimination or consequences from or to their upline or downline.

If you fail at this program, it is because you failed to properly “work the system.”

The system itself is inherently flawed – an endless chain recruitment of participants as primary customers. The vast majority will always lose money.

“In any business, one must invest time and money to be successful.” Like anything else, you can expect to get out of it what you put into it.

Independent research, supported by worldwide feedback, suggests that the more a person invests in an MLM in time, effort, and money, the more he/she loses – which is true of any scam. Committed MLM participants may continue investing thousands, and even tens of thousands of dollars, over many years before running out of money or giving up.
Conversely, in legitimate companies, sales persons are not expected to stock up on inventory or subscribe to monthly purchases. But in MLM, incentivized purchases (required to participate in commissions and/or advancement) are merely disguised or laundered investments in a pyramid scheme.

Average earnings statements on official reports make MLM’s appear highly profitable for participants. For example, one MLM company report of “actual income” of distributors may state that “.16% of active distributors have achieved the level of Blue Diamond,” whose average earnings exceed $500,000 a year.

This is a mathematical trick MLM promoters play on unsophisticated recruits. MLM reports of average income of participants are full of such deceptions. When statistics are presented without deception, the “opportunity” is not so attractive. The “.16%” is 0.16% – or0.0016 (dropping the % symbol). This is equivalent to odds of one in 625. And for statistical integrity, ALL who signed up as distributors should be factored in, but MLMs eliminate dropouts in their statistics – a huge deception. With less than 10% remaining after five years (the minimum time those at the top in the pyramid have been in the scheme), the number should be reduced by at least 90%. This leaves odds of 0.00016 of reaching the top level where the money is made, or odds of 1 in 6,250! This looks far worse that “.16%” (See the book “How to Lie with Statistics.”)

MLM is the “wave of the future.” In fact, “Our MLM is experiencing phenomenal world-wide growth,” etc. “So get in on the ground floor of this great growth opportunity.”

MLM’rs have been saying this for twenty years, but MLM still accounts for less than ½ of 1% of consumer purchases – in spite of the fact that the number of MLM companies has numbered in the thousands. MLM’s come and go, as do new recruits, 99% of whom drop out. Long-term MLM growth is a myth.

Saturation – and the resultant market collapse – never happens with MLM. Many MLMs have been around for over 20 years, and the market is far from saturated, with less than 1% of all sales nationally coming from the MLM industry.

The issue is not TOTAL saturation as MLM apologists suggest, but MARKET saturation. In a town of 10,000 people, the notion of 10,000 distributors to serve them is absurd. Realistically, the MARKET could be saturated with 5 or 10 distributors. Each added distributor would reduce the opportunity for existing distributors, and resistance would build up for those who have been approached several times. In fact, market saturation occurs rather quickly. And the fact that such a small percentage of sales nationally are through MLM, after over 30 years of promising to be a major player, should tell you something. (Again, read the “5 Red Flags” – especially “The 8 Rs of MLM Durability” in the full report report cited above.)

In MLM, market collapse is manifested in CONTINUOUS COLLAPSE, meaning that the market is constantly collapsing, requiring continual recruitment to replace those continually dropping out at a very high rate. If the MLM could not find new recruits in new markets, or recycle through old markets with new generations of prospects, or with new products, it would collapse entirely.

“It takes time to build any business.” “This is not a get-rich-quick scheme, but a ‘get-rich-slow’ program.” “Don’t expect instant success,” etc.

MLM promoters sell recruits on their programs as a business, but defend it to authorities as a “direct selling” opportunity. However, In legitimate direct sales programs, sales persons earn commissions right away and don’t have to wait months or years for commissions to exceed expenses.

MLM is direct selling, which has a long history of independent selling by door-to-door selling and of selling to friends, neighbors, and family members. It is this person-to-person relationship selling that is one of its great strengths.

MLM should more properly be considered chain or pyramid selling, as few sales are made to customers outside its network of distributors. MLM promoters have sought legitimacy by joining the Direct Selling Association (DSA), which lobbies to promote the interests of MLM. It is like a farmer marching his pigs into a horse corral so he can sell them as horses to get a better price. He then advertises them as horses because they are in the horse corral. We should not accept an MLM as a legitimate direct selling company when compensation plans reward recruiting a downline far more than selling to non-participants – even if the MLM is a member of the DSA.

The demand for these MLM products are growing at a rapid rate. “They literally sell themselves.”

The sale of products is distributor-driven, not market driven. Most products are sold to new participants to get in on this “ground floor opportunity.”

In this new (MLM) program, you can be the master of your destiny.

You will be a slave to the phone, to meeting the qualifications for commissions and bonuses, and to continual pressure to recruit new participants to replace dropouts. You are also caught in a money trap of hyper-consumption.

Unlike franchises, business startups, or sales of existing businesses, you can start an MLM business with very little capital.

MLM’s typically bleed new recruits of their funds by inducing them to buy products on a subscription basis, to pay for ongoing training, and otherwise draining them of their resources until they run out of money or give up.

Our products are unique and consumable – perfect for repeat business.

MLM products are typically “potions and lotions.” The secret formulas are a cover for the fact that they are priced too high to compete in standard markets.

Products are less expensive through MLM because you cut out the middleman.

MLM creates thousands of middlemen, with few real customers outside a bloated network of “distributors” ( “agents,” “consultants,” “demonstrators,” etc.) And typically, they are very expensive; i.e., not competitively priced.

Build your business by duplication. Buy five of these “business in a box” packages now, sell them to five people, and ask each to do the same, etc. Be a “product of the products” by signing up for monthly shipment of these items. Soon you will be reaping huge commission checks.

This is how recruiting MLM’s earn fortunes for their top recruiters. Commissions from initial and ongoing purchases by new “distributors” (in hopes of profiting) is the life blood of their business. The promised rewards never come, except to those who recruit their way to the top of a pyramid of participants. Take away inducements for participant purchases, and these companies would fall like a house of cards.

Our “tools for success” are unbeatable. Sign up for our seminars and conferences, and buy our books and tapes to assure your success in this business.

In at least one major MLM, the “tools business” is a pyramid within a pyramid. Hardly anyone makes money selling products, so a lucrative source of income for those at the top is the sale of “success tools” to supposedly assure the success of their downline – who are in fact only further victimized when they buy these motivational items.

MLM is like insurance, investing, inventing, acting, and writing in that hard work at the outset yields residual income for the rest of your life. This is done be “leveraging” the efforts of your downline. So you can retire early, travel, etc.

MLM is more like gambling than legitimate residual income. It appeals to the “something for nothing” mentality. MLM addiction has been observed in some “true believers.” The large residual incomes reported are more the result of time of entry and willingness to deceive prospective recruits than of payoff for hard work. To succeed in MLM, one must leverage one’s deceptive recruiting through others who can be persuaded to do the same.

Jon M. Taylor, MBA, Ph.D.
President, Consumer Awareness Institute and Advisor, Pyramid Scheme Alert
E-mail: [email protected]
Web site for MLM research and guides – www.mlm-thetruth.com

 

18 Comments

  1. BestDecision

    It’s a complete lie that you can be on vacation, make that residual income, and not work it at all. For years, I would go on vacation, but my mind would still worry about how my production was doing, if I was losing speed on snaring new Consultant orders, if there were any fires I was missing (negativity of my unit members). You never are “off” in MK! Even the Top Director Trips are about reading self-help books, comparing notes with other Directors, and business meetings. We were shunned and scolded if we were actually reading something other than what was good for our minds, and TV was never a conversation topic. Sure, I’d always have customer orders waiting on me when I returned, but you could never let go of the reins. And you’d never think of being gone in June.

    Which reminds me, it feels so good to be here on September 15 and not give a care about watching for Stars to finish. Or to put my last order in to finish my own.

  2. Iescaped

    You don’t step forward to complain that you were scammed, because not only are you embarrassed, but you realize that you have also done the scamming.

    How can you admit to your mother (who happens to be your best customer and 1st recruit) that MK is a scam, after you spent so much time convincing her it isn’t. And that burning feeling on her face just lets her know how well the products are working!!

    I think it would be far easier to admit that you sent a check to some lawyer at the Nigerian Consulate after finding out you were a long lost relative to some prince!:)

    1. Out of the Pink

      “You don’t step forward to complain that you were scammed, because not only are you embarrassed, but you realize that you have also done the scamming.”

      Powerful statement and what I’m experiencing right now. I sent my product back two weeks ago, and I am waiting for my refund check; but I have almost told no one that I am out permanently. I just feel embarrassed. I even sugar coated my reason for leaving to my own husband. He actually, ultimately said “ok” when I “invested” $2,800 in this scam, but I know his spidey senses were going off at the time due to the number/type of questions he asked my SD at “new consultant training.” I’ll give him the whole story once I get my refund and pay the rest of that debt back.

      I sneak-read Pink Truth almost every night or a couple times a week at least. This website has confirmed many of my early gut checks and opened my eyes in many ways. I’m just embarrassed I got in so far. “And that burning feeing on her face just lets her know how well the products are working!!!” Face palm. Ugh.

      1. BestDecision

        I felt so free when I shipped the last box to Dallas! I don’t know how you’re keeping it so low ley because it’s a big deal to recognize we made a bad choice and then do something about it. Instead of hiding your refund until it comes, why not let your husband in on it so he doesn’t go another day still thinking you’re in deep? Let him celebrate with you!

        And as for being embarrassed that we also “scammed” others, don’t. Your friends and family aren’t going to bring MK up any more than you do. I told mine I resigned and was out completely once, and they’ve not brought it up since.

        Freedom!!

        1. Out of the Pink

          Yeah! My husband knows I’m out and that I got a refund coming. I just haven’t told him about how ashamed I am about the MLM scam part of it. I guess I’m holding my breath until I see that money because I half expect them to try to scam me out or that too.

          1. Lazy Gardens

            I just haven’t told him about how ashamed I am about the MLM scam part of it.

            It’s a 50 year old con – they have had plenty of practice at scamming others and hiding the MLM part of it.

  3. raisinberry

    “Victims don’t complain because they blame themselves, and they fear self-incrimination or consequences from or to their upline or downline.”

    Just as Iescaped has stated, it was done to you and you did it to others…what a perfectly diabolical method to silence opposition. And as long as you continue to blame yourself rather than see it for what it is, you will carry the shame. Women who continue doing this to others, knowing they are lying about their own unit’s and personal business profitability, are predators, DESPERATE to suck new recruits in to stay afloat. It takes real courage to face your own fraud. Mary Kay’s “top 2%” have none.

  4. Lazy Gardens

    Work for only an hour or two a day, and build up a “residual income” that will allow you the “time freedom” to quit your job and spend more time with your family or do whatever you want.

    TRUE residual income does not require any ongoing effort. You do the original work and it keeps on coming in because the work is out there being sold or watched or read. Mostly performance or writing royalties.

    I still get payments for things I wrote several years ago. “Mikey” of cereal commercial fame worked for a couple of hours and was still getting residuals in college. The estate of the author of “Goodnight Moon” is still collecting from that book.

    And you know what? Residual income is like real property – you can assign it to someone else. Agatha Christie assigned the royalties from one play to her grandson on his 9th birthday. She’s dead, but the income keeps coming in.

    1. MLM Radar

      By the way, when they say “quit your job and collect enough residual income to retire early” the job they’re talking about quitting is NOT the MLM sales job. They’re talking about quitting the 9-5 job that’s taking time away from selling the MLM.

      “Collect residual income and retire” is a lie, too. The moment you go “inactive” in an MLM all that “residual income” stops.

  5. MLM Radar

    So many of these claims contradict each other.

    We have “phenomenal growth” and “20+ year history” and “handsome profits” and “products sell themselves” and “retire early,” but we also have “no market saturation” and “get rich slow” and “less than 1% of all sales” and “0.16% have achieved Blue Diamond.”

    Well, which is it? The 20+ year history is easy to verify. If this is so easy and profitable, why the warnings that you get rich slow? If there is such phenomenal growth, why after 20+ years of products selling themselves do you only have 1% of sales?

    What’s wrong with this picture? Lying by Omission. You’re only given enough “facts” to convince you to sign the agreement and buy inventory. If you saw all these claims at once, like you do here, you’d walk away and never look back.

  6. coralrose

    It said ” in at least 1 MLM the “tools business” is a MLM within a MLM” referring to selling business/ success tools. I wish the author named names there. I wonder if he. was talking about MK

    1. BestDecision

      There’s no way MK isn’t making a fortune off their sales force by more than just the product. Our car program, for example, made Cadillac Directors pay up to $900/month co-pay if they didn’t meet even half their production for the quarter. You can lease a loaded Cadillac for less than $900/month, so it was a cash cow for them.

      Then, you look at the company events. Close to $200/person to walk in the doors. Before you buy things at the Expo. You eat cold breakfast burritos or cereal in boxes in the morning, and your lunch is a manufactured mess of a box lunch. Cadillac dining is the SAME menu. When you earn one of the special luncheons, it is a step above that for an entree, but it was paid for by whatever means you took to qualify for it.

      MK makes a killing off every single member of their sales force. They’re not dumb, and they’re unethical as ever to tout God and pull that much cash from their believing and achieving sales force.

    2. MLM Radar

      I mentioned a tools MLM before. It wasn’t Mary Kay. It was an MLM whose product was “how to succeed” motivational books, training videos and audios, mailing labels and email lists (you subscribed to those), and similar worthless stuff. It was the only MLM I’d ever seen which had a real potential end-user market: people who were desperate to “find a way, make a way.”

      I can’t find it on line anymore. I don’t think it lasted very long. You can only sell the same mailing list so many times.

    3. enorth

      My first thought was Amway. I recall reading the book “Merchants of Deception” where the author had worked/bought his way up the Amway chain only to discover that the BIG bucks were being made from sales of tapes, books and other “aids.”

  7. enorth

    “So many of these claims contradict each other.”

    But MLMs get away with it because so few people exercise critical thinking.

    MK recruits are told, “Everyone loves Mary Kay, the products fly off the shelves! 50% profit on everything you sell!” But when the income doesn’t materialize, they’re told, “It’s common for new businesses to operate at a loss for the first few years.”

    “Fast is good! Slow is bad!” But later, “This isn’t a get-rich quick scheme. You have to plant seeds.”

    “You can have unlimited income!” But then, “Get the dollar signs out of your eyes. It’s not about you. It’s about helping others.”

    And HOPING that people continue to buy facial serum – or powdered fiber drink – from you every few months is not residual income.

  8. cindlu

    Lies, lies, lies and more deceit. Little by little our intellect comes to realize that just about everything we’ve been told in MK is fiction. Products don’t fly off the shelves. MK is not a way to become independently wealthy. Directors aren’t earning executive income. Booking 3 classes a week is still possible. (It rarely happens and most bookings cancel). Most customers buy very little or nothing. My SD and NSD were focused on using women to build their own units. Everything you do in MK costs money and time. There is no where to advertise in MK. The market is saturated in MK and most women know almost immediately that MK is a scam.

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