How MLMs Stay in Business (The Scam!)

Multi-level marketing companies that depend upon an endless chain of recruiting are doomed to collapse… as eventually the world will run out of people. Yet MLMs like Mary Kay continue to exist for decades, don’t they? (And the MLM apologists even using this longstanding history to give the company legitimacy…. It wouldn’t still be around if there was something wrong with it, they say.)

So how do pyramid schemes like Mary Kay stay around for so long? Pyramid scheme expert Jon Taylor explains it in his 8 R’s of MLM Durability:

1. Rewards. The profitability for the MLM company and the payout to top distributors is so great that they will routinely misrepresent and will go to great lengths to keep the scheme going, including finding new divisions or areas in which to continue recruiting after a given area is saturated.

2. Ruse. MLM’s have been enormously successful in positioning themselves as direct sales programs that are exempt from laws against pyramid schemes. Even many regulators, the Better Business Bureau, educators, and writers will be quick to condemn a no-product pyramid scheme, but will exonerate a far more extreme and exploitive product-based pyramid scheme (MLM).

A recruiting MLM company is actually an institutionalized pyramid scheme. Recruits in the hierarchy of “distributors become unwitting agents in collecting pyramid investments (in the form of “incentivized purchases) that fund the company and enrich top “distributors.”

Another ruse is the idea touted by MLM promoters that their program “gets around the middleman.” In fact, the MLM guarantees that their program will create a whole network of middlemen to be paid off.

3. Repeated investments (“pay to play”). Although the cost of signing up as an MLM distributor is usually less than $100, the cumulative investment, in strongly incentivized purchases to “stay in the game,” may amount to hundreds or even thousands of dollars over several months. Products are often sold on a subscription basis by automatic bank withdrawal to maintain cash flow and upline residuals. Often purchases are far beyond the needs of the buyers and are stockpiled or given away. Usually such purchases are discontinued when the person withdraws from the scheme.

4. Recruitment of revolving door of replacements. MLM’s are conducted as “body shops.” Those who drop out on the bottom levels are constantly being replaced with new recruits who believe the promises of wealth and time freedom – or a little additional income for persons who are struggling to make ends meet (which almost always sets them further behind financially).

5. Re-pyramiding. When MLM company officers see that the “pyramid” is about to collapse, they start a new division, introduce new products, or enter a new region, all within the same corporate umbrella. This makes possible a whole new “ground floor opportunity” to participate in the “hyper growth” of the company, or to “ride the wave of opportunity.” This Ponzi-like behavior is what Amway, Nu Skin, and other long-lasting MLM companies have done.

6. Rationalization and self-blame. Self-deception is common in MLM’s, making it the perfect con game. The very people who are being victimized are often its most ardent promoters – until they run out of resources and quit. They seldom complain to regulators, having been taught that any failure is their fault for not having tried hard enough, rather than the fault of the MLM. They may also fear retaliation from or to their upline or downline, which may include close friends or relatives.

7. Retail “rules.” The trick for a recruiting MLM to evade regulatory scrutiny is to create the illusion that retailing is being done by establishing “rules” for minimum retailing with which distributors must comply – which are satisfied cosmetically so as not to arouse the attention of regulators. Compliance with these rules is not independently audited, nor are they reinforced by corresponding incentives in the compensation plan. MLM rule-making is ineffective without correcting problems in the compensation plan itself.

8. Recognition. The MLM company may go to great lengths to enhance its legitimacy and its credibility. They may donate heavily to influential politicians and parties, to the Olympics, and to worthy, highly visible causes. Their support for these causes is given top billing at opportunity meetings and often given recognition by an unwitting press. Celebrities are hired to speak at MLM conventions. Top MLM officials and founders have been honored by university and civic groups.

I dare you to read those 8 points and not see Mary Kay in every one of them. You can’t do it. It describes Mary Kay’s scam to a “T”.

4 Comments

  1. Cindylu

    Then there’s lying and calling it duel marketing. lol Also mentioning faith, family, dove tailing, 90% buy back, executive salary, the pink cadillac (Without mentioning insurance and co pay). Also pretend directors are actually able to do three to ten skin care classes a week.

  2. raisinberry

    The points are all terrible but 6 is the one that really stings. They stay in business unchallenged by regulators because their sales force has been taught to see only themselves as the “failure”, not the MLM system or the company that uses that system.

    As long as they can point to one success story (or seemingly successful story) they can say YOU didn’t do “enough”. Manipulated by self doubt, you will scurry away and never bring it to the attention of your state attorney general.

    1. pinkvictim

      “Manipulated by self doubt, you will scurry away and never bring it to the attention of your state attorney general.”

      Absolutely true. In FTC studies, out of the ten most frequent types of fraud, it has been show that pyramid scams have some of the highest victims rates, while they have the lowest reporting rates.

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