Behind the Glitz: The Dangers of Multi-Level Marketing

Multi-Level Marketing (MLM) is a business model that has become increasingly popular in recent years, but it often presents various issues that can be challenging for participants. Many individuals who join MLMs may find themselves facing difficulties related to unrealistic income expectations, high startup costs, and the pressure to recruit others into the business. Furthermore, the focus on personal sales and recruitment can lead to strained relationships with family and friends, as members are often encouraged to market products within their social circles. Ultimately, while MLMs promise financial independence and a flexible lifestyle, the reality falls short of these appealing claims.

Key issues

MLM is akin to a Pyramid Scheme. ‘Some MLM companies are pyramid schemes, and some pyramid schemes are MLM’. [1]

Extreme failure rate in MLM. The MLM model is profitable for very few. Research indicates up to 99% of participants may lose money. [2]

MLM operate like a cult. ‘MLMs manipulate, recruit, and maintain members the same as cults do’. [3]

Overpriced & poor quality products. Products can be and are often poor value and quality compared to legitimate competitors as the business is centric to the MLM model, not the product. ‘MLMs claim to “bypass the middle man,” when in fact with their endless chain of recruitment, they create thousands of middle men – all hoping for a share of commissions’. [4]

Confused public perception. MLM is often seen as acceptable as it’s currently legal. However legality is not morality, and much is still misunderstood about MLM beyond surface level.

Predatory sales tactics. MLM ‘disproportionately target women and minorities, resulting in the majority of recruits experiencing negative social, mental, and financial ramifications’. [5]

An unregulated sales force. Direct Selling Australia (the industry body for MLM) lists 350,000 independent sales consultants over 45 member companies. Whilst the DSA has a public ‘Code of Ethics’, there is no evidence of its enforcement. Participants in these schemes often make dangerous and false product claims in a desperate attempt to sell. [6]

MLM permit free labour. The set up as “independent sales consultants” permits free labour, and without additional benefits of genuine employment.

Toxic culture. MLM not only monetises personal relationships, it can destroy them. With a study showing 1 in 3 participants ended up losing a friendship.[7] MLM participants join ‘based on untruthful promises’ of income opportunities, as well as the (false) idea that everybody can reach the top (but only if you work hard enough).[8] Chasing this ideal creates a problematic and toxic environment for participants.

Participants rarely speak out. Speaking out is a double edged sword as participants are often also ‘perpetrators’. Participants also blame themselves for their failures, I.e “they didn’t work hard enough”, unbeknownst to them that this is how the MLM model thrives (on a rotation of ‘failing’ recruits).

Cited:

[1] Heidi Liu, ‘The Behavioral Economics of Multi Level Marketing’ (2018) 14(1) Hastings Business Law Journal 110, 115.

[2]Jon M Taylor MBA, Ph.D, ‘The case (for and) against Multi-level Marketing’. Chapter 7. Consumer Awareness Institute.

[3] Steven A Hassan PhD, ‘Multi-Level Marketing Groups Operate Much Like Cults’. Psychology Today.

[4] Jon M Taylor, MBA, Ph.D, ‘The case (for and) against Multi-level Marketing’. Chapter 4. Consumer Awareness Institute.

[5] Taylor Walsh, ‘Multi-Level Marketing, an unwinnable lottery: How MLMs illegally target women and minorities using deceptive and predatory recruitment practices and the need for specific and expanded legal protections’. California Western School of Law.

[6] Laura Newton, ‘In Pursuit of the Impossible Dream: An analysis of Multilevel Marketing (MLM) Schemes and the Consumer harm caused by selling a lie”. 2021. UNSW Law series No 21-10.

[7] Brittney Layrea , ‘Survey: Vast Majority of Multi Level Marketing Participants earn less than 70 cents per hour’, Magnifymoney 2018.

[8] Claudia Grob and Dirk Vriens, ‘The Role of the Distributor Network in the Persistent Legal and Ethical Problems of Multi-Level Marketing Companies’ (2019) 156 Journal of Business Ethics 333, 336.

Further general sources:

• https://www.choice.com.au/shopping/consumer-rights-and-advice/your-rights/buying-guides/pyramid-schemes

• https://www.researchgate.net/publication/337172323_An_Examination_into_the_Exploitative_Nature_of_Multi-level_Marketing_Companies

• https://www.abc.net.au/news/2024-06-19/enagic-multi-level-marketing-scheme-targetting-rural-woman/103891720

• https://www.womensweekly.com.au/money/multi-level-marketing-scams-71522/

• https://www.smh.com.au/money/planning-and-budgeting/they-re-perfectly-legal-but-these-business-cults-should-be-shamed-20241025-p5kle5.html

• https://www.abc.net.au/news/2021-02-05/mlms-are-not-the-answer-if-you-need-money/100006992

• https://www.sbs.com.au/news/insight/article/positive-vibes-only-how-an-mlm-nearly-ruined-shonas-life/0roodn0ei

Disclaimer

This blog is intended purely to communicate information in accordance with the right of free speech. Any advice given is a suggestion and anyone seeking such advice should consult a competent professional, e.g. Accountant, Doctor etc. All statements made in this blog are my own opinion and they do not represent any other person or body. As such, sharing matters covered in this blog is in the public interest. This content is covered by fair use and fair dealing as the purpose is to provide consumer education and commentary.