Pyramid schemes return in new form

Appeal of multi-level marketing companies cause financial, social burdens

Art by Jimin Yu

Jimin Yu

Art by Jimin Yu

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Have you ever wondered what it would be like to be able to work for yourself and make thousands of dollars a month just by selling everyday products like leggings or essential oils? 

The freedom and flexibility of one such career is desirable in an age of marketing that has stepped out of the constraints of management companies and into the world of social media. From Instagram models to celebrities, social media marketing is as widespread as traditional marketing firms. Today more than ever, everyday people are looking for ways to make it big on social media just like their favorite actors and actresses. 

This desire for financial freedom drives people to become a part of multi-level marketing companies. While the age of social media has skyrocketed their popularity, MLMs have been around since the 1950s, when companies like Tupperware and Mary Kay became popular with housewives, and rural women who were looking to make money while working at home. The companies often work through a system of recruitment in which members can recruit others and then are able to earn a share of their profits. Today huge companies like Herbalife, LulaRoe, Scentsy, and Avon use this system. They appeal to women looking to make money because they require no retail experience or special education to join. 

While MLMs promise women economic freedom and flexibility, in reality only one percent of MLM participants profit, according to a Federal Trade Commission report. Participants buy huge stocks of whatever good they are selling, some of the most popular being makeup and clothing, and they are tasked with creating a “downline” or recruiting people to sell clothing beneath them in order to act as their “upline” and take home a portion of their sales. This marketing technique often leads women to reach out to old friends or acquaintances and ask them to either buy their product or become a seller beneath them. This technique mirrors a pyramid scheme in which profits are gained through recruitment rather than actual selling of products. 

These companies are closely monitored by the FTC, who cautions that they often incentivize participants and will downplay any risks of personal injury. The starter kits that participants are required to buy to join typically fall in the range of $50 to $5000. The idea around buying massive amounts of inventory is that participants should be able to earn more money than they bought the products for. The reality of MLMs is that little money is actually made by them. A study by magnifymoney.com found that most people who worked for MLMs made only around 70 cents per hour. 

Participants in MLMs are usually reluctant about telling old friends about their involvement in such companies, which can lead people to believe that someone from their past wants to catch up when in reality that person really wants to use them. The nature of MLMs can cause rifts in friendships as they drive women to take advantage of any connections they might have. 

“I thought I had made a genuine connection with a mom I met online in a mom group,” said Erin Heger of Kansas. When Heger declined the woman’s offer to be recruited for Beachbody, a MLM, the women cut her off completely. 

MLMs will also often step outside of guidelines and send emails to lists that should be off limits for solicitations. 

One of the best examples of the potential risks of MLMs is LuLaRoe, a company that previously generated $2.3 billion dollars a month. While some top consultants can make $80,000 a month, recently tens of thousands have left the company. While some consultants were able to attain huge salaries and were taken on cruises and flown in private jets, the promise of wealth has sunk thousands of people into debt. The company, which is centered on the sale of clothing, particularly leggings, began sending sellers defective clothing, which was impossible to sell. When consultants reached out to the company demanding refund checks, they were left without a response. While the company continues to promote their business as prosperous, speculation from current and former consultants suggests that LuLaRoe does not have the money to pay back consultants, leaving normal people without any hope of getting back the thousands of dollars that they are owed. 

MLMs are advertised as an easy way to make money without much effort, but anyone considering joining one should proceed with caution. The form of marketing is so common that the odds are you know someone involved in MLMs. It is important to encourage transparency and recognize the risks that come with potential rewards associated with MLMs. Without regarding the dangers of MLMs, participants run the risk of losing friends and finances without earning a penny.

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