Archive for April, 2010

Guilty Until Proven Innocent?

Indeed, it can seem as if we are…we in the network marketing industry…guilty until proven innocent. We often get labeled as “scam artists” and “crooks”, and our business models as a “pyramid scheme”. Not much has changed there.

In North America things have changed a bit perhaps, but in many, more traditional, less free-thinking cultures around the world people still look suspiciously upon those who who have chosen to do things a little “differently”.

“Differently” as in choosing NOT to slave for peanuts in a job they loathe, with nothing to show for it at the end of the month (or year, or decade) but fatigue, health problems, credit card debts and strained family relations.

So why does network marketing still carry this stigma? Why, in the year 2010, do we marketers still manage to draw so much negative attention to ourselves? (As I will talk more about in a minute, I actually think the MLM’ers themselves are partly to blame.)

You would think that after having been around for over 50 years, our industry would be, if not embraced, at least largely accepted, by the average Joe…not so often frowned upon.

So…in short, here’s what I deem to be the problem:

In today’s internet world, people can pretty much post whatever they want online. And those that are easily persuaded — well, they get duped. Sometimes they get duped by scam artists, true, but other times they get duped by people who aren’t out for their pocket books but their dreams.

And dream stealers, in my opinion, are some of the worst thieves there are.

Either way, one should be careful to accept public opinion as gospel truth. Don’t assume that just because someone knows how to effectively use the word “scam” in an article headline, this automatically makes them an expert on the subject.

So…before you sacrifice your dream on the altar of public ignorance, consider the following:

The VAST MAJORITY of those who flippantly throw around words like “pyramid scheme”, “scam” and “scandal”, fall into one of four categories:

Category #1. They are marketers with competing companies who use negative advertising to try to “win over” customers: “ABC company is a pyramid, stay away from them…here is a legit company that I work with, check it out, it’s the best opportunity ever known to mankind.” Blah-blah-blah…

In other words, it’s a marketing tactic, the purpose of which is to lure potential buyers away from one’s competitors. This is extremely common in online marketing, where advertisers fight tooth and nail for the top spots on the search engines.

Category #2. They used to represent the company they are now bashing. At some point and for whatever reason they got disappointed, disillusioned, or disgruntled… perhaps they had a dispute with the leadership, their own sponsor, or fellow members, and instead of peacefully settling the matter between themselves, they are now taking their own very public revenge:

They are using the internet as a vent, knowing full well that on the world wide web, for better or for worse, it’s the one who makes the most noise who gets the attention.

Category #3. They are current reps with the company in question, and are using ’scare tactics’ to draw eyeballs: Their ad or video title may read “ABC company a scam?”, but when you visit their page, you get the rest of the story: “No, ABC company is NOT a scam, and I will prove it to you! Let me show you why ABC in fact is the best business opportunity even known to mankind. ” Blah-blah-blah.

I strongly encourage you to stay away from negative advertising so as not to compromise your own integrity as a leader and a marketer. Drawing unnecessary negative attention to your company is in the long run going to hurt both you and them, and the same goes for dragging other reputable businesses through the mud.

In marketing, as in the rest of life, what goes around, really does come around.

Category #4. They are individuals outside our industry who simply don’t understand what it is we do. People are often afraid of what’s new, unfamiliar or different, and they feel they need to put labels on things to better categorize them.

For those who can’t be bothered to educate themselves about the difference between an illegal pyramid and a legitimate network marketing business, it is easier to just group everyone together and throw up a nice big DANGER sign to make sure no one is “victimized”.

Knowing this, knowing why people do what they do and say what they say…next time, before you freak out, before you throw out the baby with the bathwater, I suggest you first get the FACTS. All the facts. And just the facts.

Do proper research, get both sides of the story, and then make up your own mind about the matter. You’ll be a better and more informed person for it – and heavens knows, a heck of a lot better marketer.


MLM (Network Marketing) – Online (Home) Business

Multi-level marketing (MLM), (also called network marketing, direct selling, referral marketing, and pyramid selling) is a term that describes a marketing structure used by some companies as part of their overall marketing strategy. The structure is designed to create a marketing and sales force by compensating promoters of company products not only for sales they personally generate, but also for the sales of other promoters they introduce to the company, creating a downline of distributors and a hierarchy of multiple levels of compensation in the form of a pyramid.

The products and company are usually marketed directly to consumers and potential business partners by means of relationship referrals and word of mouth marketing.

MLM companies have been a frequent subject of controversy as well as the target of lawsuits. Criticisms have focused on their similarity to illegal pyramid schemes, price-fixing of products, high initial start-up costs, emphasis on recruitment of lower-tiered salespeople over actual sales, encouraging if not requiring salespeople to purchase and use the company’s products, potential exploitation of personal relationships which are used as new sales and recruiting targets, complex and sometimes exaggerated compensation schemes, and cult-like techniques which some groups use to enhance their members enthusiasm and devotion. Not all MLM companies operate the same way, and MLM groups have persistently denied that their techniques are anything but legitimate business practices.

Independent, unsalaried salespeople of multi-level marketing, referred to as distributors (or associates, independent business owners, dealers, franchise owners, sales consultants, consultants, independent agents, etc.), represent the company that produces the products or provides the services they sell. They are awarded a commission based upon the volume of product sold through their own sales efforts as well as that of their downline organization.

Independent distributors develop their organizations by either building an active customer base, who buy direct from the company, or by recruiting a downline of independent distributors who also build a customer base, thereby expanding the overall organization. Additionally, distributors can also earn a profit by retailing products they purchased from the company at wholesale price.

This arrangement of distributors earning a commission based on the sales of their independent efforts as well as the leveraged sales efforts of their downline is similar to franchise arrangements where royalties are paid from the sales of individual franchise operations to the franchiser as well as to an area or regional manager. Commissions are paid to multi-level marketing distributors according to the company’s compensation plan. There can be individuals at multiple levels of the structure receiving royalties from a single person’s sales.

Legality and Legitimacy
MLM businesses operate in the United States in all 50 states and in more than 100 other countries, and new businesses may use terms like “affiliate marketing” or “home-based business franchising”. However, many pyramid schemes try to present themselves as legitimate MLM businesses.

The FTC states “Steer clear of multilevel marketing plans that pay commissions for recruiting new distributors. They’re actually illegal pyramid schemes. Why is pyramiding dangerous? Because plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited. And when a plan collapses, most people-except perhaps those at the very top of the pyramid-end up empty-handed.”

In a 2004 United States Federal Trade Commission (FTC) Staff Advisory letter to the Direct Selling Association states:

Much has been made of the personal, or internal, consumption issue in recent years. In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme. The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture.

The FTC warns “Not all multilevel marketing plans are legitimate. Some are pyramid schemes. It’s best not to get involved in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products.” and states that research is your best tool and gives eight steps to follow:

* 1) Find — and study — the company’s track record.
* 2) Learn about the product
* 3) Ask questions
* 4) Understand any restrictions
* 5) Talk to other distributors (beware shills)
* 6) Consider using a friend or adviser as a neutral sounding board or for a gut check.
* 7) Take your time.
* 8) Think about whether this plan suits your talents and goals.

However there are people who hold that all MLMs are nothing more than pyramid schemes even if they are legal rendering the whole issue of a particular MLM being legal moot.

Compensation plans
Companies have devised a variety of MLM compensation plans over the decades.

* Unilevel plans: This type of plan is often considered the simplest of compensation plans. As the name suggests, the plan allows a person to sponsor one line of distributors, called a “frontline.” Every distributor the person sponsors is considered to be on that sponsor’s frontline and there are no width limitations, meaning there is no limit to the amount of people one can sponsor in the frontline. The common goal of this plan is to recruit a large number of frontline distributors and then encourage them to do the same. This is due to the fact that commissions are normally paid out on a limited depth, which typically means sponsor can earn commissions on sales between 5 and 7 levels deep.

* Stairstep Breakaway plans: This type of plan is characterized as having representatives who are responsible for both personal and group sales volumes. Volume is created by recruiting and by retailing product. Various discounts or rebates may be paid to group leaders and a group leader can be any representative with one or more downline recruits. Once predefined personal and/or group volumes are achieved, a representative moves up a commission level. This continues until the representative’s sales volume reaches the top commission level and “breaks away” from their upline. From that point on, the new group is no longer considered part of his upline’s group and the multi-level compensation aspect ceases. The original upline usually continues to be compensated through override commissions and other incentives.

* Matrix plans: This type of plan is similar to a Uni-Level plan, except there is also a limited number of representatives who can be placed on the first level. Recruits beyond the maximum number of first level positions allowed are automatically placed in other downline (lower level) positions. Matrix plans often have a maximum width and depth. When all positions in a representative’s downline matrix are filled (maximum width and depth is reached for all participants in a matrix), a new matrix may be started. Like Uni-Level plans, representatives in a matrix earn unlimited commissions on limited levels of volume with minimal sales quotas.

* Binary plans: A binary plan is a multilevel marketing compensation plan which allows distributors to have only two front-line distributors. If a distributor sponsors more than two distributors, the excess are placed at levels below the sponsoring distributor’s front-line. This “spillover” is one of the most attractive features to new distributors since they need only sponsor two distributors to participate in the compensation plan. The primary limitation is that distributors must “balance” their two downline legs to receive commissions. Balancing legs typically requires that the number of sales from one downline leg constitute no more than a specified percentage of the distributor’s total sales.

* Hybrid plans are compensation plans that are constructed using elements of more than one type of compensation plan.

Income levels
Several sources have commented on the income level of specific MLMs or MLMs in general:

* The Times: “The Government investigation claims to have revealed that just 10 per cent of Amway’s agents in Britain make any profit, with less than one in ten selling a single item of the group’s products.”
* Scheibeler, a high level “Emerald” Amway member: “UK Justice Norris found in 2008 that out of an IBO [Independent Business Owners] population of 33,000, ‘only about 90 made sufficient incomes to cover the costs of actively building their business.’ That’s a 99.7 percent loss rate for investors.”
* Newsweek: based on Mona Vie’s own 2007 income disclosure statement “fewer than 1 percent qualified for commissions and of those, only 10 percent made more than $100 a week.”
* Business Students Focus on Ethics: “In the USA, the average annual income from MLM for 90% MLM members is no more than US $5,000, which is far from being a sufficient means of making a living (San Lian Life Weekly 1998)”
* USAToday: “While earning potential varies by company and sales ability, DSA says the median annual income for those in direct sales is $2,400.”

Criticism of MLM
The Federal Trade Commission (FTC) issued a decision, In re Amway Corp., in 1979 in which it indicated that multi-level marketing was not illegal per se in the United States. However, Amway was found guilty of price fixing (by requiring “independent” distributors to sell at the low price) and making exaggerated income claims.

The FTC advises that multi-level marketing organizations with greater incentives for recruitment than product sales are to be viewed skeptically. The FTC also warns that the practice of getting commissions from recruiting new members is outlawed in most states as “pyramiding”. In April 2006, it proposed a Business Opportunity Rule intended to require all sellers of business opportunities—including MLMs—to provide enough information to enable prospective buyers to make an informed decision about their probability of earning money. In March 2008, the FTC removed Network Marketing (MLM) companies from the proposed Business Opportunity Rule:

The revised proposal, however, would not reach multi-level marketing companies or certain companies that may have been swept inadvertently into scope of the April 2006 proposal.

Walter J. Carl stated in a 2004 Western Journal of Communication article that “MLM organizations have been described by some as cults (Butterfield, 1985), pyramid schemes (Fitzpatrick & Reynolds, 1997), or organizations rife with misleading, deceptive, and unethical behavior (Carter, 1999), such as the questionable use of evangelical discourse to promote the business (Hopfl & Maddrell, 1996), and the exploitation of personal relationships for financial gain (Fitzpatrick & Reynolds, 1997).”

Because of encouraging recruits to further recruit their competitors, some people have even gone so far as to say at best MLMs are nothing more than legalized pyramid schemes with one stating “Multi-level marketing companies have become an accepted and legally sanctioned form of pyramid scheme in the United States” while another states “Multi-Level Marketing, a form of Pyramid Scheme, is not necessarily fraudulent.”