Is multi-level-marketing always a scam?

September 5, 2005 4:21 PM

Is multi-level-marketing (MLM) always a scam? Should I dissuade someone from becoming a distributor?

While travelling in a developing country, I met a person who had just found a job as a distributor for a fruit juice product. She was extremely excited by this new prospect and I told her that I'd make some background checks. Back home, I found that the company (Morinda) is a large MLM operator from the US selling an overpriced product (noni juice at 50 euros/litre and distributors must buy 4 litres per month) through inflated claims of nutritional/health value (just check Pubmed). However, among the many slimy MLM companies selling this product, it seems relatively legit (toning down the snake oil pitch due to previous run-ins with the law on both sides of the Atlantic ; distancing itself from pyramidal schemes at least in appearance ; being the source of an actual economic boom in the region where the fruit is growing) and I can understand that a jobless person in a impoverished country may be interested. So the question is: are ALL MLM schemes scams? Has this person a remote, tiny possibility to make actual money with this company or should she run away? I've already had a look at mlmwatch.org and I believe that's just another scam, just better made that the usual pyramid ones, but OTOH MLM businesses are legal and allowed to operate. So what do people think? Anyone with good/bad experience with these types of companies?

posted by elgilito to Work & Money (11 answers total)

Yes
This explains why. (Scroll down to the tree diagrams and explanations if you want a quick answer.)
posted by Mwongozi at 4:50 PM on September 5, 2005

MLM is usually a scam in that the pitch is that everybody makes the real money signing up other distributors (or uplines or whatever they call them), rather than selling the product, which is generally not very sellable beyond immediate family and friends (which is why you buy it upfront from the company with no chance of a refund). However, the mlmwatch page says that as part of a legal settlement "Morinda must refund to any consumer who requests a refund in writing, the full purchase price paid for the product." However again, that certainly only applies in the states and Morinda may word its distribution agreements in such a way that distributors trying to get out can't define themselves as customers and return their "inventory".

Bottom line: it's not really a job. It's a purchase. Your friend will probably end up buying something that she'll have little or no chance of selling.
posted by PinkStainlessTail at 4:55 PM on September 5, 2005

I'll agree with what I expect would be the majority opinion among civilized people the world over and say yes, they're all scams. I've seen a wide variety of them. They all look terribly dishonest and ugly to me. But if your friend has the right talent for scamming people, it is at least possible that she could do fairly well with the right MLM scam.
posted by sfenders at 5:03 PM on September 5, 2005

Telling your acquaintence that her distributorship is a scam is like telling a friend that her newfound love is a three-timin' jerk. If you really want to get on her good side, you'll tell her to put no more money into the venture than she can afford to lose, and then wish her luck. She'll either succeed wildly (unlikely), or come to the same realization you have. After which you can say, "Oh, it's too bad that didn't work out for you."

And when she approaches you to ask if you're interested in participating in selling the noni juice, tell her, "If anyone asks me if I know a good person who sells noni juice, I'll be sure to give them you're name."
posted by Kibbutz at 6:30 PM on September 5, 2005 [1 favorite]

To the upside of sales MLM, you aren't restricted entirely to what you can recruit, if you can at least sell enough product to recoup your costs.

If she's one of the first of a MLM in a country, and has a lot of social contacts, she can arrange for a very, very profitable situation for herself, and possibly for her first layer of friends. Still, it's pretty slimy and far from guaranteed.

Of course, if your friend is jobless in an impoverished country, managing to sell any of this stuff could be a hard task indeed. Dissuade her if you can, the potential loss sounds painful.
posted by Saydur at 6:38 PM on September 5, 2005

Impoverished countries are prone to these sorts of things as well. I believe Albania, in the late 90s, had an entire economic collapse because of a country-wide MLM scheme.
posted by thanotopsis at 7:07 PM on September 5, 2005

The juice thing sounds fishy, but really, are ALL MLMs scams? What about Avon or Mary Kay or Pampered Chef? Those are technically MLMs, right? I have been buying Pampered Chef products from the same person for several years. Some of their stuff is overpriced, but it's definitely high quality. My consultant has been doing this for a while, so I'm sure she's making money. Yes, she would make more if I decided to sell underneath her, but she certainly isn't pushy about it.
I have done a little research and haven't found anything negative about them or Avon or Mary Kay.
posted by clh at 9:05 PM on September 5, 2005

I'd argue that multilevel marketing is not always a scam. Mary Kay, Tupperware, and Avon are examples of generally uncontroversial companies. Most are legal but essentially dishonest, some are outright pyramid schemes. On my review Morinda appears borderline (as a legal business) leaning towards the scam side (for both its marketing setup and its bogus product).

In the end it comes down to, is a significant volume of the product selling to end-users. Noni has its share of true believers, but there are no valid justifications for its health claims and that 4 L per month quota really strikes me as just a nice way to get some fat sales from gullible people, repeatable a number of times directly proportional to just how gullible said individuals are.
posted by nanojath at 9:17 PM on September 5, 2005

Rob Cockerham, who is probably the expert on the Herbalife MLM, recently posted a short page on how the "American Scam" has pushed into Botswana, having saturated the rest of the world already. If the "job" was heavily advertised, I'd say it's a good bet that there are only a couple of people in the region actually making money from this MLM.
posted by mbd1mbd1 at 6:36 AM on September 6, 2005

What nanojanth says. The measure of whether an MLM is a scam or not is whether or not its products have a substantial consumer-end user market and brand.

Here are the questions to ask anyone who is recruiting you for an MLM: (1) what percentage of your production runs are ultimately sold to people who aren't in the dealer network, (2) what percentage of corporate revenues are spent on end-user marketing, and (3) what is the average income of salespeople at the end of the line (i.e., those who haven't recruited any other salespeople)?
posted by MattD at 6:37 AM on September 6, 2005

MLM for MLM's sake doesn't work.

If you'd sell the product (and could make money at it) even if it wasn't MLM, then the MLM aspect doesn't cause you any harm.

But when the MLM aspect is the main focus then it all falls apart. If people sign up expecting to make money from their recruits, and sign up recruits who expect to make money from their recruits, etc., you end up with nobody expecting to actually sell (much of) the product themselves.

I'd say evaluate it as commission sales gig without regard to the recruiting commissions. If you expect to make the money from selling the juice and regard the tiered commission from recruits as a bonus that may or may not materialize, then you'll be relatively safe. (And if your recruits take the same approach then they might actually make you some money -- but again, don't count on it)
posted by winston at 8:36 AM on September 6, 2005