Where forth art thou?: DVD's Analysis of Multi-Level Marketing (Part 2)

Friday, July 28, 2006

DVD's Analysis of Multi-Level Marketing (Part 2)

This is a continuation of the previous article.

II. Pyramid Structure: An Organizational Problem

The Un-Pyramid

For most MLMs, the product is really a mere diversion from the real profit-making dynamic. To anyone familiar with MLMs, the previous discussion (which focused so much on the fact that MLMs are "doomed by design" to reach market saturation and thus put the people who are legitimately trying to sell the product into a difficult situation) may seem to miss the point. The product or service may well be good, and it might oversaturate at some point, but let's get serious. The product is not the incentive to join an MLM. Otherwise people might have shown an interest in selling this particular product or service before in the real world. The product is the excuse to attempt to legitimate the real money-making engine. It's "the cover."

Intuitively, we all know what is really going on with MLMs. Just don't use the word "pyramid"!

"You see, if you can convince ten people that everyone needs this product or service, even though they aren't buying similar products available in the market, and they can convince ten people, and so on, that's how you make the real money. And as long as you sell to a few people along the way, it is all legal." Maybe...

But the way to make money in all this is clearly not by only selling product, otherwise you might have shown an interest in it before, through conventional market opportunities. No, the "hook" is selling others on selling others on "the dream."

Math and Common Sense

MLMs work by geometric expansion, where you get ten to sponsor ten to sponsor ten, and so on. This is usually shown as an expanding matrix (just don't say "pyramid"!) with corresponding kick-backs at various levels.

The problem here is one of common sense. At a mere three levels deep this would be 1,000 people. There goes the neighborhood! At six levels deep, that would be 1,000,000 people believing they can make money selling. But to whom? There goes the city! And the MLM is just getting its steam going. Think of all the meetings! Think of all the "dreams" being sold! Think of the false hopes being generated. Think of the money being lost.

It Will Fail??? It Cannot Fail???

Nothing irritates a die-hard MLMer more than the preceding argument. If you point out the absurdity, for example, that if "the pitch" at an Amway meeting were even moderately accurate, in something like 18 months Amway would be larger than the GNP of the entire United States, then listen closely for a major gear-shift: "Well, that is absurd, of course. Not everyone will succeed, and so the market will never saturate."

Well, which is it? Are we recruiting "winners" to build a real business, or planning by design to profit off of "losers" who buy into our "confidence"?

During "the pitch," anyone can make it work. "It's the opportunity of a lifetime." "Just look at the math!" But mention the inevitable saturation and the losses this is going to cause for everyone, and then you'll hear, "Of course it would never really work like that." "Most will fail," you will be told, "but not you, Mr. Recruit. You are a winner. I can just see it in your eyes."

If you are a starry-eyed recruit, it will grow as presented. If you are a logical skeptic, then of course it would never really work like that.

But the dialog usually never even gets to this. The fact that MLM is in a mad dash to oversupply is largely chided as mere "stinkin' thinkin'." Expert MLMers know how to quickly deflect this issue with parable, joke, personal testimony, or some other sleight of mind.

New Solution: A Retarded MLM

Some modern incarnations of MLMs attempt to address this particular problem by limiting the number of people you can sponsor, say, to four. But the same geometric expansion problems exist; the failure mechanism has just been slowed down a bit. And now there is the added problem of even more unnecessary layers in the organization.

The claim that an MLM is merely a "common man" implementation of a normal real-world distribution channel becomes even more absurd in this case. Imagine buying a product or service in the real world and having to pay overrides and royalties to five or ten unneeded and uninvolved "distributor" layers. Would this be efficient? What value do these layers of "distributors" provide to the consumer? Is this rational? Would such a company exist long in a competitive environment?

Confidence Men and the Shadow Pyramid

The age-old technique of "con men" is to create "confidence" in some otherwise dumb idea by diversion of thought, bait, or force of personality. The victim gets confidence in a bogus plan, and, in exchange, the con man gets your money. MLMers are very high on confidence.

Since the brain inevitably intrudes itself into the delusion that an MLM could ever work, spirits drop and attitudes go sour. But this depressive state can itself be exploited. As doubts grow when the MLM does not do what recruits were first "con"fidenced to expect, then a further profit can be made keeping the confidence going against all common sense.

Thus, a parallel or "shadow" pyramid of motivational tapes, seminars, and videos emerges. These are a "must for success," and recruits are strong-armed into attending, buying, buying, and buying all the more. This motivational "shadow pyramid" further exploits the flagging recruits as they spiral inexorably into oversaturation and failure. The more they fail, the more "help" they need from those who are "successful" above them.

So, MLMs profit by conning recruits up-front with a "distributorship fee," and then make further illicit money by "confidencing" these hapless victims as they fail via the "sale" of collateral material.

Special MLM "Job" Offer: A Losing Proposition

Would a rational person, abreast of the facts, go to work selling any product or service if he or she knew that there was an open agenda to overhire sales reps for the same products in the prospective territory?

What do you think? Is this a good "opportunity" or a recipe for collective disaster?

So, as the saying goes, "Get in early!" This is a rationalization on the level of "getting in early" on the L.A. looting riots. If profit from the sale of products is fundamentally set up to fail, then the only money to be had is to "loot" others by conning them while you have the chance. Don't miss the "opportunity," indeed!

Where is the money coming from for those at the top? From the sucker at the bottom... as in every pyramid scheme. The product could be, and lately has been, anything.

The important thing is to exploit people while the exploiting is good, if you want to make quick money at MLM.

Part 3 here
Part 4 here


Ct™ said...

since at the beginning u talking about amway company...u shuld know better bout this company.. 1stly.. u said more expensive?? i don think so..with the quality they offered ..it seems cheaper than the market product...and some products even cheaper than the XXX brand besides tat amway provide u with better quality product and money back guaranteed.. don be too sure with comments u gave...becoz u dunno much about the company...
2nd...u said why MLM dowan to enter the real world?? since their product is so good... u oso know tat dell is another e -marketing company tat is so successful.. every company have their own marketing strategy...if everyone the same... then wat is creative?? u have to be different in order to be success...
3rd.. today MLM company is not a leading company..but who knows in future? long long time ago...there is alot mini market.. then there is supermarket...mini market all doom...and now we have hypermarket..and all the supermarket closed down...cant u see every decade there will be alot of change?? the same way u use will not make u survive better...be different be unique to survive in the high compatitive real world..and of coz i agree with ur hard work theory and all in order to be a success person... becoz tat applies to every success person... not sure why u so anti MLM..maybe there is alot MLM that is fake and cheated ppls money... but of coz the leading company like AMWAY is not include with them.. to know a company is just same as to know a person... the cover don tell u the story...

Anonymous said...

If MLM is the future, why how long more will it take to become popular? Its been over 40 years and still considered "the future".

How many items which you own are bought from MLM schemes?

Talking about quality, I don't see any branded or high quality goods being sold through MLMs.

Anonymous said...

poster above, from ur post i suppose u are currently doing MLM atm.

MLM isn't a good template for business. It might make u rich(if u are the lucky 5%), but it will not make u a millionaire

Ct™ said...

we count worldwide for ur information...only 5 % in the world are rich... 95% are obviously not...don u think flat is more than banglo...so stupid if u think there are more than 5%

Ct™ said...

and about quality... i guess u dunno much about AMway..it provide the highest quality possible and u cant compare it with normal brand in the market...

blog posts said...

To CT, in regards to your last comment on MLM company, Amway, there is no doubt that there is certain standard of quality in their variety of products. But it would be erroneous to say "highest quality possible" and "u can't compare it with normal brand in the market" is totally absurb and making false claims. I am sure that Amway sell "good" quality products, but not necessary the best that no other brands in the market can offer.

To CT, in regards to your second comment, "only 5% in the world are rich...95% are obviously not..." From where do you get your statistics? And if you were wrong, would it be polite to also call you "stupid" too?

To CT, in regards to your first comment, I would like to clarify somethings you have made claims on. First of all, some of Amway products are very expensive, especially their Nutrilite brand of Health food supplements, and some of their products are less expensive than other brands in the market. And they do carry a money-back guarentee.
Second of all, Dell is a Direct-Line of Sales Company which is not different than conventional businesses, they simply based themselves in countries which a strong population-based like West Malaysia, where they are based in Penang. They remove all middle-man, and deal directly with the end-users or corporates or government ministries/offices. Other brands such as Acer works on Resellers because they do not want to based in so many different countries, so they appointed specific resellers in foreign countries to sell. Such resellers are either Wholesale Distribution or Retail Distribution. e-Markeing is merely using the Internet to conduct sales (Business to Consumer point of sales or B2C), (Business to Business point of sales or B2B). There is another extension of conventional sales, nothing new or complex about it. And marketing strategy and business model are not one and the same. In fact, it is erroneous to think so. A marketing strategy is a tactic or things done to promote sales ie. a 25% discount is offered to all Buyer if they come before 12pm this Saturday. A business model is "a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams." (-Wikipedia), so please do not confuse the 2 terms. Only thing creative or unconventional about Amway and other MLM companies, are the fact that I have to pay to become an employee.
Your 3rd point, is a bit strange. How many MLM companies to today's date has ever been a leading company, much less a sustainable one??? Amway is an MLM company, there's no question about it. But Amway has been on a decline in SE Asia and Australia market and even in Hong Kong and parts of China. And in fact, more than 100 of my friends in Hong Kong, Singapore, Malaysia and Brunei, parts of China (Shenzhen and Wuhan) have all but given up on it today. Most were in it for 6 months to 12 months. They felt cheated by false hopes and slick sales-talk.
Anyways, I am not representing anyone or any group when I sent this comment. Merely casually commenting here.

Drop By said...

Rather to say MLM is a Pyramid Scheme, I would say MLM is another way of Franchising, but through people. As for why Amway's or some MLM products are not being sold through shops or location basis, mainly is because Amway wish to take care of their distributors. If the products can be sold everywhere, what is there for the distributors? It would be "hitting your own mouth" if they really sell their products in a normal customary marketing system.

I cannot say Amway's product is the most high quality products, but it's quality is being recognized (i.e. Reader Digest's Trusted Brand), As for why their products (i.e. Supplements) are so expensive, well, mostly is because the cost of way they use to plant their farm for raw material is high. They use organic way, such as prey and predator concept, replacing the pesticide, etc. This is just to ensure the quality of the products.

Nevertheless, MLM is not the only way to do business, and they are still selling "DREAMS" and "HOPE" after so many years. However, their existence (i.e. Amway) in the market after so many years without vanishing surely had their own way and concept. All of you no need to agree with MLM, but don’t criticize, unless you are really clear about the company, as not all MLM company is a pyramid scheme.

nwm said...

bro/sis xlx, you need to step away from your unfortunate stint at Astral Mags!!
they were quite "obviously" a con job.
you've already analysed that company you were with to bits. i mean, there is only so much you can "prove" with magnetic fields. haha.

and fortunately not all mlm companies deal with hocus-pocus products.
like i commented before... sieve out the "magic blankets", & find the ones with legit consumables. and from those companies that sell the legit consumables... sieve out the ones that blatently over-price their items just so they can pay their distributors.

what you'll arrive at are competitively priced products (as compared to its counterpart retail-only products) with a compensation plan that is able to pay its marketer for his/her hard work!

why aren't you slamming the insurance agents for scaring innocent people out of their wits for their lives and forking out 100s every month so that they can "protect" their loved ones??
insurance agents recruit other agents to sell for them on an mlm scheme too!
somebody should really start a rant on this instead.