by Eliza Romero
Everyday, people get sucked into the lure of MLMs (“multi-level marketing” or “network marketing”) and I can’t stress enough the need to stay far, far away from them. These include Herbalife, Arbonne, LuLaRoe, Younique, Rodan + Fields, and Amway among many others.
I understand the need for flexibility, especially if you are a full-time student or are raising young children. Believe me, I also understand getting a job that allows you to create your own schedule and work remotely takes Hunger Games level competition. I am always surprised when I see college educated women sucked into these things. But it’s telling about other issues, like childcare, maternity leave and corporate culture in the US.
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The danger of MLM companies cannot be overstated, no matter how family-friendly, female-friendly and diverse they might market themselves as being.
MLMs are pyramid schemes.
They are extremely predatory because the only way to make any money is to sign up more and more people under you which will just ruin your social relationships and make you a pariah where it matters most: your friends and family members.
Here is how they mostly work: You sign up and pay the buy-in fee to receive your startup kit, and then you start clogging everyone’s social media feeds about your new venture and beg your friends and family to join you on your “journey to financial success”. You host a bunch of fake parties and wine tastings or worse, you meet up one-on-one to catch up and the whole thing turns out to be nothing more than a demo and sales pitch where you guilt your friends into buying stuff they don’t want or need. After you subject them to that, you then try to recruit them to join your team of consultants, or whatever term your particular MLM uses.
As with all MLMs, the real money to be made isn’t in selling their products but in recruiting more people to join your team (basically, doing the work for you).
So the real winners are the person who started the business and the very first people she recruited. This top of the pyramid is also where all of the success stories tend to come from.
Among the most vulnerable to these pyramid schemes are people in smaller towns and rural areas.
Market saturation prevents growth in a small town, because once everyone you know starts selling it, no one can make any money and you’ve essentially created your own competition.
“MLMs very rarely emphasize the extreme likelihood of failure, or the extreme likelihood of financial loss, from participation in MLM. MLMs are also seldom forthcoming about the fact that any significant success of the few individuals at the top of the MLM participant pyramid is in fact dependent on the continued financial loss and failure of all other participants below them in the MLM pyramid.” (Wikipedia)
Women, especially stay-at-home moms, are the primary target of many MLMs because they often have broad social networks and desire paid work that they can easily do from home and on a flexible timeline.
There are many MLM companies with a foothold in Utah for exactly this reason. Utah has the highest percentage of stay-at-home moms of any state in the country and is also home to a large population of practicing Mormons. Generally speaking, Mormons highly value community, large families, and proximity to those with similar lifestyles and beliefs. As such, populations like those in Utah offer MLMs the perfect entryway into a vast network of people who are often close in connection and ideology as well as geography. Basically, Mormon stay-at-home moms are valuable to these companies because of their larger community ties. (Mona Bushnell, MLMs Are Preying on the Dream of Entrepreneurship)
Women are encouraged to use images of themselves and their families on social media to push products and gain recruits. Many MLM Instagrammers use hashtags like #leanin (a la Sheryl Sandberg), #thefutureisfemale, #momboss or #entrepreneur. Using the language of third-wave feminism and borrowing quotes or phrases from real female CEOs helps recruiters and recruits see themselves as legitimate professionals, no different from a founder of a startup company or a C-suite executive. (Mona Bushnell, MLMs Are Preying on the Dream of Entrepreneurship)
“Joining an MLM is appealing to women who find hope in their promises of a better life: freedom, economic independence, and an endless supply of cheery trinkets. Despite professing quick-income prospects though, it’s difficult for MLM consultants to earn more than pocket change. When glitzy recruitment videos yield to the reality of suburban cul-de-sacs, people selling for MLMs can be plunged into debt and psychological crisis.” (Quartz)
Right now, MLMs are preying on lower-income, often undocumented immigrant communities and taking advantage of their lack of knowledge and finances.
Predatory companies use the exact same strategy in recent-immigrant communities, minority communities and lower-income international communities worldwide, as these groups are known for valuing family and community, are upwardly mobile, and have close, trusting connections. A single foothold in a tight-knit community is valuable for recruitment, because communities that value cohesion are likely to produce more recruits or, at the very least, more buyers — friends and family purchasing items out of a sense of community or social obligation. (Mona Bushnell, MLMs Are Preying on the Dream of Entrepreneurship)
Their reps lure them in by telling that they are giving them the tools to start their own businesses and that they can create jobs for their friends and family members. In the 2016 documentary, Betting On Zero, director Ted Braun talks to several Latino families who have lost their entire life savings to Herbalife. They were told by MLM reps that it’s easy work and that it’s not dangerous, and so they sold their construction businesses to invest in Herbalife.
The Filipino community, much like many immigrant communities, is ripe for the recruitment of participants in MLMs. Filipino immigrants can be particularly easy targets to exploit, as this Filipino-American writer can attest. They are easygoing and friendly. The ones with a college education understand and speak English very well. The community is crawling with network marketers hawking everything from cosmetics to travel packages to insurance products, courtesy of companies that promise the dream of passive income as well as incentives such as car bonuses and vacations.
How did MLMs start?
The first wave of MLMs were the likes of Avon, which was founded in 1886, and used the door-to-door model for selling perfume. From then and up until the middle of the last century, many women did not have the means to sample products and shop at a department store — or, in the case of African American women, they were simply not allowed to enter the store at all. And they certainly didn’t have the means to start their own business and earn a real income.
Fast forward to 2017. LuLaRoe is the biggest MLM for women.
“More than 80,000 women have paid around $5,000 for several boxes of low-cost clothing and worked as much as 80-hour weeks to outfit hundreds of thousands of suburban women in multicolored polyester. But according to a report that studied the business models of 350 MLMs, published on the Federal Trade Commission’s website, 99% of people who join multilevel-marketing companies lose money. Depending on how you look at it, it’s either a brilliant business model or a predatory practice — or a little bit of both.” (FTC)
It is almost impossible to stop the industry because of the amount of investors and lobbyists who are profiting from them.
“During the Obama administration, the Federal Trade Commission made its biggest-ever effort to curb this industry when last summer it slapped nutritional supplement–seller Herbalife with a $200 million fine and, as part of a settlement with Herbalife, demanded it restructure its business so that it would “start operating legitimately,” as FTC Chairwoman Edith Ramirez put it.” (Slate)
The current administration under President Donald Trump will be a completely different story and may very well be a boon for the MLM industry. Let’s start with Trump himself. In 2009, he licensed his name to an MLM, which eventually went bankrupt, along with many of his participants. Many in Trump’s cabinet have strong ties to MLMs as well: Betsey DeVos (whose husband is the president of Amway — by the way, DeVos family has donated $200 million to the Republican party over the years), Ben Carson, Carl Icahn (a billionaire who is also a major investor in Herbalife and holds five board seats at the company), and Charles Herbster.
Several companies like Amway and Herbalife have also expanded overseas to India, China and many Southeast Asian countries like Vietnam, Indonesia and the Philippines.
Amway’s CEO in India was arrested in 2013 for running a pyramid scheme. “Meanwhile, Amway’s donations to Harvard’s John F. Kennedy School of Government program have funded the training of more than 500 Chinese bureaucrats, who led that country to legalize direct selling, opening a new boom market that MLMs are now exploiting.” (Slate)
How MLMs defend themselves:
I’ve heard all the arguments. “How can it be a pyramid scheme if it’s legal?” Through some crafty loopholes. The fact that there is an actual product to sell allows them to operate and give the appearance of legitimacy. “You just haven’t found a good MLM yet.” Wrong. A good MLM is an oxymoron. “But how is this any different from any other major corporation where the CEO makes the most money?” Because the people below the CEO at legit companies get paid salaries and have actual benefits. They don’t depend on endless chains of recruiting new members.
Now that companies can easily sell directly to their customers online, people look to social media to get their recommendations for products, and the popularity of subscription beauty boxes, not to mention the fact that there are so many retail stores even in the most far out suburbs, I don’t see how the network marketing model is necessary anymore. The only people who defend them are the people who were trained to. This is because MLMs love to brainwash you into defending them against naysayers and demand you go on the offensive to anyone who might disagree. They may still have wide-eyed hope. It’s sad and terrible. The sooner these pyramid schemes are declared illegal and go out of the business, the better the world will be.
For more information, John Oliver did a fantastic segment about the horrors of MLMs. The 2016 documentary, Betting on Zero, investigates the allegations that MLMs are nothing but legal pyramid schemes. This article also does a wonderful job of breaking down the reasons why MLMs are doomed to failure. I encourage anyone who is thinking about signing up for an MLM to watch these.
This is not some obtuse legal issue; it’s a moral issue. People’s lives are being destroyed and until MLMs are stopped, it will continue to happen.
Please also check out this film http://childrenofinvention.com/
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