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The 10 Big Lies of Multi

The 10 Big Lies of Multi

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Published by: asepandyrahmat on Jan 30, 2010
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10/21/2010

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The 10 Big Lies of Multi-Level Marketing
 by Robert L. FitzPatrick The multi-level marketing (MLM) field grows and its member companies multiply.Solicitations to join the movement seem to be everywhere. The impression accordinglygrows that it is indeed the "wave of the future", a business model that is gainingmomentum, growing in acceptance and legitimacy and, as its promoters claim, willeventually replace most other forms of marketing and sales. Many are led to believe theassertions that success can be found by anyone who faithfully believes in the system andsteadfastly adheres to its methods and that, eventually, all of us will become MLMdistributors.My analysis of the MLM business is based upon fourteen years experience in corporateconsulting specifically in the distribution field and more than 10 years of research andwriting about the MLM model. This has included serving as expert witness in state andfederal court cases, corresponding directly with more than 1,500 participants, writing a book, being interviewed for local and national radio, television, newspapers andmagazines, and carefully studying numerous MLM marketing and pay plans.This research has shown that the MLM business model, as it is practiced by mostcompanies, is a marketplace hoax. In those cases, the business is primarily a scheme tocontinuously enroll distributors and little product is ever retailed to consumers who arenot also enrolled as distributors.In general, MLM industry claims of distributor income potential, its descriptions of the'network' business model and its prophecies of a reigning destiny in product distributionhave as much validity in business as UFO sightings do in the realm of science.Financially, the odds for an individual to achieve financial success under thosecircumstances rival the odds of winning at the tables in Las Vegas.The very legality of the MLM system rests tenuously upon a single 1979 ruling on onecompany. The guidelines for legality that are set forth in that ruling are routinely ignored by the industry. Lack of governing legislation or oversight by any designated authorityalso enables the industry to endure despite occasional prosecutions by state AttorneysGeneral or the FTC.MLM is not defined and regulated like, for instance, franchises are. MLMs can beestablished without federal or state approval. There is no federal law specifically against pyramid schemes. Many state anti-pyramid statutes are vague or weak. State or federalregulation usually involves first proving that the company is a pyramid scheme. This process can take years and by then, the damage to consumers is done. Indeed, even whenMLM pyramids are shut down, often the promoters immediately set up new companiesunder new names and resume scamming the public.
 
MLM's economic score card is characterized by massive failure rates and financial lossesfor millions of consumers. Its structure in which positions on an endless sales chain are purchased by selling or buying goods is mathematically unsustainable and its system of allowing unlimited numbers of distributors in any market area is inherently unstable.MLM's espoused core business - personal retailing - is contrary to trends incommunication technology, cost-effective distribution, and consumer buying preferences.The retailing activity is, in reality, only a pretext for the actual core business - enrollinginvestors in pyramid organizations that promise exponential income growth.As in all pyramid schemes, the incomes of those distributors at the top and the profits tothe sponsoring corporations come from a continuous influx of new investors at the bottom. Viewed superficially in terms of company profits and the wealth of an elite groupat the pinnacle of the MLM industry, the model can appear viable to the uninformed, justas all pyramid schemes do before they collapse or are exposed by authorities.Deceptive marketing that ably plays upon treasured cultural beliefs, social and personalneeds, and some economic trends account for MLM's growth, rather than its ability tomeet any consumer needs. The deceptive marketing is nurtured by a general lack of  professional evaluation or investigation by reputable business media. Consequently, a popular delusion is supported that MLM is a viable business investment or career choicefor nearly everyone and the odds of financial success in the venture are comparable or  better than other trades, professions, employment or business ventures.MLM's true constituency is not the consuming public but rather hopeful
investors
. Themarket for these investors grows significantly in times of economic transition,globalization and employee displacement. Promises of quick and easy financialdeliverance and the beguiling association of wealth with ultimate happiness also playwell in this market setting. The marketing thrust of MLM is accordingly directed to prospective distributors, rather than product promotions to purchasers. Its true productsare not long distance phone services, vitamin pills, health potions or skin lotions, butrather the investment propositions for distributorships, which are deceptively portrayedwith images of high income, minimal time requirements, small capital investments andearly success.The word, lie, is provoking and it is used here for provocative purposes. At some level,everyone who participates in MLM in which little retailing is occurring is unconsciouslylying to himself or herself. Many at the top of these organizations are consciously lying toeveryone else. Deception is inherent in this type of MLM scheme and is pervasive in itsmarketing. Here are 10 of the biggest lies I have found to be present in almost everyMLM I have encountered.
Lie #1
:
MLM is a business offering better opportunities for making large sums of moneythan all other conventional business and professional models.
 
Truth:
For almost everyone who invests MLM turns out to be a losing financial proposition. This is not an opinion, but a historical fact. Consider some notable examplesfrom among the largest MLMs.In the largest of all MLMs, Amway, only 1/2 of one percent of all distributors make it tothe basic level of "direct" distributor, and the average income of all Amway distributors isabout $40 a month. That is
 gross
income before taxes and expenses. When costs arefactored, it is obvious that nearly all suffer a loss. Making it to "direct", however, is not aticket to profitability, but to greater losses. When the Wisconsin Attorney General filedcharges against Amway, tax returns from all distributors in the state revealed an averagenet loss of $918 for that state's "direct" distributors.Extraordinary sales and marketing obstacles account for much of this failure, but even if the business were more feasible, sheer mathematics would severely limit the opportunity.The MLM type of business structure can support only a small number of financialwinners. If a 1,000-person downline is needed to earn a sustainable income, those 1,000will need one million more to duplicate the success. How many people can realistically be enrolled? Much of what appears as growth is in fact only the continuous churning of new enrollees. The money for the rare winners comes from the constant enrollment of armies of losers.The vast majority of the losers in MLM drop out within a year. In a 1999 court case brought against Melaleuca, one of the country's largest MLMs, the company claimed ithas the highest "retention" rate among distributors in the entire MLM industry. Melaleuca boasted a drop-out rate is 5.5% per month.
This equates to about 60% per year, if thedropouts are replaced each month.
In its annual report to the SEC, Pre-Paid Legal, another large MLM, revealed that morethan 1/2 of all its customers and distributors quit each year and are replaced by another group of hopeful investors.This pattern of 50-70% of all distributors quitting within one year holds true also for  NuSkin, the industry's second largest MLM. NuSkin also exemplifies the accompanying pattern in which a tiny percent of the distributors gain the majority of all companyrebates. In 1998, NuSkin paid out 2/3rds of its entire rebates to just 200 upliners out of more than 63,000 "active" distributors. The money they received came directly from theunprofitably investments of the 99.7% of the others.In 1995, Excel Communications, another "fast growing" MLM, reported to regulators an86% turnover rate of distributors and 48% drop-out rate among all customers.To obscure their dismal numbers, some MLMs classify their distributors as "active" and"inactive." The Active group includes only recent participants and those still buying products or receiving rebates. Payout and retention statistics are then disclosed only onthe "active" group.

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