MLM Math

[Jhau]

To be quite frank, this is all getting rather silly.

Rather than debating the merits of multi-level-marketing companies such as Amway, we're now debating whether we should take multi-vitamin tablets instead of eating fruit and vegetables.

Whilst I don't think that there's anything *bad* about taking vitamin supplements, I also think that it's very clear that, wherever possible, fresh fruit and vegetables are to be preferred over supplements, simply because you get so much more besides phytonutrients in fresh fruit and vegetables.

So, let's please stop debating whether one capsule is equivalent to one apple and get back to talking about multi-level-marketing.

 

[icerat]

To be quite frank, this is all getting rather silly.

Rather than debating the merits of multi-level-marketing companies such as Amway, we're now debating whether we should take multi-vitamin tablets instead of eating fruit and vegetables.

Whilst I don't think that there's anything *bad* about taking vitamin supplements, I also think that it's very clear that, wherever possible, fresh fruit and vegetables are to be preferred over supplements, simply because you get so much more besides phytonutrients in fresh fruit and vegetables.

So, let's please stop debating whether one capsule is equivalent to one apple and get back to talking about multi-level-marketing.

Agreed ... but ... to a large extent I believe the issue does come down to products. In my experience most critics come from a perspective of simply refusing to believe there is a legitimate market for any product promoted through MLM, thus their must be nefarious reasons for their success.

I've been an MLM "customer" for many many years. My mother used to buy products from an MLM when I was a kid. I have people who ask me to get things for them through my membership.

Yet mlm critics continually tell me that people are "forced" to buy products (how is never quite explained), that it's impossible to sell them and that no customers exist - in other words, they're vehemently insisting that I and people I know don't exist.

Once they entertain the possibility they're wrong on that, then it might be possible to have a sensible discussion.

 

[CynicalSkeptic]

Yet mlm critics continually tell me that people are "forced" to buy products (how is never quite explained), that it's impossible to sell them and that no customers exist - in other words, they're vehemently insisting that I and people I know don't exist.

Do you deny that some MLMs have a minimum monthly purchase in order to stay active?

 

[CynicalSkeptic]

If you learned an MLM company said you should drink water regularly you'd be ranting against that too, maximara. You've made your perspective clear.

You just gave me an idea for a new MLM company. Bottled water has a huge markup, it has definite health benefits, and best of all people buy it over & over so there's the benefit of recurring monthly purchases.

Drink MLMH20! It prevents dehydration and aids in your body's natural detoxification process!

 

[icerat]

Do you deny that some MLMs have a minimum monthly purchase in order to stay active?

I've yet to find any. Some have minimum monthly volume requirements, but they can be achieved through customer volume.

Personally I think even that is problematic, so I would avoid them. Particularly the ones that will take your downline away if you fail to maintain "active" status.

In any case the very fact you say "some" shows you understand this isn't something inherent in the MLM model.

You just gave me an idea for a new MLM company. Bottled water has a huge markup, it has definite health benefits, and best of all people buy it over & over so there's the benefit of recurring monthly purchases.

Drink MLMH20! It prevents dehydration and aids in your body's natural detoxification process!

If your point is to point out that fixed-location single-level retailing has dubious products also, so it's not an MLM issues per se, then you succeeded.

 

[CynicalSkeptic]

I've yet to find any. Some have minimum monthly volume requirements, but they can be achieved through customer volume.

Sure, if you can actually move the product.

Personally I think even that is problematic, so I would avoid them. Particularly the ones that will take your downline away if you fail to maintain "active" status.

We've found some common ground!

In any case the very fact you say "some" shows you understand this isn't something inherent in the MLM model.

I don't think I ever used the word inherent. I'd say the practice is pervasive throughout the industry. And before you ask, no I don't have hard numbers.


If your point is to point out that fixed-location single-level retailing has dubious products also, so it's not an MLM issues per se, then you succeeded.[/quote]

 

[icerat]

Sure, if you can actually move the product.

Which takes us back to the 35 year old quote from FTC vs Amway that I've given before -

"I think generally speaking when a saleman tells you that a market is saturated, he has become discouraged for some reason, usually he is simply not making the sale effort that is required."

Clearly you need a marketable product, but this belief that if it's an MLM product it must be unmarketable is jut silly

We've found some common ground!

I have mentioned this issue numerous times before on this forum!

I don't think I ever used the word inherent. I'd say the practice is pervasive throughout the industry. And before you ask, no I don't have hard numbers.

It would be an interesting analysis. Anyone got the time to take the Global top 100 and go through their comp plans?

 

[CynicalSkeptic]

Clearly you need a marketable product, but this belief that if it's an MLM product it must be unmarketable is jut silly

Agreed. Even though I've never been presented with an MLM product that I've deemed worth buying doesn't mean there's not one out there.

 

[marplots]

We could try it from a different direction. What is it about the MLM structure that makes it appealing to start one as opposed to other types of distribution?

 

[maximara]

Which takes us back to the 35 year old quote from FTC vs Amway that I've given before -

"I think generally speaking when a saleman tells you that a market is saturated, he has become discouraged for some reason, usually he is simply not making the sale effort that is required."

Clearly you need a marketable product, but this belief that if it's an MLM product it must be unmarketable is jut silly

"Multi-level marketing structure: the opportunity to participate in a multi-level marketing scheme may continue to be sold well after market saturation has occurred for the products sold by the scheme. Accordingly, participants recruited after a certain point are unlikely to make a profitable living from the scheme. (1999) The New Zealand Law Journal pg 271)

"The proliferation of participants may result in either a saturation of the market with distributors or an "equilibrium" short of saturation, in which the number of persons dropping out balances the number of new recruits. ((1984) Pacific law journal Volume 15, Part 2 Page 884)

"Since network marketing distributors are always encouraged tosign up more distributors, the distribution network tends to grow exponentially. Eventually, market saturation occurs and results in distributors having products for which there are no customers." (Stevens, Robert E ; David L Loudon, Bruce Wrenn (2012) Marketing Management: Text and Cases)

David Alan Wacker in his 1990 The complete guide to home security notes the same problem as does George Curtis in his 2011 The Law of Cybercrimes and Their Investigations (Page 113).

The judge that made the above comment clearly didn't understand basic supply and demand mechanics.

 

[icerat]

"Multi-level marketing structure: the opportunity to participate in a multi-level marketing scheme may continue to be sold well after market saturation has occurred for the products sold by the scheme. Accordingly, participants recruited after a certain point are unlikely to make a profitable living from the scheme. (1999) The New Zealand Law Journal pg 271)

Same as any other business - except in MLM you can get a refund of unsold product.

"The proliferation of participants may result in either a saturation of the market with distributors or an "equilibrium" short of saturation, in which the number of persons dropping out balances the number of new recruits. ((1984) Pacific law journal Volume 15, Part 2 Page 884)

Same as any other business - except in MLM you can get a refund of unsold product.

"Since network marketing distributors are always encouraged tosign up more distributors, the distribution network tends to grow exponentially.

Hah! We wish!

Eventually, market saturation occurs and results in distributors having products for which there are no customers." (Stevens, Robert E ; David L Loudon, Bruce Wrenn (2012) Marketing Management: Text and Cases)

Same as any other business - except in MLM you can get a refund of unsold product.

The judge that made the above comment clearly didn't understand basic supply and demand mechanics.

He was citing the testimony of a marketing expert. It seems you are again admitting that despite your years of ranting against MLM you've never actually bothered to read the seminal legal case?

But yes, you're right - the judge who spent several years studying the marketing model, getting testimonies and affidavits from hundreds of people, looking at actual real world data clearly couldn't understand it as well as some guys who mention MLM as an aside in some other work.

Really? That's what you believe?

Sadly, I'm not surprised.

 

[maximara]

Same as any other business - except in MLM you can get a refund of unsold product.

BZZZ WRONG. READ what is being said not what you think is being said:

"Multi-level marketing structure: the opportunity to participate in a multi-level marketing scheme may continue to be sold well after market saturation has occurred for the products sold by the scheme. Accordingly, participants recruited after a certain point are unlikely to make a profitable living from the scheme. ((1999) The New Zealand Law Journal pg 271)

The opportunity to participate. NO other business continues to recruit sales people after market saturation has occurred.

"The worst programs will promise you some sort of refund if it all doesn't work out. These are the worst programs because the refund programs are usually contingent on this-or-that, require long forms and long waits, often the refund is only 30% or so of what you spent, and usually the refunds are illusory (meaning that they company will never pay out the refund to you)."

In fact Len Clements points out

"Here are a few ways some companies can getcha' when you try to return product.

1) Most company policy states that the products can be returned if they are in the current product line. So every 30-60 days they make small, token changes to the formulations making most of the inventory in circulation "outdated" and thus ineligible for return.

2) The company recommends that the product be opened and inspected, cleaned, or loaned out, and then refuses to except it back because it is no longer in "resalable condition." A couple major water/air purification companies used to do this. They would recommend that the water filter units be opened and "flushed" before attempting to sell them, and/or they trained their reps to use the very effective "puppy dog" marketing approach (where you lend the unit to a prospect for a week, they get attached to it and buy it rather than have you take it back). Of course, once the unit is used in this manner it becomes, well, USED. And you can't return it.

3) They accept returns within a short period of time, say 30-60 days, then stonewall the process until it's beyond the return period. Either they'd claim the RA number wasn't valid, they never received your written request, you sent the products back to the wrong address, you call to get an RA number and you're put on hold until you give up, or your call is never retuned, etc..

4) By returning your entire inventory your distributorship is automatically terminated and you may never reinstate it. Of course, most people who return everything are probably quitting anyway, but not always. And even if they are the fear of NEVER being allowed back can be dissuasive (fear of loss is a much greater motivator than the opportunity for gain).

5) The company applies the ol' "70% rule." That is, they state in the P&Ps, and many times right on the order form, that "70% of all previously purchased inventory must be resold or consumed" before another order can be placed. Naturally, the distributor orders anyway regardless of how much inventory is still remaining. Then when you try to return your inventory the company says, "But wait... you agreed not to place any orders unless at least 70% of your past orders were gone, so we're only accepting 30% of your inventory back" (which may STILL be subject to other discounts as described in #6 below). If you explain that you actually still have most of your inventory, they will counter by claiming you then violated policy by continuing to purchase it.

6) Here's the most common tactic (the other five are, fortunately, NOT common practices): In virtually every distributor agreement it says that the products can be returned less a 10% restocking (admin, handling, etc.) fee, and "less any commissions paid." The distributor usually assumes this means less any commissions paid to him or her - and many times that is what it means. But many times it means less the commissions already paid to your upline on those products. So if the plan pays, let's say, 50%, then you are really going to get a 40% refund (50% commissions paid plus 10% restocking fee) not a 90% refund. The phrase "less commissions paid" is rarely clarified as to which method will actually be used."

Same as any other business - except in MLM you can get a refund of unsold product.

BZZZ WRONG. Again, READ what is being said not what you think is being said:

"The proliferation of participants may result in either a saturation of the market with distributors or an "equilibrium" short of saturation, in which the number of persons dropping out balances the number of new recruits. ((1984) Pacific law journal Volume 15, Part 2 Page 884))


Again NO other business will saturate its market with sales people if it can avoid it.

Same as any other business - except in MLM you can get a refund of unsold product.

A refund that can be hard as nails to get or have gotyous so you can never collect.

 

[icerat]

The opportunity to participate. NO other business continues to recruit sales people after market saturation has occurred.

You know of course, that if you can recruit people, then by definition the market isn't saturated for new salespeople.

Anyway, let's just go with this entirely theoretical product market saturation - every businesses goal. Where's the problem? You recruit someone, they can't sell anything, they get their money back.

Where's the problem?

In fact Len Clements points out

And how about you point out where anyone has ever said "if it's an MLM company it's angelic"?

I've been screwed on refunds from all sorts of companies.

Again NO other business will saturate its market with sales people if it can avoid it.

Ignoring the fact that the goal of legitimate MLMs isn't recruiting, it's product sales, you are again being nonsensical -

Your saying - they keep recruiting people even when there's nobody else left to recruit!

A refund that can be hard as nails to get or have gotyous so you can never collect.

I've never had a problem getting refunds. Indeed the first refund I got, I made a profit, because I was supposed to request a return slip for their courier and sent it myself instead. They refunded the product and more than cost of my postage.

I've had people in my business return products. I've had customers return products. I've had people return products they've used half of - and get a full refund. I've had people go to a seminar and decide it wasn't for them - and get the ticket refunded - yes, even after they attended the seminar.

There's good companies and bad companies in every arena.

 

[CynicalSkeptic]

We could try it from a different direction. What is it about the MLM structure that makes it appealing to start one as opposed to other types of distribution?

Startup costs. Ability to work from home. Ability to work part time. Flexible hours.

 

[marplots]

We could try it from a different direction. What is it about the MLM structure that makes it appealing to start one as opposed to other types of distribution?

Startup costs. Ability to work from home. Ability to work part time. Flexible hours.

I meant from the company's point of view, not the people being recruited. Why would I set up to sell my products with the MLM structure rather than simply wholesaling or retailing?

 

[xjx388]

I meant from the company's point of view, not the people being recruited. Why would I set up to sell my products with the MLM structure rather than simply wholesaling or retailing?

Because the products are not competitive in the retail space. In the case of Double X, who's gonna pay $85 for what is already available for less than half that?

"The opportunity,"is the hook to keep people buying and recruiting others to buy. Without the hook, the products are a tough sell.

 

[Joecool]

Yet mlm critics continually tell me that people are "forced" to buy products (how is never quite explained), that it's impossible to sell them and that no customers exist - in other words, they're vehemently insisting that I and people I know don't exist.

A conman doesn't "force" people into things.

But to address the issue, the "requirement" is a defacto one. This defacto requirement also creates an artificial demand for these MLM products. It is why you can find cases where the distributors themselves account for the majority of the MLM product purchases.

You don't have to purchase (buy products), but the successful people do. Or you don't have to buy product, but why would your downline buy products? Or, if you don't buy. you aren't following "the plan" and cannot expect to be successful.

 

[icerat]

I meant from the company's point of view, not the people being recruited. Why would I set up to sell my products with the MLM structure rather than simply wholesaling or retailing?

Startup costs still applies. If you have a new product, sales & marketing is an enormous part of the budget and it has to be paid for whether it works or not.

From the perspective of the company, an MLM structure is brilliant, because the vast majority of your sales & marketing expenses don't get paid until after a sale has occurred.

Your really should read FTC vs Amway, it covers a lot of the type of comments that have arisen here.

 

[AdMan]

Let me ask you a very general question, icerat, because I'm a newbie.

Like many people, IRL I've never heard anything other than that MLM schemes aren't much more than scams most people should steer well clear of, except from acquaintances and family members who are part of them and whom based on other experiences I wouldn't lend a dollar to and so have no credibility with me. This isn't just my own experience--I've spoken about this with others who pretty much share my experience and understanding of MLMs.

So why is this? Why this amazingly poor reputation of MLM schemes if as you say there really isn't anything wrong with many of them, and in fact they can make you money if you work at it? Is there some kind of conspiracy to discredit MLMs? I'm seriously curious as to what you think this is due to, if in fact what many (most?) people believe is wrong, as you claim.

 

[maximara]

Let me ask you a very general question, icerat, because I'm a newbie.

Like many people, IRL I've never heard anything other than that MLM schemes aren't much more than scams most people should steer well clear of, except from acquaintances and family members who are part of them and whom based on other experiences I wouldn't lend a dollar to and so have no credibility with me. This isn't just my own experience--I've spoken about this with others who pretty much share my experience and understanding of MLMs.

So why is this? Why this amazingly poor reputation of MLM schemes if as you say there really isn't anything wrong with many of them, and in fact they can make you money if you work at it? Is there some kind of conspiracy to discredit MLMs? I'm seriously curious as to what you think this is due to, if in fact what many (most?) people believe is wrong, as you claim.

The reality is "MLM" is often used as a fig leaf to hide what is in reality a illegal pyramid scheme.

It doesn't help that many MLMs themselves and those who support MLM refer to the method as a "scheme" which is a synonym to dodge, flimflam, gimmick,ploy, trick, shenanigan, sleight, and stratagem all which have negative connotations.

Furthermore Fitzpatrick's and Taylor's studies which shoot the idea that MLM are better than traditional businesses down in flames have been quoted in numerous peer reviewed papers or well respected scholarly arms of publishing houses in the fields of business, law, physiology, and anthropology. The MLM community has had since 1997 (Fitzpatrick) and 2002 (Taylor) to do and publish a peer reviewed refutation of Fitzpatrick and Taylor on either data or methodology and yet none to my knowledge has done. "MLM industry leaders have been challenged to refute key concepts for this report, but have so far responded with silence." (Taylor 2002 "PRODUCT-BASED PYRAMID SCHEMES: When Should an MLM or Network Marketing Program Be Considered an Illegal Pyramid"