The Marketing world buzzes with jargon, and every day seems to bring with it new terms to describe exactly what we do and how we do it. Keeping up with the lingo is a challenge.
That’s why we created the Marketing Concepts series – where we explain away the confusion, one term at a time.
In this post, I’m tackling the term “multi-level marketing.”
While you may not have heard of it, I can guarantee that you’ve seen it in action. In fact, it’s one of the most controversial business models in use today.
Part of the confusion around multi-level marketing (MLM), is that it goes by a few different names. It can also be called pyramid selling, network marketing, referral marketing, and still more.
It is a kind of direct sales system that is most recognizable by the way the companies organize and compensate their “distributors.”
In a typical MLM system, sales aren’t made from a storefront. Instead, distributors are individuals who are described as small, independent business owners.
Each person earns a commission not just on the sales they generate individually, but also on the sales made by the people they recruit to be distributors, too.
Does this ring a bell?
If you’ve ever bought or sold Avon cosmetics, Beachbody products, or attended a Tupperware party, you have participated in MLM.
What Seems to be the Problem with Multi-Level Marketing, Officer?
While there are plenty of companies that currently operate with an MLM system, the tactic is fraught with controversy. Many companies have been prosecuted and shut down because of predatory or manipulative MLM practices.
The biggest problem is their close resemblance to pyramid schemes. In fact, the US Federal Trade Commission advises:
Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. (FTC)
Some businesses purposefully blur the line between legitimate MLM and pyramid scheme. Many of those who have strayed too far in the wrong direction are now shuttered, but that doesn’t mean those MLM plans that remain are necessarily good for business.
Struggles With Multi-Level Marketing
While MLM is not necessarily illegal and it can result in huge profits for savvy companies, there is a lot of research that shows MLM is not worth it for the individual distributors that make up the bulk of the system.
If you’ve ever been roped into a conversation with a current MLM distributor, chances are they’ve extolled the benefits of working for themselves and selling a product they love and believe in.
They probably told you, too, that becoming a distributor has given them a new influx of income that has brought them the freedom, fulfillment, and peace of mind they always dreamed of.
While the person proudly told you about all their extra income, the real numbers don’t add up.
MLM distributors are given advice on how to sell their product, but they are also told how to sell the MLM experience. If it sounds too good to be true, it probably is.
Most data sources report that over 99% of people acting as distributors in an MLM scheme lose money.
After the costs of products, training materials, attending meetups, and more, the vast majority of distributors don’t come close to breaking even.
Sadly, you can’t trust anecdotes from MLM recruiters who reassure you that their company is different. Even their anecdotes about knowing someone who knows someone who replaced their full-time salary as a part-time MLM salesperson are likely made up by someone further up the distributor totem pole.
My Personal Bias Against Multi-Level Marketing
I am biased. Very biased.
Any system that makes money by exploiting its salesforce makes me very angry. Robert FitzPatrick, Director of Pyramid Scheme Alert, has researched and written extensively against MLM.
He hates the system even more than I do.
With years of experience behind him, he argues that MLM becomes dangerous when the focus and best income generation tactic is not selling a product to a customer but instead recruiting more salespeople. This creates an endless chain of recruitment, which is neither sustainable nor effective for the individuals involved.
His site offers some guidelines for identifying predatory MLM schemes, while he works behind the scenes as an activist petitioning for stricter government rules and regulations for the industry.
While even FitzPatrick concedes that not all MLM companies operate in a way that could or should be illegal, he strongly discourages participating in them.
And I do, too. Why?
99% of people lose money.
Would you buy something that was going to cost you money?
Would you make an investment that had less than 1% chance of making enough of a return for you to break even, let alone make a meager profit?
For the sake of your finances, I hope not.
Multi-Level Marketing Takeaways for Marketers
I hope your main takeaway is that you should never ever use MLM in your marketing.
On the surface, it may sound like MLM’s focus on peer-to-peer connections is exactly what contemporary consumers want.
After all, the multi-billion dollar sharing economy, lead by the likes of Uber and Airbnb, is based on peers providing goods and services to their peers. And peer opinions still matter to consumers; 74% identify word-of-mouth as a key influencer in their purchasing decision (Google).
MLM tactics should fit right in.
But they don’t. I argue that MLM misuses the very same systems of sharing, trust, and micro-entrepreneurship that is the driver of Uber’s success.
The big difference between MLM and Uber is that in an MLM scheme, the best source of income is recruiting new people to join, not actually selling the product or providing the service.
If Uber was an MLM, drivers would be compensated based on how many other drivers they recruited, not based on how many passengers they picked up.
This model simply doesn’t make sense.
As marketers, we need to be savvy enough to notice MLM tendencies in our tactics and take steps to replace them with something better. If peer-to-peer tactics are on your mind, don’t find your inspiration in MLM. Find it in the sharing economy.
No, I Don’t Want to Join Your Makeup Club
Since MLM pitches so often come with a coached story of personal liberation or success, here’s my own.
Fresh out of college, living in a new city, vaguely panicked at the possibility of both finding a job and making new friends, I was cornered by an MLM distributor.
She started off by telling me that I needed to polish my look (I did not and still do not wear makeup regularly), then invited me for a free makeover.
I did it because, being new, I was both self-conscious of my apparently too casual appearance, and literally had nothing else to do that day.
She was charming. A great salesperson. And then the explanation of how to properly apply bronzer morphed into the pitch.
Which didn’t make sense, and I told her as much.
I’m a lifelong tomboy more comfortable with scraped elbows than blush. I don’t know how to apply eyeliner. I didn’t wear makeup regularly, and I didn’t know anyone in the entire state besides my roommate, who also didn’t wear makeup.
She said none of this was a problem.
Uncomfortable, I bought a stick of concealer and insisted as politely as I could that no thanks, I don’t want to join your makeup club. I retreated to my car as quickly as I could.
(In a funny turn, I’m allergic to that brand of makeup. I’m sure that also wouldn’t have been a problem.)
The point is, no legitimate marketer would ever hire me to sell makeup.
Our job as marketers in general, and content marketers, in particular, is to provide value to our audience. Valuable content, valuable products and services, and valuable customer support. MLM flies in the face of all that, and as such should be shunned by marketers who want to create an maintain a lasting connection with their audience.
You Can Do Better Than Multi-Level Marketing
Marketing in the digital age is all about building relationships. By connecting with your audience and treating them with honesty and integrity, your brand can go farther, longer, and will not get shut down by the Federal Trade Commission.
Which peer-to-peer marketing tactics do you use and recommend? Share what has worked for you in the comments.
Oh, and just say no to MLM.