Because of its relational aspect, the products usually involved, and the gender of the consultants themselves, women are the predominant target for MLM strategies. However, the gender proportion shifts significantly in the case of financial and/or insurance companies. When it’s time to develop a financial portfolio or consider a term life-insurance policy, it’s usually a joint decision made by husband and wife, or by the head of the household regardless of gender.
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An issue in determining the legitimacy of a multi-level marketing company is whether it sells its products primarily to consumers or to its members who must recruit new members to buy their products. If it is the former, the company is a legitimate multi-level marketer. If it is the latter, it could be an illegal pyramid scheme. The Federal Trade Commission has been investigating multi-level marketing companies for several decades and has found many that blur the lines between the two. According to industry data, there are 90 million members worldwide, but relatively few earn meaningful income from their efforts. To some observers, that reflects the characteristics of a pyramid scheme.
The problem is that in a recruiting-driven MLM, there is no upper bound save the market population itself, and the bottom rung of distributors makes no money at all except from sales. This ensures a fierce scramble among distributors to sign up their own downline (Amway in particular is notoriously aggressive about this) so they can move up the ladder, often to the exclusion of product sales, and also ensuring market saturation—most distributors wind up selling only to themselves and perhaps a few friends, with only the most driven (and often least principled) making any money at all.
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. The FTC alleged Herbalife had engaged in “unfair and deceptive practices,” and put it under a federal monitor for seven years, demanding onerous changes to its compensation plan and requiring extensive documentation of customer sales. Ramirez then set down an ambitious posture for the FTC: In the future, she said at an MLM industry conference in October, these companies should adopt the new Herbalife rules when structuring their businesses, as the FTC would be watching.
"Network marketing" and "multi-level marketing" (MLM) have been described by author Dominique Xardel as being synonymous, with it being a type of direct selling. Some sources emphasize that multi-level marketing is merely one form of direct selling, rather than being direct selling. Other terms that are sometimes used to describe multi-level marketing include "word-of-mouth marketing", "interactive distribution", and "relationship marketing". Critics have argued that the use of these and other different terms and "buzzwords" is an effort to distinguish multi-level marketing from illegal Ponzi schemes, chain letters, and consumer fraud scams.
In June 2016, Sophie (name changed) quit her job in the suburbs of Fort Worth, Texas to sell for LuLaRoe, a rapidly growing clothing company that offers self-employment opportunities to American women in the form of hawking hyper-hued apparel. LuLaRoe’s consultants told her—and tens of thousands of other mostly rural and suburban women over the past five years—that she could provide for her family, join a sisterhood of supportive women, and find meaning in her life again through the conduit of colorful, stretchy fashion—all for a reasonable upfront investment of around $5,000.
When pitching people face-to-face doesn’t work, you go online and start posting about the MLM all the time. You follow the formula recommended by the company: one post about the brand, then one about your family, then one about your lifestyle, then one about the brand again. But you notice that no one comments or likes your posts. Your follower count on Instagram has gone down. Finally, a friend DMs you and lets you know that a lot of people have blocked you on Facebook.
Fed the fantasy of achieving the all-elusive American dream, many of them are being wooed by multilevel-marketing companies. Known as MLMs (or “direct-sales”), the current US administration is stocked with their cheerleaders: Betsy DeVos, the secretary of education, is married to a cofounder of Amway; Ben Carson is a spokesperson for a vitamin MLM called Mannatech; and president Donald Trump used to have an MLM, Trump Network, and was a spokesperson for another.
A fundamental reason that such networks fail is that they depend upon recruiting people to compete with you. If you own a shoe store, and you pitch every customer on opening their own shoe store instead of being your customer, very soon you're going to have a neighborhood full of shoe stores, with everybody trying to sell and nobody left to buy. It doesn't take an MBA to see that this is pretty much the polar opposite of a sound business strategy.
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“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)
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