Archive for August, 2011

MLM vs. Network Marketing vs. Direct Selling

The title consists of three terms that actually mean the same thing in the MLM universe. That may seem to hard to believe for a person not involved in MLM. However, each time that an MLM term gained a negative connotation because company after company collapsed, a new, more ambiguous term arose from the ashes.

Let’s take all three terms in turn:

  • MLM – First there was MLM – multi-level marketing. This was very straight-forward. It describes a system of marketing a product and getting paid on various levels or tiers.
  • Network Marketing – Networking Marketing is a more ambiguous term as it can apply to the standard MLM definition above, but it could also apply to many other companies. For example, an agent for a movie star builds a network of contacts and markets his/her clients to those contacts. This could also be called network marketing, but in this case the focus on various levels or tiers is hidden. A network one-level deep is still a network, but it is not necessary MLM.
  • Direct Selling – Like network marketing, this term further obfuscates the levels and tiers, but also the networking aspect. If I buy an orange at a grocery store that is direct selling of that grocery. If I sell a Pez dispenser on Ebay that is a direct sale. If a little girl sells a glass of lemonade from the lemonade stand, that is direct selling. None of these examples describe any kind of MLM structure.
  • Update: Incentivized Referral Plan – One24 has started playing even more word games. They say that they aren’t an MLM, but have an Incentivized Referral Plan. However, if you watch how their green ticket system works, it’s clearly an MLM.
  • Update: Community Commerce – Not to be outdone by One24, after more than 5 years of being in the MLM business, MonaVie has started calling their MLM, “Community Commerce.”

Shakespeare in Romeo and Juliet wrote that “a rose by any other name would smell as sweet” with the meaning that the names of things do not matter, only what things are. This is wise advice in this case. These companies are constantly changing how they categorize themselves, because as millions of people lose money in them, the news spreads that they should be avoided. For example, most consumers know to avoid MLM, but they might still be tricked into getting involved in “Community Commerce.” It sounds as if it might even spruce up your neighborhood, doesn’t it?

Bottom Line: When someone uses the term network marketing or direct selling to refer to something that is MLM, it may be because they are trying to group an MLM in a very recognizable legitimate form for business. One question to ask yourself, “If they are trying to disguise what the business really is, what else do they have to hide?”

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MLM Mind Games

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MLM Myth: This MLM is Legal so This Other One Must Be Legal

One common argument that a MLM distributor will make is that because one MLM is legal all of them must be legal. Often times the argument will come in the form of: Avon and Tupperware are legal have been around forever so [fill-in the MLM the distributor is pushing] must be legal. The logic seem sound at first and if you didn’t know better you may fall for it.

However we know that MLMs with products can be illegal pyramid schemes. Some MLMs are legal are some are not.

This lack of logic is known as an association fallacy. The very same logic could be used to say that because a serial killer is a person and you are a person, you must be a serial killer. Hopefully, it is now clear how poor this logic is.

Bottom Line: There are many different varieties of MLMs. Use the guidelines from this FTC document on MLMs and pyramid schemes to determine if one is legal. If an MLM distributor is using this type of logical fallacy to convince you to join his or her MLM, it is likely they are trying to trick you. Avoid the person and the company like the plague.

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MLMs vs. Pyramid Schemes

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MLM Truth: MLMs with Products Can be Illegal Pyramid Schemes

One of the most common and oldest myths is that an MLM can not be a illegal pyramid scheme simply because it has a product. I’m not quite sure where this myth was started, but it seems to be by someone with a vested interested in an MLM product or company.

However it was started, this is one of the easiest MLM Myths to put to rest. The FTC has two very good articles on the subject. Each are very straight-forward

The first has this specific quote:

“Not all multilevel marketing plans are legitimate. Some are pyramid schemes.”

The rest of that article has a lot of information for how to determine whether an MLM is a pyramid scheme. If you are considering getting involved in an MLM, it is well worth taking the 2 minutes to read the article in detail.

The second has this specific quote:

“Pyramid schemes now come in so many forms that they may be difficult to recognize immediately. However, they all share one overriding characteristic. They promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public. Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure.

I’ve put the last sentence in bold because it clearly shows that some pyramid schemes use a product to appear to be legal.

Furthermore the FTC has shut down companies like JewelWay, which had products, for being a pyramid scheme.

Bottom Line: If you hear someone spreading this very old myth and the person is involved in an MLM company, it is best to run away from the person and the company. They clearly don’t have a grasp on their own business, which should make warning bells go off in your head about anything and everything they say involving the “opportunity.”

This post involves:

MLMs vs. Pyramid Schemes

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