Archive for January, 2013

The $100 Pen Pyramid Scheme

I came across a great post on Fat Wallet warning people about Lyoness and thought it illustrated a great point about MLMs and pyramid schemes:

"Say Mr Pyramid buys pens in bulk from Staples and sells them for $100 each. Who's gonna pay $100 for a pen? But tell them that they can also sell pens for $100, and we'll pay you $30 for every pen you sell, plus you can recruit people to sell pens as well, and you'll get $10 for every pen they sell, and $5 for every pen their recruits sell. Three levels, $45 commissions total on a $100 sale. Everyone has to buy 10 pens a month for personal use to participate in the program. Just find three people who find three people who find three people.... In the end, yeah, you are buying 10 pens a month for $1000, but you are getting $3150 in commissions, so don't sweat it. Why wouldn't you join?

Product is moving. The pens get used. No recruitment revenue, only product commissions. Absolutely 100% a pyramid scheme. The only real reason people are paying $100 for a pen is for the opportunity to make money off the sale of pens. Completely unsustainable as eventually, you run out of people to sell to and those at the bottom get hosed buying $1000 pens but not being able to sell them. This is an extreme example, but if you look at the world of MLM, there are some pretty big name companies out there that somewhat fit this mold on a less cut and dry basis."

I loved how quickly and easily he described the scheme. So when a company like MonaVie sells a 25 ounce bottle juice at $40 or a shake company wants to sell you on 90 calories for $1.50, you've got a pretty good idea that they are pretty much a pyramid scheme. The companies and their distributors like to say that their product is a higher quality. The quality of the products, such as a juice, shake, or vitamin are often impossible to judge.

What is clear is that MLMs all seem to charge high prices. Are we to assume that each one has supreme quality or is there a fee being tacked onto the product due to the "business opportunity" where the people at the bottom get screwed? I'll go with the later.

This post involves:

MLMs vs. Pyramid Schemes

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General MLM Discussion

This is a post where I'll move comments that aren't related to the post that they were submitted for. Or people can comment on things that aren't on other posts.

This post involves:

MLM Scam

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Tupperware: Direct Selling Left Us… Industry Dominated by Apparent Pyramid Schemes

Many people bring up Tupperware as a great example of a legit MLM. They also often use it as justification that all MLMs must be legal because Tupperware is. As we know a square (a legit MLM like Tupperware) is a rectangle (MLMs), but a rectangle (MLM) is not necessary a square (a legit MLM like Tupperware). This is why the FTC says:

"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. Pyramid schemes are illegal, and the vast majority of participants lose money."

If someone makes the case about Tupperware being legit in an MLM discussion you know that they are trying to trick you. In fact, CNBC recently wrote about MLM and included this about Tupperware:

Tupperware, for example, no longer calls itself a direct sales company, instead using the term direct-to-consumer. The company didn't return calls from CNBC. But speaking to the Wall Street Journal (subscription may be required) , CEO Rick Goings said, 'Direct selling left us, because the industry became dominate by buying clubs and what looked like pyramid schemes.'"

So that's the CEO of Tupperware saying that they aren't in MLM or direct selling any more. They don't want to be associated with MLMs based on self-consumption buying clubs that appear to be pyramid schemes.

Clearly the CEO of Tupperware sees what is going on and is smart enough to distance themselves from it. Let's do the same and distance Tupperware from the dominate number of MLMs that hit the basic pyramid scheme guidelines.

This post involves:

MLM News

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Discount Buyer or Failing Distributor? Doesn’t Matter: Neither is a Customer.

When trying to determine between an MLMs and Pyramid Schemes, it comes down to two points that the FTC has emphasized previously:

Often MLM supporters will claim that they have customers, but that they have signed up as distributors to get a discount on product. MLM companies have created this structure in an attempt blur the line between distributor and customer. This way, there would be no way to quantify the number of distributors who are failing to recruit others. They can always be explained away as people who don't care about the business, they just want to get a discount on the product.

Unfortunately for the MLMs, this puts them in a bad place with the regulators. As we showed above the FTC has made a point to distinguish sales outside the network. A distributor, whether he/she be a discount buyer or a failing distributor is by definition inside the network. Thus those sales further go to fuel the pyramid scheme and can't be used to defend the company as being legitimate.

A wise MLM company would use the notion of a preferred customer (as some do) so that these discount buyers are correctly categorized as customers and accounted for separately than those interested in the business opportunity. This kind of transparency, and having the numbers independently audited and published would go a long way towards a pyramid scheme defense.

This post involves:


... and focuses on: