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.

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