MLM Scam: The Industry is a X Billion Dollar Industry

One popular saying by distributors is that their product is in a billion dollar industry. It is their attempt to explain why their particular product is going to change the world. Usually, I see it in the context of the a health or nutritional product. For example, I'll see someone claim that a protein powders are a $5 billion dollar business... or I'll see someone claim that energy drinks are a $20 billion dollar business. That gives the illusion that there is a demand for their particular product.

Here are a few things to think about with regard to these claims:

  • The numbers used in such claims rarely backed up by the MLM distributor. Typically these numbers are just passed from the upline. Sometimes they are taken out of context and other times they are entirely fictional (see the false claim that Harvard Business School teaches MLM).
  • The industries with all those sales are usually quite crowded. For example, a person can go into a grocery and get any number of energy drinks. I could create a new soda, but I shouldn't expect success just because Coke, Pepsi, and others sell a lot of soda. In fact, because of the competition there, I'm less likely to be successful with my new soda.
  • A vast majority of people tend to shop at retail or grocery stores. If they are interested in energy drinks, they typically pick them up along with their milk, eggs, and Captain Crunch. Any product that isn't available on that shelf space is excluding themselves from more than 99.9% of the addressable market.

If you hear this kind of claim, it's likely that the MLM distributor is trying to trick you into thinking that there's a good business opportunity.

Update: I noticed that Cnet.com addresses this phenomenon with their article 1 percent of a gajillion dollars!. Here's a quote:

"The most common example of spreadsheet lock-in that I see goes like this: Company X is attacking a well-established, large market. The product is great. Early beta testers love it. The founders know that even a slight toehold in the market will count as a success. So up comes the Delusion Slide in their pitch deck: A chart showing how they're going to get to 1 percent of market share in some mathematically plausible period of time based on their current growth, with a revenue number in the hundreds of millions of dollars based on that.

Most of them never get there. The paradox, and the delusion, is that 1 percent is a lot for you but just a little for the market; that you can skim off that 1 percent and no one will be the wiser.

It does not work that way. If your fortune would be made on the 1 percent, chances are somebody else's will be lost on it. You think they're going to let it go easily?"

Except in the world of MLM, the product is usually not any better than you can get elsewhere and it is a lot more expensive. It makes grabbing any meaningful percentage impossible.

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4 Responses to “MLM Scam: The Industry is a X Billion Dollar Industry”
  1. Rasheed Says:

    An MLM that sells computers or tablets would have no competition against Apple or Microsoft or Android, even though those markets are HUGE (I don’t know specific numbers, but the computer industry is definitely a multi multi billion dollar one).

    The claim in itself doesn’t change anything, but it DOES show that the product is in demand.

    If a distributor could somehow prove that the industry is a multi-billion dollar industry, and also show that competition is low (i.e. the main supplier is not a household name like Google and Apple), then that’s actually a great thing in terms of marketing/business.

    Unfortunately, most companies seem to have to lie and hype their product to fool distributors that their product is better than their competitors’…. 99% of the time, it’s not!

  2. Cyberxion Says:

    I don’t think you know what you’re talking about. Try introducing a brand-new product into a market that’s already loaded with similar products by established companies with a significant portion of consumer mind-share and see how likely they are to buy yours.

    Assuming that the MLM is building and manufacturing its own units, which would be the only thing that would make your hypothetical scenario make any real business sense, then they would most definitely find themselves in competition with Apple, Microsoft and Android. Otherwise they’d just be selling Apple, Microsoft and Android products, and given how MLM schemes typically work, the consumer would be better off going to an establish retailer to get them cheaper.

    Also, if you know how MLM works, you’d know that a significant portion of revenue comes from distributors. So in the end, even if they could prove that they’re making money hand over fist, it wouldn’t speak to consumer demand at all. At best, it would mean that they’ve managed to recruit plenty of distributors, and where MLM schemes are concerned, that doesn’t really say anything useful about the product either.

  3. MLM Myth Says:

    Rasheed,

    It would be hard to show that an industry is a multi-billion dollar industry and that competition is low. I don’t think the two concepts can co exist.

    You could have few competitors. For example, Ebay pretty much owns the online auction space. I can’t think of any other significant competitors. Competition for a new company in that area would be extremely high just from Ebay alone. If you are talking about the energy drink market where there are many competitors – well you have lots of competition from all them too.

  4. MadScientistMatt Says:

    Oddly enough, I’d say that if you wanted an MLM that made its money from retail sales and not a pyramid scheme, computers might not be a bad product for it. If you trained the distributors enough on the products, having a personal salesman sit down with a customer and tailor a computer’s spec sheet to the customer’s specific needs would be something that some consumers – either technophobic or possibly high end system buyers – might be willing to pay a premium for, particularly if they could come back to the salesman for any support questions.

    This hypothetical company wouldn’t need to produce most of its own components – you’d have a contract manufacturer make some snazzy custom cases, and the other components would be off the shelf items. A distributor would buy an inventory of components and put them together to match orders. The biggest downside is that this would take a very knowledgeable distribution force – that, and I can’t see why this would need a multilevel element instead of just franchising it.

 

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