Why Would Anyone Buy an MLM Product?

Before we get to the discussion of the product, let’s have a quick review of the FTC’s guidelines on pyramid schemes:

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.

So to paraphrase, if you sell product to people outside the business it may be legit. However, if your money is made from your recruited downline, it is a pyramid scheme.

The problem with actually selling product is that you can’t really make a business of it. Specifically there are at least three problems:

1) Every product I’ve seen is ridiculously expensive… usually overpriced by around 5x-10x. They can get away with this, because they are really selling product to distributors. Distributors think they are saving 20%, but they are really overpaying by 300% or 400% in an effort to sell it at 500%. Distributors are also buying the product because they need to fulfill a Personal Volume (PV) requirement to earn commissions from the pyramid/team/recruitment hierarchy.

This was quite obvious when MonaVie sold $45 bottles of juice. They were only 25 ounces. Even PomWonderful’s juice isn’t close to that price.

2) The next issue is that you can usually find the product for the discount price on Ebay. Why would anyone pay the suggested retail price, when you can get it cheaper very easily? You simply can’t make a living selling a month of protein shakes at $120 when anyone can buy them at $100 elsewhere.

3) Finally, if people really like the product, they may become a distributor themselves to buy the product at the distributor rate instead of the retail price. It’s usually very easy to become a distributor (a one-time $25 fee, sometimes even free), so almost anyone interested would be wise to join to get the discount price.

In this last scenario, you are back to recruiting instead of selling product, which according to the FTC’s guidelines makes it an illegal pyramid scheme.

I like to say that MLM has a selling component and a pyramid scheme component. You can’t know how much is which without full transparency into the MLM. I believe that a responsible company would stick to a simple affiliate sale model rather than risk running a pyramid scheme. It accomplishes the same thing of letting people promote product sales.

When a company sticks with a pyramid scheme model, it tells me it shouldn’t be considered reputable.

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MLMs vs. Pyramid Schemes

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