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.

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MLMs vs. Pyramid Schemes

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