I've noticed that many products are expensive. By expensive, I mean priced at 2 or 3 times what the average consumer would pay. Some products like MonaVie are priced at 20 times (ounce for ounce) the price of competing juices. Other products like Protandim are similar much cheaper if you simply buy the ingredients separately.
Many MLM distributors say, "So what? Tiffany's jewelery is expensive and that's not a scam." I think you pay quite a premium for that little blue box and the brand name. However, it got me thinking, "How would an MLM gas station work?"
Imagine a gas station that charges $8 a gallon for gas next to one that charges $3. The $8/gallon gas station promises to pay you 50 cents a gallon for each person you convince to also fill up at the same $8 gas station. The catch is that you must also fill up at the gas station to earn the commissions.
One could look at this gas station and say, "Hey if I get 16 people to sign up, I get free gas. This is great! I'm going to publicize this all over the place and give it my highest recommendation because free gas is great... and if I can get 20 people to sign up, I'll actually be making money. Whoa!" That's the view that most MLM distributors have.
A more analytical, non-emotional view might look at the big picture and say, "If I recruit 16 people to buy $8 gas, they are paying a combined $128 a gallon so that I can get my gas for free. However, if all 17 of us just went across the street to the $3 a gallon place, we'd only pay a combined $51 for our gas. Yes, I wouldn't get my gas for free. I'd have to pay $3 like everyone else, but at the same time, I saved each of the 16 people $5 a gallon by not participating in the $8/gallon scheme."
Let's say that we go with the former view and try to get gas for free. It turns out that each of those 16 people have to recruit 16 people to get their free gas. That means that 256 people will have to be involved. And those 256 people have to recruit 16 more people to get their gas for free, bringing 4,096 people in. The next level has 65,536 people. If your city is sized like mine, there is no longer anyone left to recruit. That last group of some 61,000+ people are left footing the whole $8 gas so that approximately 4,300 can get their gas for free. A lot of the town's money just got funneled into the hands of the owner of the gas station with a few of the participants receiving a pittance.
A number of the people in the town will see the $8 gas for the scam that it is and stay on the sidelines completely. It will impossible to recruit these people so the scheme runs out of people even before it gets to the whole town.
So who thinks this $8 gas station is a scam? The gas station owner isn't going to admit it's a scam - he's getting exceptional profits and doesn't want to see it stop. The person trying to recruit others isn't going to admit it's a scam - their plan is to get people involved so that they can free gas.
What about the outsider watching these people pay $6 for their gas week after week because they were only able to recruit 4 people? He's likely to say, "These people are getting scammed. They could be paying $3." Most outsiders just continue about their day because they've got a lot of other things to do. Why care about the people getting scammed? It's their own fault for being dumb.
However, occasionally an outsider really cares about people and tries to educate them about what they are involved in. That leads to websites like this and articles like this one.
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October 1st, 2011 at 4:48 am
That is one of the best illustrations of this concept I’ve ever seen. It takes it to another level — social contracts/ethics, game theory, the Prisoner’s Dilemma, and Dollar Auctions. Deep!
October 20th, 2011 at 4:13 pm
Very well written.
November 15th, 2011 at 8:55 am
Haha, shouldn’t you be charging for that kind of knowledge?!
March 27th, 2012 at 10:09 pm
Brilliant analogy!
March 28th, 2012 at 12:46 am
An excellent analogy if I do say so myself! It really puts things into perspective, especially for those that don’t have the moral compass to realize that while they might be getting “free gas”, those that they have suckered into joining their scam are paying through the nose.
March 28th, 2012 at 1:09 am
Thanks Brent and Fever. Feel free to share it.
March 29th, 2012 at 3:27 pm
THIS IS A SAD REALITY! Hyperinflated profit margins are just necessary if you’re going to pay multiple levels of commissions.
One of our Stratus leaders asked me to write a response to this article adding in the Stratus model. So here goes…
Imagine that next to the normal $3 gas station and the $8 MLM gas station, there is a third Stratus gas station. The gas at Stratus also happens to be $3.
However, since we pass 100% of the profit to our people at Stratus, for ease of math, let’s assume the gas station has $1 of profit in each gallon of gas.
That would mean that every Stratus Associate gets $0.52 per gallon back on every gallon they pump – dropping their cost to $2.48 per gallon. They also earn $0.20 per gallon from every partner they invite to fill up at Stratus and $0.10 per gallon from people invited by their partners.
When they invite 2 people, they start earning profit sharing in all the Stratus gas stations, and their profit sharing grows as they help others get into profit sharing until they have replaced their income or more.
As their team grows they begin to earn more and more points toward all kinds of extra purchases at the station. Unfortunately, some suppliers may set their retail prices a little higher than the grocery store across the street, but by in large, the prices are less, and now they’re also free!
Normal retail profit margins are enough to generate massive success for all!
Everyone saves! Many earn!
March 30th, 2012 at 5:15 pm
What if it seems like the Stratus price is $4.50 next to the $3 gas?
For example the Stratus Network price of a 56-serving food supply of Wise Food is $128, plus an estimated $20 in shipping to me in California. The total price is $148.
The first place I went to look is Amazon.com to see if they carried the product. They do. It is $99 with free shipping.
Granted this was the first and only product that I looked at, so I don’t mean it to be representative of everything at Stratus. Frankly, I don’t have the time to compare multiple products from any of the hundreds or thousands of MLMs. However, this alone shows that it makes retailing this product through Stratus extremely difficult. This is important because these FTC guidelines say that a majority of the sales need to be made to people outside of Stratus for it to not be a pyramid scheme.
When you say, “Unfortunately, some suppliers may set their retail prices a little higher than the grocery store across the street, but by in large, the prices are less, and now they’re also free!” It sounds a lot like what I’ve seen with Amway, including the pitch that the prices were less on average. They weren’t. These MLMs simply don’t have the scale to compete with Amazon, Wal-Mart, Target, etc. These places can negotiate much cheaper product due to the quantities they purchase.
March 30th, 2012 at 5:25 pm
Okay, I looked up another product. Diet Snapple Singles to go. They are $7.12 for 4 boxes of 6 on Amazon, plus free shipping (fulfilled by Drugstore.com). The Stratus price is $2.50 if you order 2 or more for a total of $10. Even with the Stratus cash back the Amazon price is cheaper.
I should also mention that Amazon has an affiliate program as well, so you could create an Amazon store from any number of software packages and earn commissions. I sure hope that Stratus doesn’t cost anything to join or have any monthly fees (such as a cost for hosting your own store) or it looks to be a bad deal.
March 30th, 2012 at 10:39 pm
I agree 100%!
Stratus is a free market system that allows people to set their own prices on their products. Stratus does not micr0-manage where suppliers set their costs.
How I wish that all the suppliers selling their products through Stratus would make their prices more competitive. We have a number of fantastic products on Stratus at the best retail price I’ve seen in the marketplace, but many like you mentioned as well.
For example… I sell my services as an oral surgeon through the site. My wisdom teeth and dental implants are already just below the average in my area, but I then place $500 of profit margin into the Stratus system for people to market my services. That provides some serious savings for Stratus members who have procedures done in my office, and nice commissions for the system.
Even if people placed a $1 or less profit margin and kept the retail price competitive, everyone would be better off. It’s a paradigm shift… but one that can make a big difference as people catch on.
Regardless, Stratus doesn’t take a dime from people unless they are making money, and as a not-for-profit corporate structure, 100% of proceeds are then paid out in commissions.
Thanks for your input!
March 31st, 2012 at 1:23 am
Can you point me to a couple of nationwide products that are a better deal on Stratus? Perhaps you can point out where they beat Amazon’s price on a few of them.
If it’s a free market where people are setting their own prices on their products, why not make an Ebay store? Your products will have a lot more visibility than an unknown Stratus Network.
It seems like overkill to ask people to join the Stratus Network to save a few dollars on your services. Just give your clients a password or coupon code that they can pass to get the savings. Or do a Groupon and get a lot more business.
April 3rd, 2012 at 4:58 pm
You have hit on the bigger picture of Stratus.
We are working to build a free-market organization that can rival the Amazons and Walmarts for buying power while passing on the entire profits to the people based on their work. We mostly pay in a cooperative compensation structure rather than multi-level to better distribute the profits and to put people into profit quicker. It will take a long time to build that organization, but remember, it took Amazon 7 years to make their first dollar. We are light years ahead of that curve.
Joining has very little to do with saving a few bucks here and there. As you know, profits, not savings, generate economy. The Stratus not-for-profit corporate structure gives us the ability to help some people save, replace an income for others, and create millionaires based on their steadfastness and work. Either way, 100% of profits go to the people instead of billion dollar juggernauts like Ebay and Amazon. Getting back to the initial point, we can do it without the hyperinflated prices we find in MLM.
So… a few products… My personal favorite is L-arginine Plus. I personally sell thousands of dollars worth of this product every single month to customers around the world. A few of them have joined Stratus for even better savings. Most just purchase it from my personal Stratus storefront. L-arginine Plus is superior to MLM rivals Pro-Argi9 and Herbalife at less than half the cost. The manufacturer sells it through Stratus at their regular price, but passes the keystoned profit margin on to our Associates.
Thank you for quick research into Wise Food pricing. This is also one of my personal best sellers. I approached them with your findings, and they are now making it available at Amazon’s pricing with commissions included. I’ll be able to save my customers even more with very little change in my commissions. Gotta love competition!
The ActiveChoice Healthcare plan is another product I like to focus on, and probably a better comparison to gasoline because it’s something everyone needs (not saying that I agree with individual mandates haha!). I am able to save corporations between $100 and $300 per month per employee with this plan and give them a better benefit. Individuals can also join the organization to take advantage of group savings. While I have seen cheaper plans, they are typically weak benefits, and almost always start up-rating every year after they “get you”. Because this is a healthcare cooperative organization rather than “insurance”, any member of the organization can promote it. Any year-end profits are paid out to those who didn’t need to use the benefit rather than to multi-million dollar executive bonuses.
I don’t expect you to agree with all we’re attempting to accomplish, but I’m proud to be part of it, and we’ve got some great things going. The people who are catching the vision are those who will help us get there. Either way, we at least have the same goal of exposing the MLM world and their questionable business practices. Keep up the great work!
April 3rd, 2012 at 10:21 pm
Amway has been pitching that pitch since at least the early 90′s. They had tapes that went as far as to say that MLM distribution was going to replace Wal-Mart.
Amazon didn’t make their first dollar because they were building out infrastructure such as warehouses and distribution facility. It’s impossible to compare unless you have the same. A lemonade stand can claim they make a dollar and are light years ahead of any corporate curve to that first dollar. I’m not trying to make a comparison to Stratus because I don’t know it detail, but I just wanted to point out how such a statement, while logically true, may not beneficial to your point.
The 100% of the profits going to the people is often not entirely true. The companies that make the products get the profits. As I pointed out with the Diet Snapple above, Amazon and Snapple make a profit, but deliver saves to the consumer. The people are better off getting the savings than getting the profits. There’s not wrong with Ebay and Amazon collecting money for their work. If Stratus did a few billion dollars worth of sales, people would be saying the same thing about Stratus.
It does seem like L-arginine Plus is priced in line with other products, it was even the cheapest I found. The only knock on it that I would in my admittedly 2 minutes of research is that Livestrong seems to say that it isn’t proven to help with much: http://www.livestrong.com/article/491796-benefits-of-l-arginine-and-l-citrulline/, saying that the claims aren’t substantiated by the medical community and higher doses (which L-arginine Plus has some of the highest I saw) can have negative side-effects.
It’s interesting that Wise Food or Stratus couldn’t make the change on their own. You shouldn’t have to inquire with Wise Foods, and I certainly shouldn’t be the one to do a simple Amazon search.
Not everyone needs a Healthcare plan. The vast majority of people do have it through their jobs. It is pretty impossible to compare health plans, because they are all different. I would be most concerned about buying your health care at the same place you buy your Diet Snapple from.
June 26th, 2012 at 3:22 am
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