Opinions on MLMs, or multi-level marketing companies, vary widely, and there are valid arguments both for and against their business model. However, from someone who lived with a person, who was forever signing up for the latest whiz-bang health and wellness drink, potion or pill, I do believe MLMs can be addictive for some people.
Rather than just have a rant, I will provide some balanced perspective as to why MLMs are a trap for a lot of people.
3 Reasons MLMs Lure People in.
- Financial Promises.
- Social Pressure and Community
- Cognitive Biases.
1. Financial promises:
MLMs often lure people in with the promise of financial success and the potential to “strike it rich.”
They emphasize the opportunity to earn a significant income through the recruitment of new participants and the sale of products.
This allure of financial freedom can be tempting, particularly for those who may be experiencing financial difficulties or seeking additional income.
2. Social pressure and community:
MLMs typically create a strong sense of community and belonging among their participants.
They often use tactics (commonly called “love Bombing”), that has been likened to the first time a person uses cocaine or becomes a member of a cult.
This high from being involved with a group of people who “care” about you can make it difficult for participants to leave the MLM, as they fear losing their social connections and the validation that comes from being part of the group.
3. Cognitive biases:
MLMs often exploit various cognitive biases that can influence decision-making.
For example, the “sunk cost fallacy” can lead people to believe that if they’ve invested a significant amount of time, effort, and money into the MLM, they should continue in the hope of recouping their losses or achieving success.
Additionally, the “availability heuristic” can make success stories within the MLM seem more common and attainable than they actually are.
While MLMs can offer some individuals opportunities for financial success and personal growth, they also have inherent risks.
Many argue that the MLM business model relies heavily on recruitment rather than the sale of products, which creates a pyramid-like structure where only a few individuals at the top benefit.
Research suggests that the majority of participants in MLMs end up losing money (99.6%), rather than making anything substantial.
A sample of Arbonne participants earnings below.
- 61% of Arbonne reps earned $8 a month.
- 27% of Arbonne reps earned $108 a month.
- 8% of Arbonne reps earned $746 a month.
- 3% of Arbonne reps earned $3,514 a month.
- 1% of Arbonne reps earned $11,497 a month.
Comments by people looking at the list above and disclosure opposite are less than flattering.
Sub-minimum wage, fake new friends for life that will block you if you ever leave/once they can’t get anything more out of you…
AND you get to alienate everyone already in your life by trying to emotionally manipulate them into buying overpriced crap?!?
8 Risks associated with MLMs:
1.Financial Loss:
MLMs often require participants to purchase expensive starter kits, inventory, or pay various fees and expenses.
It is not unusual to have inventory you cannot sell or even give away, laying around your home for months after you decided to cut your losses.
2. Pyramid Structure:
MLMs typically operate in a hierarchical structure resembling a pyramid, where participants recruit new members beneath them.
The focus is primarily on recruitment rather than selling products.
This structure can result in a limited market and saturation, making it difficult for participants to earn income.
3. Recruitment Pressure:
MLMs often place significant emphasis on recruiting new members… And they are hunting for newbies everywhere!
Even LinkedIn. Be on the lookout for “huns” recuriting for Primerica if you are on LinkedIn.
This leads to relentless pressure on individuals to recruit friends, family, and acquaintances into the scheme, which does strain relationships and creates tension.
4. Exploitative Practices:
Many MLMs employ aggressive and manipulative tactics to recruit and retain members.
This can include making exaggerated income claims, presenting false success stories, or using deceptive marketing techniques.
New members may be encouraged to make unrealistic promises and exploit the trust of their friends and family.
Damn…I am being nice.
What I really meant to say. “Heavy reliance on guilt-tripping/gaslighting to manipulate others into getting their way.”
5. Lack of Control Over Products:
Participants are bound by the company’s rules and regulations.
- You are not able to customize products.
- You cannot set the pricing
- You are essentially a direct sales person working on commission.
6. Saturated Markets:
You have heavy competition selling products in oversaturated markets, such as cosmetics, wellness products, or dietary supplements.
I have reviewed many health and wellness MLMs on this site and many of the conclusions have not been good.
Related article Here
7. High Turnover Rates:
People have a tendency to leave just as quick as they joined.
They smelt a rat and realized that the business model is not sustainable and will only lead to disappointment and wasted time and effort.
8. Legal and Ethical Concerns:
Many MLMs have faced legal scrutiny and accusations of operating as pyramid schemes.
The FTC, Better Business Bureau, and Truth in advertising, are all advocates for the consumer when it comes to dealing with MLMs.
While not all MLMs are illegal, it can be challenging to differentiate between legitimate MLM companies and those engaged in fraudulent practices.
Engaging in an MLM that is later shut down by authorities could result in financial loss or legal consequences.
Unfortunately for those who got caught up in the love bombing, the “Sunken Cost Fallacy,” and lost their home their retirement fund, their friends and family, there is very little you can do to recover what is lost.
Until next time
Michael.
