The Temptations of Multi-Level Marketing (and why to Resist Them)
Updated: Aug 10
This is a guest article submitted to Fact Not Opinions by Connor Renshaw.
What is Multi-Level Marketing?
We have all seen it before: A friend on social media starts posting about how they have a great opportunity for those who want to start making extra money. They promise that you can be your own boss and work on your own schedule, all while selling a product which they claim has changed their life. Perhaps even though you haven’t spoken to them in years, they’re an old high school classmate or co-worker from two jobs ago, they are now sending you a direct message to tell you about the opportunity they found.
Your friend sends a link and you click to find an organization promising to help you start your own business and achieve financial freedom. After signing up with the organization and paying upwards of $100 for a starter kit of products and materials you’ve fallen victim to an industry in which a 2018 study by the AARP foundation found that 74.3% of participants fail to make a profit and 47% lose money.
Multi-level marketing (MLM) is a business model in which individuals buy products from a larger organization to resell, often through face-to-face direct selling. Participants in MLMs usually earn a commission based off sales made by those who they convince to join the organization as sellers. This leads to a strong monetary incentive for current participants to recruit new members.
Many of the problems of MLM stem from the business model itself. Because members of MLMs are expected to recruit new participants those members are left to contest with the impossibility of endless growth. A report released by the Consumer Awareness Institute in 2012 explains that in an organization where each participant recruits two new members, by the 32nd generation of recruits the total number of participants would exceed the global population. In practical terms, this means that reaching the amount of recruits and sales needed to make a profit through MLM participation can prove to be difficult as areas can quickly become saturated with MLM activity. According to the 2018 AARP Foundation study 7.7% of United States adults had participated in an MLM. Due to this low rate of participation, even an effective recruiter might quickly run out of willing recruits among those they know.
How do Social Networks Impact Multi-Level Marketing?
Another set of issues with MLMs arises from their dependence on the social networks of their participants. Members of MLMs are expected to pitch to their friends, family, and acquaintances; a behavior which may place strain on the member’s relationships. The AARP Foundation found that the awkwardness of pitching to family and friends was the most common reason for a person to leave an MLM, with 39% of respondents saying it had motivated their departure.
On top of exploiting the social connections of their participants MLMs also use financial vulnerability as a recruiting tool. 48% of first-time MLM participants surveyed by the AARP Foundation were between 18 and 25 years old and 60% of all participants were female. Both of these populations are particularly financially vulnerable. The 18-25 set is an age group often defined by the stereotypes of the “broke college student” or twenty-something trying to get their start in the adult world and according to the Pew Research Center despite progress in recent years women still make 15% less money on average than men. For both demographic groups the appeal of MLMs, which often market themselves as a fast and easy way to produce much needed income, isn’t hard to see.
In a time when unprecedented numbers of Americans are out of work it is easy to imagine that MLMs might position themselves as an appealing way for the unemployed and furloughed to make up for lost income. In fact, the Federal Trade Commission recently sent out letters to prominent MLM companies warning them not to misrepresent the potential income one might make while working with an MLM during the pandemic. While MLM participation may seem like a tempting financial stopgap or even a new career, due to this business model’s low success rate for members, unsustainable growth expectations, and morally questionable recruitment practices people should remain wary of multi-level marketing.
Connor Renshaw is a Maryland based freelance writer and recent graduate with a background in communication and sociology. More of his work can be found at connorrenshaw.com
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