FMC: The Nature of MLM

matthew's picture

I've been thinking for a long time that I need to write a series of very important things I've learned over my lifetime. Almost every day for the last year, some concept has occurred to me that would be good for my kids to know so they can avoid making the same mistakes I've made, or seen others close to me make.

In that vein, here's my first topic!

For My Children: The Nature of Multi-Level Marketing Companies

For a moment, think about what your average shopping experience is like. What's your process? I can't talk about yours, but I can talk about mine.

For me, the process typically can start in one of two ways:
1. I desire something because it's something I already know would satisfy me in some way. Food, shelter, clothing, warmth, a TV, a new hard drive to move data at my work, whatever. I may not know the specific exact thing that I want, but I know I want something that does a thing for me.
2. I desire something because it's new. There's a lot more detail to it -- new feature, new price point, totally new thing, etc. -- but it's the new-ness and the timing of the purchase is important.

Now imagine you hear about or see a certain product. It serves a need for you of some sort, and it may not have been something you've seen before. You make the decision to purchase it. You like it so much, you buy something else of the same brand, and again have a good experience. This is the heart of brand loyalty, and there are many, many ethical companies that purposefully try to build that type of customer loyalty through superior products, advertising, image, etc.

There's a fine line, of course. What if the product is crap but has a great marketing campaign? What if it's a good product, but abuses its workers in some way? What if a company pioneered a product or service, but now some other company is producing a similar product at a lower cost? What if that new company is undercutting their competition in a completely ethical way? What if they are doing so unethically?

These are good questions to ask yourself to inform your purchasing decisions. As I often tell my kids, "Question everything. Then question your questions to discover if there are other questions you should have asked instead." It's very important to always question what you are told or read.

Even what you read here, from me.

That may be a topic for another post on another day, perhaps, but is not the thrust of what I want to discuss today. I want to talk about "direct marketing". Direct marketing occurs when someone you already know in some way advertises a product and/or service to you. It's also often called "affinity marketing" or "direct sales", but many companies give their own special name for it.

There is, of course, a spectrum of direct marketing approaches and products for sale, from personal hygiene products to jewelry to financial services to sex toys. It's truly dizzying. Direct Marketing allows companies to build product loyalty through word-of-mouth. Some times the products are worth the price of this method of marketing, others not.

What matters for the purpose of this little discussion, though, is their FOCUS.

Inevitably, at some point in your early adulthood, someone will try to invite you to some sort of direct marketing seminar. I won't tell you not to go! Instead, I encourage you to go. But leave all your cash, checkbook, and credit cards at home. If possible, leave even your identification at home. At some point in the seminar they will try to convince you to sign something, purchase something, or whatever.

For this first experience, I want you to practice saying, "no" in the mirror.

Seriously.

Look yourself in the mirror and mouth the word, "no" several times. You want to get used to it.

Practice asking yourself oddball questions aloud, and answer "no" to yourself. "Do you love your family?" "No." "Do you like good food?" "No, I don't." "If you could make a million dollars in the next thirty seconds by saying 'yes', would you do it?" "No, I won't."

The more you might possibly want to say "yes" to a question, the more important it is to say no. You're not going to lie; you're practicing this to avoid being manipulated.

Then go to the meeting with your "friend". Be sure to have your own transportation; do not rely on someone that already is purchasing and/or selling the product! Do not take up a pen. Do not pull out cash. Do not answer "yes" to anything. Do not sign anything. Keep your hands in your lap. If it really seems like a good product -- and more importantly, if it's an ethical company -- there will always be an opportunity say yes some other day. Don't be deceived by false timing propositions like, "If you don't do this tonight, you're going to pay more later!" There's always another sale later. If the product is good enough, it or one like it will be available later. Trust me on this part.

Once you come back from the presentation -- once again, don't agree to anything while you're there! -- evaluate the merits of the presentation, and ask yourself this one question:

"Did they focus on selling me a product? Or did they focus on recruiting ME to sell product?"

If a salesperson is trying to sell me a product, it will be worth evaluating and comparing to similar products or services. It may be overpriced; if so, buy something else. It may be high or low quality; determine if it's worth purchasing based on those merits. Verify that their product seems to be ethical. If it's something that ostensibly holds resale value, verify for yourself that the used market for the product or service increases in value; if it decreases in value, but you still want it, perhaps you could obtain it used and save some money? If you buy it new, are you paying extra simply because you are the first to have the thing?

You may end up a satisfied customer of a new product or service. Do your research, and heck, you might end up saving money and improving your quality of life. It's important to be open-minded to new things.

But then there's the dark side.

If that salesperson is trying to recruit you to also be a sales person for that thing in the presentation, you should avoid that thing with all the power you possess. Ethical businesses do not thrive by recruiting new people to pay into their company in some way. That is the behavior of predatory companies, and those who tread as close as they legally can to being a "pyramid scheme", while not actually doing anything strictly illegal.

Pyramid schemes are notorious. The simplest of them were popular several decades ago. You receive an envelope containing a ten-dollar bill, a list of names, and a promise: Send five ten-dollar bills to five people you know, and to the five people on the list, crossing off certain names as you do so. If you do this, the letter promises, you will soon receive many thousands of dollars from people doing likewise. It sounds like magic, and for those who received such letters early on -- high in the "pyramid" -- it was enormously profitable. For the cost of a hundred dollars, you could get many times the return. And if every time you receive such a letter from someone else in the chain, you repeat the process, you are promised to continue compounding your money.

Such schemes are illegal now. You can go to jail for participating in them. The simple reason is mathematics. Any process that doubles itself with each iteration soon will number more iterations than there are atoms in the entire universe. With a finite population, you simply run out of people willing to participate in the chain. When you run out of people willing to send money to others in the list, the process falls apart, and you are left with a HUGE number of people that sent money, but never received any. All it does is shuffle money around, typically landing the largest portion of the pot in the hands of the guy who started the scam in the first place. Those people left holding the bag at the end of the chain typically don't lose very much individually, but because so many people lost that bit, it represents an enormous drain on society as a whole. As a matter of public financial safety, we discourage the practice.

Mostly we do this because those who start such scams are usually people whom we really don't want to end up with a lot of money: criminals. Those who's first impulse is to figure out how to cheat society out of the products of other people's labors rather than earning it honestly themselves.

And that's the problem when you get home from that seminar at which you steadfastly said, "no", refused to pick up a pen, refused to agree to anything that was presented to you. You've determined what their focus is: was it sales of a product? Or was it recruitment of more sales people?

If the latter, steer far away. It is the modern incarnation of that legendary postal chain mail from decades ago. It works for those near the top of the pyramid, but if you were to sign up, if you were to pay a $500 "signup fee", or "marketing bundle purchase", or "sales starter pack", or whatever they choose to call it... you will know that the only way you will ever see money is if someone else is left holding the bag. Eventually, such a direct marketing approach must inevitably, mathematically fail. You cannot recruit everyone on the planet to sell these things.

The numbers bear it out. On average, some 97% of people who sign up for such "new" marketing schemes never sell enough to recoup their initial investment. The only ones making money are the 3% who are hard-working enough -- or is it, perhaps, "unethical enough" -- to willfully, repeatedly, with full knowledge of the devastated lives and lost money in their wake, continue to peddle their recruitment seminars indefinitely.

Do you really want to be one of those people? Callous enough to know that 97 out of every 100 people you talk to will utterly fail attempting to recruit others, and that their investment is simply wasted as part of the endless money-churning effort lying behind such pyramid schemes?

It's up to you. As for me, if the answer to that question ever comes back that they want to sell me stuff just so that I can sell it to other people, I turn around and run the other way. I want nothing of such unethical business practices, knowing that the only way I can make money is to prey on the young, the gullible, and the desperate.

No thanks.