These new salespeople are then compensated by and incentivised
to recruit other distributors. The cycle continues creating an ever expanding pyramid with a hierarchy of multiply
compensation levels.
Criticism
The business model is unsustainable because of its focus on
endless recruiting, rather than actually selling the product to the end consumer.
When salespeople join the scheme, they are required and incentivised to purchase
the product. The downline is continually expanded, with exploitative cult-like techniques
and slick sales presentations used to keep luring new members in.
These pyramid schemes keep growing until markets reach
saturation. MLM has been described as a 'train with no brakes and no engineer heading full-throttle
towards a terminal'.
My view
I find this sales model repugnant, it is nothing more than a pyramid scheme of exploitation preying on the most vulnerable people (unemployed and ethnic minorities). MLM firms use manipulative presentations and over-hyped claims appealing to 'The
American Dream'.
The bait:
images of expensive cars, luxuries holidays, Yachts and money.
It begs the
question: If the product is so great, why not use conventional marketing
models? In most cases, 99% of participants in these Ponzi schemes fail and don't
ever make a profit.
Recommended
reading
A perfect
example of this deceptive marketing scheme is Herbalife. A global MLM nutrition
company. I strongly recommend Brent
A. Wilkes article from the Huffington post about 'Herbalife's' MLM pyramid
scheme.
Pershing
Square Capital Management L.P. has put together a site called 'facts about herbalife',
its presentation is a eye-opening read, on the first presentation slide they
call it 'Robin hood in reverse'
A short educational video by
Investopedia on Multi-Level
Marketing.
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