Hmm.. it's quite long.. but hope it helps 
MULTI-LEVEL MARKETING
Rules to limit number of levels in MLM needed
By Andy Ho
SENIOR CORRESPONDENT
LOCAL university and polytechnic students have been bitten by the
multi-level marketing (MLM) bug since January.
Afflicted tertiary students are trying to push loony products such
as a 'biomagnetic mattress that improves nerve function', and
recruiting classmates, friends and family to do the same.
They seem not to realise that if the product is indeed such a boon
to mankind, it would be sold through everyday marketing channels.
There would be little need for some special marketing scheme and
certainly none for inexperienced distributors to market it.
Not that these activities on campus are illegal: The MLM &
Pyramid Selling (Excluded Schemes and Arrangements) Amendment Order
2001 provides that MLM arrangements which satisfy certain
conditions are permissible here.
But legal or not, what is undeniable is that nearly everyone loses
money in an MLM even as so many keep trying.
Superficially, MLM looks like a form of direct sales where
independent distributors sell products, usually in the customer's
home, or by phone.
Initially, you buy the products at a discount - 'wholesale' - and
sell them 'retail.'
Many 'pay to play', stocking up on products to meet sales
goals.
This 'front-end loading' supposedly pushes the new distributor to
higher bonus-levels quickly, but you may get stuck with unsold
products that cost you thousands of dollars.
Meanwhile, you must recruit other distributors to do the same to
become eligible to collect a percentage of their sales.
Yes, money can be made from such sales - but even more from those
of other distributors you recruit, provided you can recruit
them.
This could all work out if MLMs were immune to forces of supply and
demand - but, alas, they are not.
In any real business, if you plan to make and distribute, say, a
million widgets, you have to gear up factories, set up dealer
networks and manage inventories at each level.
If you underestimate demand and run out of widgets, you would miss
out on profits that could have been made. But if you overestimate
demand, your company goes belly-up.
Then, there are territorial considerations too.
Imagine a Burger King (BK) opening four franchises at the
Orchard-Scotts intersection. But not everyone wants a BK burger for
lunch every day, so the outlets are sure to die a slow death.
Even the best products have only partial market penetration, and
that is why, in the real world, BK does not have four outlets
sitting squat opposite each other.
Yet, in the MLMer's fantasy world, he can tell the recruit:
'Everyone will want this product!'
That is, its demand and market share are infinite.
So, the MLMer says, all you have to do is convince 10 people in
your location that everyone needs this product, and get them to
also convince 10 others in the same location. And so on.
This geometric expansion is usually portrayed as an expanding
matrix, with kickbacks at certain levels.
The word 'pyramid' is studiously avoided: Yet, at a mere three
levels deep, it is already 1,000 people, while at six levels deep,
a million people will be selling to yet others.
If the model really worked, MLM company Amway would be larger than
even the United States economy in just 18 months.
The rebuttal: 'Only some succeed, so the market will never be
saturated.'
This despite them saying during the sales pitch that anyone can
make it with this opportunity of a lifetime.
Yet, mention saturation and you'll be told: 'Most will fail, but
not you, because you are a winner.'
Actually, the gullible recruit won't get this far: Queries are
quickly defused with a joke or a personal story, and the MLMer
quickly returns to the main point: 'Now is the time to join
up.'
Even if you don't know how many 'distributors' are already above
you.
Ominously, Amway's 'Business Review, 1998' of its distributor data
from April 1994 through March 1995 showed an average 'gross income'
of only US$88 (S$154) per month per distributor.
No rational person would try selling something knowing full well
the company openly over-hires 'sales reps' - without pay - for the
same products in the same prospective territory.
So, the MLMer's main thing is not selling the product, but selling
others on selling others who sell yet others a fantasy.
Which is why every MLM brochure appeals blatantly to unbridled
materialism - a mood shot of a bungalow, a BMW in the driveway, a
beautiful couple on some exotic vacation, and so on.
The egregious appeal to greed should make you sit up and think if a
legitimate business opportunity might not, instead, focus on the
product and the market instead.
But greed suspends good judgment and common sense flies out of the
window.
Not being professional salesmen, MLMers may not be very obnoxious
when pushing their products. But when it comes to signing you up as
a 'distributor', they go over the edge because an MLM rewards
people to recruit others.
They will resort to every trick in the book to get you to their
'meetings' where a slick presenter, presented as a successful
distributor, gets everyone worked up into a frenzy of greed.
Before you can say abracadabra, you are signed up, then let loose
on gullible, expendable friends, and even close family.
MLMs grow by exploiting relationships, which is rationalised away
as 'building your business' or 'networking'.
MLMers can't see how they appear to their lifelong friends and
family members, who try desperately to avoid them.
But the pyramid is unsustainable.
Sooner or later, you realise you have been had. Yet people do not
easily admit defeat but go into denial and depression.
When you do eventually give up, you are too embarrassed about
having participated to file a complain with the authorities.
So, the MLM continues to exploit the most vulnerable, the
desperate, the retrenched, the ignorant, and the gullible.
Short of banning them, as China did in April 1988, enforcement
authorities should limit the number of hierarchical levels allowed,
prohibit distributors several levels above the seller from
profiting more per sale than the actual seller, and require all MLM
schemes to make public a complete breakdown of their payouts for
all levels of distributors. And this would not be
over-regulation.
After all, a sucker is born every minute. With some apparently even
ending up in our institutions of higher learning, they all must be
better protected.
Andy Ho is a senior writer with The Straits Times.
