What so bad/good about MLM?

ShrodingersCat SG

Fallacy 1: You can't get success from MLM

It isn't true that you can't get success. Many people have been successful and have earned money. There are always hungry enough people, people who are aggressive enough to earn money to make use of the MLM strategy to 'succeed'

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Crux of the matter is really how MLM works. MLM is a strategy in which the PRODUCT is no longer the central importance in a business. By utilising the strategy to capitalise on MOST of the masses' desire to 'succeed' and have their own business, this 'downline' approach feeds this desire successfully and while the company introducing Product X through MLM has a thousand and one 'retailers', they have barely few real customers.

In a regular business, you look at a your market size. For example, a generic product can look at the ENTIRE Singapore as its market, possibly any one from the ages between 14 - 50. We will take an arbitrary number of 2.5 million people.

Let's do some maths. If everyone from the top level recruits 4 people to 'sell' their products for them, and to make it easier, let's say each level thereafter manages to find about another 4 more. Of course in a real life situation (that is a non-pyramid MLM), some people will find 3.. some people wil be more successful and find 20 and Some will give up. But... let's just make it a generic 4. So how many layers of 4 clientswould it take to reach 2.5 million (which is where you reach ultimate market saturation?) My calculations gave me about the 10th - 11th layer. That is about when (if the MLM is wildly successful) about everyone in the 2.5 million market have been converted to a 'pusher of the product'. Biggest question is... which layer do you belong to? And how many 'layers' of downline do you get to get before the market reaches saturation point?

what's the repercussion of that? Simply that you have an entire market of sellers and no buyers. What happens to every person on the final layer? They make a major loss of investment, because they don't KNOW which layer they belong to when they invest. (Which in the real world situation, you would know how many layers of merchants separate you from the OEM to the retailer). Who are the people who REALLY know what they are doing? The people right at the top of the MLM who are earning hordes of money and laughing their way to the bank. You see, they have already calculated how many layers it would take for the market to bust. And when they recruit enough layers of hungry, entrepeuners wanna-bes, they close the business and shut down. Which is why there are always 'different' waves of MLM businesses... suddenly it would be cosmetics.. suddenly it would be health foods.. the product isn't important.. what they are REALLY selling is a membership to a desired lifestyle.

Every person that you recruit may be possibly join the last layer of the venture.It is a small problem that occurs when many MLMers approach their friends and get upset when friends are not interested in the product. If a sales person approach me in a shopping centre, and I reject the product due to any of my own reasons (don't have money at that time, don't feel like buying it, dont like the face of the sales person), it doesn't become personal. It doesn't become 'MY lack of desire and drive' simply cos I dont feel like patronising a certain business.

What is a bigger problem is.. what if your friend is interested. and invested. and.. unfortunately belong to the last layer before the market reaches saturation point? Your friend would have no 'downline' and since all the available market have already turned 'seller', no customer to sell his products to! Of course, you may say, not all business work out what. Every type of business has its own risks.BUT most business have a fighting chance before it starts.

So... does MLM works? Definitely. It can make money for YOU.

Does it contribute strongly to economic and social factors?
Hmm. What do you think?

Is it ethically correct?
Ah... It can make people successful, it WORKS.
But is it ethically correct?

No one can answer the question for you.

Honeybunz SG

It is ethically correct. Unless you have anything to point out to me that I may not aware of, to show anything that is not ethical.

ShrodingersCat SG

that's the whole point with ethics isn't it?
It isnt like a morality code where you have to follow
or ten commandments etc

so my ethics would be different from yours... and also priorities and values. But I think there IS a very large grey area in between what is absolute right and absolute wrong.

and its in this grey area that makes some people not be part of an MLM and others fervently believe in it.

Smile

Honeybunz SG

You haven't answered my question leh. You only define ethnics and moral.
I am asking you to point out some examples. Not saying you are wrong. Just want to know if there is anything that you want to point out that I am not aware of. Just want to find out.

ShrodingersCat SG

well.. i dont think that the general MLMers are unethical. And i don't think ALL forms of MLMs are unethical though some forms come close to it, even when it is not illegal.

I do feel that a system of business where the people right at the top who start it continuously try to 'attract' people to increase layers despite knowing that system can bust anytime is an unethical system. And they DO know when it will bust.

But to the average 'investor', they are often not aware of this. They are sold on the premise of entrepeunership, opportunity and profit.

Imagine, if a businessman tell you, his product is very special and you will make a lot of money if you become partners with him to sell the items, and even better, since this is such a good deal, you can ask your neighbours and best friends to join too!

BUT in actual fact, he already have a lot of partners and he is actually making money from your investment and not really from selling the product. In fact, he knows that your whole neighbourhood is 70% full of his 'partners and in a while the market will be saturated. He knows that the 'partners' you introduce into the scheme or THEIR 'partners' will be making a loss in investment. BUT he does not tell you this. He deliberately still leads you on the same premise of a great opportunity.

If you know about this, would you say he is an ethical businessman? It is a great business idea, he can be a wildy successful businessman, BUT I think i doubt someone like this would come across as an honest, sincere businessman.

In fact, if he tells you this: you know, you belong to the 11th layer. We have calculated that by the 12th layer the market will be saturated and it would be difficult for people who join from here onwards to recoup their investment But that's their problem. YOU can still make money if you still tell people they can be successful if they join our partnership! People make lousy investments all the time what! It is not your fault if they dont check. And remember, you make money from them!

Imagine, if he tells you this. Would you go ahead and still attract people to join the system?

BUT having said that, the world of business is cut throat. So lots of people can do worse things than this. Many products have used the MLM system successfully. BUT in an MLM system where the marketing focus is NOT on the product but on the partnership opportunity, then I think obviously it is out to make use of people's desire for wealth. It works. BUT for me, I do not consider it an ethical system of marketing.

Honeybunz SG

What you have described isn't MLM. It is pyramid. Most ppl get mixed up with both.

Honeybunz SG

How do the two systems compare?

ShrodingersCat SG

A pyramid is just ONE type of MLM. It is probably the earliest form of the MLM strategy. The pyramid structure MLM is illegal cos it refers to the 1 person recommend 2 person recommend 4 person structure. (i.e. forming a pyramid, hence the name) not so much the business practises which spans across different types of MLMs, whether they are pyramids or not.

However, once the pyramid strategy became illegal in many countries, the structure of MLM began to evolve. As long as a MLM does not enforce this direct logarithmic increase in getting people, it does not infringe the illegal pyramid law.

A lot of MLMs still practise similar business ethics to what people popularly call "pyramid' BUT they insist they are not pyramid because, well in essence, they aren't! Please note, that I am not saying ALL MLMS have dubious business etchis. BUT MANY of them do.

I have met at least 10 different people, 'investing' in products ranging from health food, to vitamins, to cosmetic products, etc etc, who tried to introduce me to MLM. Not one of which focused on the product they are trying to retail, but kept focusing on the 'investment' aspect of it. At that point of time, I was amused and interested in this MLM marketing strategy, so I went to many 'talks' and 'conferences'. The invariable aggressive approach to get me to invest ON THE SPOT, and defensive and scathing remarks if I express a lack of interest or I question them is quite standard across the board. It was quite fun to see the trigger effect.

One of the most amusing ones I went to was a health product. It was supposed to be some wonder medication that can make fat people slim, skinny people beef up, ill people well and all that. Grown on virgin lands in some weird country and claimed that it was made in KOREA. The lady speaking to me was Taiwanese, and when I showed doubt about the thing being manufactured in Korea, she pointed at this poster and told me "LOOK isnt it VERY obvious we have an office in Korea?" The poster she showed me was a Visit Korea 2000 poster. When I left the office, she was still wildly baying at me about how I am going to REGRET! REGRET this opportunity. The friend who asked me to attend this conference was a graduate who was very convinced with this entire thing and kept asking me to invest with her.

Of course, there are some products that have become wildly successful through ethical MLM marketing - informed sales persons, well tested products, a proper system of retail. In fact, most companies practising ethical MLMs dont rely solely on it. They usually have a combination of wholesale, MLM, direct selling and retail.

In the market, the rules of economy holds. Basic demand and supply. If the product is good, the OEM has such power that wholesalers and retailers will beat the house down to be given a chance to retail it.

Le's discuss further Smile

1. Why would a great product select MLM as a marketing strategy?
2. What sort of products will do the best using MLM as a marketing strategy?
3. If you are a business man, Why would you select MLM as a distribution strategy over other methods of distribution?

I am very interested in MLM actually Smile err academically, not as an entrepeunership option. Actually someone I knew well wanted to start an MLM in Malaysia some years ago, and I sat in on the discussions on the legality and strategy of it. and i found it very fascinating.

So It is interesting to discuss this, if you don't mind. I know my post is a bit long. I think it would be interesting to learn more if we can study this in this objective manner. Hope you don't mind Smile

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