Muti-level marketing (MLM) businesses may have had a legitimate and promising start. However, their frail façade has come crashing down in the last decade.
The MLM business model is founded on the use of sales representatives to distribute and sell their products, instead of using online platforms or traditional stores. Rather than being a standard employee, representatives are considered to own their own business and are responsible for their inventory. The multi-level aspect refers to “each representative's ability to recruit and train other representatives to start their own business. As recruits make sales and recruit their own representatives, each person above them earns a commission. Income earned in MLM comes from the commission earned on personal sales and a percentage of the sales earned by other reps recruited by you.” It can be promising for individuals as it flaunts the promise of ‘being your own boss’ with its flexible hours and financial stability. Except the reality of these businesses is that individuals are usually met with loss. In a report by the Federal Trade Commission, it was discovered that approximately 99% of those who join an MLM will eventually lose money. However, the legality of these organisations remains unclear.
MLMs aren’t inherently illegal. Some might be controversial in practice, while others are simply a cover for a pyramid scheme. Technically, as long as the company is selling a product they can’t be classified as a pyramid scheme because recruiting isn’t considered their only source of income. But more often than not, the products and services being sold are usually overpriced, poor quality, or simply harmful to consumers. A prime example is MLM company Monat, which specializes in hair-care products. In 2015, lawsuits against the company started to surface as consumers claimed their products were causing hair loss, bald spots and severe breakage. It turned out that the company’s production practices were unsanitary and their products were contaminated while containing harsh chemicals, and could not even reach approval from the FDA. Despite their unreliable products, the company’s revenue was still able to grow 760% since 2016 as result of their recruitment practices.
Regardless of its legality, the model itself isn’t sustainable due to this crucial role of recruitment. Hypothetically speaking, if you were placed at the top of an MLM and were told to recruit 5 individuals for your downline, they would be expected to recruit an additional 5 each for their own downlines, and so on so forth. After 15 cycles of this recruitment process, you would run out of people to recruit on the entire planet, causing the entire business to collapse as a result. Moreover, MLMs have been criticised for their unethical practices and “cult-like” mentality. Recruiters prey on already vulnerable, isolated individuals with their false promises of financial stability and community. They also encourage the rejection of anyone, friends or family, who may doubt or question the legitimacy of the business which only perpetuates the cycle of isolation. 75% of victims of MLMs are women, particularly mothers or military spouses who have busy lifestyles or struggle to build stable relationships due to their circumstances.
It can be easy to distinguish their pyramid-scheme-like qualities as an outsider with a bit of common sense, but at first glance the opportunity of working for an MLM can seem liberating and appealing. Avon is only one of the many MLM companies that has been preying on women, starting as early as 1886. Back when door to door sales were still a common means of direct selling, it was considered to be socially unacceptable for women to allow salesmen into their home. Women were often the ones to stay at home, creating a gap in the market. So, naturally, Avon changed their business model and began sending women instead to sell their beauty products while recruiting additional sellers in order to adapt and persuade their targets. Today, Avon is the second largest MLM operating worldwide and is often considered to be a more legitimate business.
Multilevel marketing is essentially a pleasant synonym for a pyramid scheme, which falls into the category of white collar crime. Edwin Sutherland, an American criminologist, first defined white collar crime as “crime committed by a person of respectability and high social status in the course of [their] occupation.” When faced with crime, we’re usually confronted with our innate instinct to understand the why behind it. What is the motivation? White collar crimes can best be understood through rational choice theory, which states that individuals rationally employ their self-interests while making choices in order to achieve an outcome that aligns with their own desires. Essentially, the criminals are knowingly committing these crimes for their better interest, and because the opportunity has presented itself. In short, MLM businesses extort and prey on vulnerable individuals because they can. As unsatisfying as this explanation may be, reality shows us that there is no real justification for the behaviour and crimes of MLMs.