Truth and Lies of Network Marketing (Part 1)

I’m sure many of you have experienced this: A friend or passing acquaintance gets in touch and wants to meet you. Some will say it’s only for coffee. Others will make some vague reference to a possible business venture. Whatever it is, you show up, and discover that person is drawing circles on a piece of paper, is talking about too-good-to-be-true income, and recruiting you into a network marketing business.

Network marketing is also called Multi-Level Marketing (MLM) or simply, “networking” — although “networking” is also used to mean a business activity where one meets other people to generate contacts. So to avoid confusion, I will simply refer to it as MLM.

Some people curse MLM and call it a scam. They don’t want to have anything to do with it and they look at its members as liars and deceivers. Of course, those who are involved in it, the “true believers,” would claim that they are doing legitimate business and they would bring out proof like being registered with the SEC, their longevity as a company, and so on.

So what is the truth? As with most things, it is not a plain “Yes, it’s a scam” or “No, it’s not”  answer, but lies somewhere in between. This is my experience: I and my wife joined an MLM company 15 years ago. In 6 short months, we had achieved the top rung of our company’s “Ladder of Success” which entitled us to maximum rebates and overriding bonuses. However, I left the company after two years. Having seen the inner workings of the business, I came to a realization that my personality, inclinations and talents were not the best fit for it. I left with no animosity. I’m still a legitimate “manager” of that company. I still purchase products for personal consumption, and I still get discounts and rebates when I do.

My intention in writing this is not to turn you into MLM fans, nor to make you anti-MLMers. I simply want to share my insights and experiences, as a disinterested third-party. I have no hidden agenda other than to provide you with a better understanding and information of what MLM is — for two reasons:

1) So that you will not think that all MLMers are scammers just out to get your money. I still have many friends who are doing MLM in a legitimate and ethical way and it pains me to see them unfairly lumped together with known scammers.

and

2) So that you will not readily swallow everything an MLMer says. Some MLMers have a tendency to exaggerate or misrepresent what the business is all about. If you are thinking about joining an MLM company, I hope to provide a rational guide in making a sound decision on whether this is for you or not.

So first of all, what is MLM?

In its simplest form, MLM is a modification of direct selling. In direct selling, if I sell product A, I get a commission and earn money. In MLM, if you recruit me to join your organization, and I sell product A, I get a commission, and you get what is called an overriding commission (the terminologies may be different depending on what company you’re exposed to, but the ideas are mostly the same — also, if you are the recruiter you are called the sponsor or “upline” and I am called the “downline”). To extend the analogy further, if I recruit my friend Adam as my downline, and he sells product A, he gets a commission, and you and I get overriding bonuses as his uplines.

Because of this, I sometimes refer to MLM as direct selling on steroids.

The basic concept is that given a large enough organization, I can make decent money on overrides. That is what drives MLMers to constantly keep recruiting people and training them to go out and recruit some more. There is nothing wrong with this practice. Insurance managers do this all the time, recruiting agents and training them to sell, and then earning overrides when they do.

Some companies offer recruitment bonuses, giving you extra rewards when you grow your organization like when you personally sign up a new distributor into your group. This is most popular in binary-type MLMs. You get additional pay when you meet a certain criteria, like getting a pair of new distributors on your left leg and right leg. Again, nothing wrong with this. It is a legitimate way of attracting people to join your business. It is not that different from a “signing bonus” that some companies offer to people they want to hire.

So where’s the scam?

I hope I have established by now that MLM by itself is neither good nor bad. It is simply a way of distributing products and it is a marketing strategy. In fact, I would even say that it is a brilliant concept that utilizes peer-selling and word-of-mouth endorsement.

Unfortunately this idea has been marred by two things:

1) Questionable/unethical practices of distributors

2) Using the MLM concept to perpetuate illegal schemes

More on this next week.

Originally published in Sunstar Davao.

Questions? Comments? Suggestions? Violent Reactions? Send me an email at andy@freethinking.me. View past articles at www.freethinking.me.