It may seem like every girl from high school is sliding into your inbox with an offer that will change your life – but multi-level marketing schemes could be on the decline.
Multi-level marketing (MLM) describes a method of selling products that relies on a “levels” of salespeople. The top of the tree recruits more people to sell in another layer down, and usually clips the ticket, too. Each salesperson can usually recruit more people below them in the hierarchy.
A lot of the time, sales consultant must pay for products to then sell, and make commission and incentives through recruiting other people into the scheme. Sometimes, the more people they recruit, the more of a discount they get for the products themselves.
Auckland University business school marketing expert Bodo Lang said multi-level marketing was a misnomer because it had little to do with marketing.
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“Instead, it is all about buying products – often more than what you would normally buy and in a subscription-type model.”
Popular MLM schemes include makeup and health brand Arbonne, essential oils from Doterra, cosmetics from Avon, fragrance brand Scentsy and nutrition brand Herbalife. Even Tupperware is an MLM.
It cost $121 to sign up as an Arbonne consultant four years ago. Consultants then needed to buy about $250 worth of product each month to earn commission, and paid a small fee to renew their membership yearly.
Last year, a “typical” Arbonne independent consultant in Australian earned NZ$226 in commission and overrides. The average annual earnings was $208, while area managers earned $10,200.
Only 0.6% of consultants earned six figures, and that was after three-and-a-half years of selling.
Lang said a better name for these schemes would be multi-level selling. They often used points, rewards and discounts to get their members hooked to the scheme.
“In that sense, MLMs can be similar to pyramid schemes, so I would be very cautious about entering any ongoing agreements, such as becoming a subscriber or becoming a club member, with such companies.”
Investigations in the US have found that nearly all participants in MLM schemes lost money, Lang said.
ang said people should take care.
“Any scheme that requires you to buy more product than you need yourself and does so on an ongoing basis via subscription or a club should ring some alarm bells. If the scheme then encourages you to exploit your social network to sign up more people, this can result in social damage.”
The tendency of MLM salespeople to mine their social networks for leads has led some to describe them as “hun-bots”, because many use such terms of endearment in an attempt to connect.
Lang said MLM schemes could be all-consuming for those involved.
“MLMs can result in financial and social damage in certain communities.”
Retail NZ chief executive Greg Harford said multi-level marketing appeared to be on the decline.
“While MLM firms are selling direct to the public, it’s different to more general retail in that it’s usually committed and engaged customers of the end-product that are trying to on-sell to others.”
This was shown in the decline of Tupperware. The exclusive importer of the brand in New Zealand, UOL, announced it would close its business on October 30 thanks to Covid-19 causing a decline in sales.
Consumer NZ spokesperson Gemma Rasmussen said people could look for specific red flags for schemes that might not pay off.
“Perhaps there is no product or service, or the quality of the product is very low. There could be more emphasis on high-pressure sales tactics and pressure to join, and perhaps you’re being approached by someone you know personally.”
Unfounded or over-the-top product claims were another red flag – if it seemed too good to be true, it probably was, she said.
Insinuation or promises of making large amounts of money were also something to look out for.
“To join, there may be expectations you invest large amounts of money on either ‘training’ or the ‘product’.
“If you’re feeling dubious about a potential opportunity, we’d recommend you research the company and see what you find. Don’t be shy to ask questions, take your time to consider whether you’d like to be involved, and don’t simply rely on the word of the person trying to get you onboard.”
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