Here’s Why I’m Immediately Suspicious Of MLM Products…

Posted By Paul on Apr 18, 2008 | 2 comments

I have a confession to make.

Gather ’round closely now, I’m going to whisper it in your ear…

I’m suspicious of products marketed through MLM (multi-level-marketing) schemes. I know, I know, there are some reputable companies that do business in this manner. And yes, I know… some of you are not going to be pleased with me for saying so, but unfortunately, I’ve found the very nature of MLM makes it the ideal medium to market products of dubious integrity.

Here’s why…

With MLM products, you are sold on both the product and its “benefits” and the “opportunity” it offers (i.e., the option to earn “boat loads” of cash by introducing the product to friends, family, colleagues, strangers you meet on the bus, and what not). Of course, you earn a commission on the purchases made from people who enroll to purchase the product as a result of your introduction. Commissions are usually paid on a multi-tiered matrix, where you earn commissions on the people you recruit, the people your recruits recruit, and so on down the line. Demonstrations of the tiered matrix show how “simple” it is to earn $1,000’s on a monthly basis.

Because “selling” offers users the opportunity to offset the cost of the product, most people make at least some effort to introduce the product to others.  

Since consumers now have a financial incentive to tout the benefits of the product, this creates an eager, enthusiastic army of promoters. Obviously, this marketing model is not conducive to criticism, since everyone stands to gain financially from product sales. Worse still, disenchanted customers are less likely to complain strenously when it is a friend, family member, or colleague who has introduced them to the product. Instead, they are likely to simply discontinue using it.

That’s one problem.

The other problem is pure logistics. It’s impossible, for instance, to pay commissions on 6 or 7 levels and not run into probems. Everything costs money, and when you consider the sheer amount of commissions paid out, plus the margin the company needs to earn to sustain itself, the cost of the raw ingredients, the bottles, labels, etc, you encounter one of two problems…

1) There’s not a whole lot of $$$ left to devote to the product and ingredients, which then tend to be of lesser quality of similarly-priced formulas readily available on the market.  

2) The product’s price is artificially inflated to cover the referral costs, so you end up with an item that is grossly overpriced compared to similarily formulated items on the market.

And then, course, there are the claims. As you know, MLM’s are governed by government regulations that prevent them from making specific claims as to the “curing” of diseases, illnesses, medical conditions and so on. But as this CBC MarketPlace documentary on Goji Juice illustrates, it isn’t long before enthusiastic promoters begin to put their own spin on things, and claims start spiralling out of control.

So why MLM marketing programs at all?

I had one guy who was trying to pitch me some product or another call MLM the “wave of the future.”

Bzzzzt.

Sorry, dude, but you’re wrong. MLM has had plenty of years to draw people away from the retail outlets, and it simply hasn’t done so. Shopping is in large part a social experience — how many times have you or someone who know met friends for lunch or supper and then gone shopping? My girlfriend’s Mom even takes bus trips to go shopping. Shopping is a whole “day-out-fun-with-friends” extravaganza for some folks. It’s not so much the acquiring of necessary items, it’s the whole, fun process that goes along with it.

So no, sorry, I don’t buy it.

One other person told me the benefit of MLM was the joy of sharing with the others the sort of products that had a positive health impact on people’s lives.

Uh-huh.

These benefits could be shared a lot more effectively and with a whole lot more people if the product was available locally — in every Wal-Mart in North America for instance. Instead of recruiting and paying distributors, you could then divert that cash into brand-building and advertising. There are other benefits of mass distribution too; the mathematics of scale come into play, for one. I had a friend in the industry tell me simply having Wal-Mart stock your product in their North American stores meant a minimum $1,000,000 buy. With such vast amounts of product now needed, you can start “scaling” your production… and manufacturing huge “runs” of product lowers your cost and increases your profit margin.   

Frankly, the products I am concerned about simply would not survive introduction into the mass market. The claims made by the distributors are ridiculous and have no basis in fact or science. Folks purchasing at Wal-Mart would have no trouble returning the product when it does not work as described. And when Wal-Mart sends the empty bottles back to the retailer and asks for their money back…

Well, that’s when that company declares bankruptcy.

Elissa talks a lot in her blog posts and in her reviews about “critical thinking.” I’m not saying you should immediately dismiss any MLM product. I am saying you should think critically about it, and consider the points I’ve made.