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If you use social media, you’ve likely encountered someone selling multi-level marketing products. It may be an old friend from high school that suddenly reaches out to you after years of no contact. Or you might notice that your feed includes a lot of people promoting these companies. So what is multi-level marketing (MLM)? And why do so many people hate MLM companies? Below, we’ll go into the problems with MLM companies and how you can avoid becoming a victim yourself.
What is Multi Level Marketing?
According to Investopedia, multilevel marketing occurs when a direct sales company encourages existing distributors to recruit new distributors who are paid a percentage of their recruits’ sales. The new recruits are referred to as the distributor’s “downline”. Often the focus is more on recruiting new members rather than selling actual products. This leads to a few people actually making money while the majority of members make very little profit or none at all. In 2016 the notorious MLM company, Herbalife, had to pay back money to distributors who lost money. It was also required to restructure it’s business model. Although some MLMs do focus on selling products, many are known for pressuring distributors to aggressively recruit new members. As a result, the legitimacy of multi-level marketing companies is murky.
What are the Problems with MLM companies?
There are a host of issues brought forth regarding multi-level marking companies, often from former distributors. If you search YouTube, you can find countless videos outlining the numerous problems with various MLM companies. Below are some of the common problems experienced by both MLM company distributors and customers.
Preying on Vulnerable People
Multi-level marketing companies have a habit of targeting those in vulnerable situations. This includes single mothers, the unemployed or people with few marketable skills. Recruiters may also use one’s insecurities as a tactic, promising rapid weight loss or healthier skin in addition to a great income. They claim that by signing up, one can be his or her own boss. It’s a tempting concept for those struggling financially. However, signing up comes with a price.
Most Distributors Lose Money
The biggest problem with MLM’s is that most distributors don’t make a profit. In fact, a majority end up losing money. According to the FTC, an astounding 99% of recruited sellers lose money. From the FTC report: “MLM as a business model is the epitome of an “unfair or deceptive acts or practice” that the FTC is pledged to protect against. It is even worse than classic, noproduct pyramid schemes (for which the loss rate is only about 90%).”
Alienating Friends and Family
Due to aggressive recruiting tactics used by distributors, they often end up losing friends or alienating their own family members. Distributors feel immense pressure to recruit and will often become so persistent that they turn people away. People outside of the MLM bubble can see the potential problems with these companies while distributors don’t recognize the issues as they are so focused on making money. Some former members have described the companies as almost cult-like and those who choose to leave may even experience harassment or bullying.
Poor Quality Products and Dubious Claims
Since recruitment is the main objective of MLM companies, product quality is often an afterthought. One recent issue involving MLM product quality was Younique’s mascara. Younique advertised its Moodstruck 3D Fiber Lashes mascara as being made of “100 percent green tea fibers,” when the mascara actually consisted of shredded nylon fibers. A class action settlement of $3.3 million was reached. Sellers may also tout outrageous product benefits. Some distributors of essential oils claim that certain oils can treat serious medical conditions. Although essential oils might prove helpful for minor problems, the misuse of essential oils to treat health issues can cause toxic reactions.
Multi-level marketing companies are not new. However, with the rise of social media, more people are becoming fed up with their tactics. In fact, there is an anti-MLM subreddit devoted to calling out MLM practices and product quality. If you are considering buying a product from or signing up with one of these companies, do your research first. Don’t allow anyone to pressure you into doing something that seems too good to be true.