Multi-Level Madness

I’m willing to bet good money that you know someone who swears by that nutritional shake mix no one else seems to drink, or that you went to school with someone who tried to convince you that oil extracted from the liver of a shark was the best thing to happen to your body since puberty. The reason for that is because, as one website put it:

Network Marketing Businesses (MLM) in the Philippines are spreading like a virus. From Top Multilevel Network Marketing Companies to some unregistered Network Marketing Businesses in the Philippines, many pinoys are so crazy engaging in this kind of business. Especially if they heard about the “kitaan” or “compensation plan” and they see the ‘million-income-potential’, they tend to take the bait and register to the Network Marketing company they are invited in.

I don’t know about you, but that website lost me at “spreading like a virus.” Unfortunately, that description is very accurate. In 2015, a Philippine Daily Inquirer article pegged the number of Filipinos engaged in some form of MLM or other, at 4 million. To put that in the proper perspective, that’s more than twice the number of people in the City of Manila!

It’s not a Pyramid. Or is it?

So, if MLM is like a virus, and it has spread to 4 million Filipinos, it’s only logical to be concerned. And considering that many of these Filipinos are former overseas Filipino workers (OFWs) investing their hard-earned money, well then, that’s just even more reason to look more closely at MLM, isn’t it? And so, over the years, the Department of Trade and Industry and the National Bureau of Investigation have been looking into various MLM organisations, concerned that they were in fact pyramid schemes. That PDI article linked to above actually seems to have been a response to that concern.

The article says:

Question: Using layman’s terms, what is pyramiding and what’s the main difference between legitimate multilevel marketing (MLM) and pyramiding?

Max VP for Asia Joey Sarmiento: Network marketing, or MLM, is a legitimate mode of business wherein products are sold via person-to-person selling instead of the traditional way of selling from a fixed retail location. The objective is to sell products to the end-consumers.

The difference between MLM and direct selling is in the commission system, wherein participants in MLM generally benefit from the sales made by people under their line of sponsorship even if they are several levels deep (e.g., an independent distributor in an MLM earns commissions not only on his/her personal product sales, and not only on the sales of a person personally recruited by him/her, but also on the sales of persons recruited by his/her personal recruits).

Pyramiding on the other hand is generally characterized by people earning primarily from the act of recruiting other people who pay significant registration fees to join the pyramid scheme.

The people who sign up and make the investment in the form of registration fees then try to recoup their investment by recruiting other people into the scheme by enticing them to make similar investments.

Even if the registration fees include products, the total amount of payment is deemed a registration fee or investment as people pay the sum to join the plan rather than to sell the products to ultimate consumers.

Pyramiding is illegal because it is a money game. Profits are derived primarily from participants’ entry fees, and the income is dependent on the participants slot or position within the organization rather than the ability to sell the products or services.

Sounds pretty comforting until you realise that the answer was given by the Vice President of a company that ranks higher than Mary Kay – which sells cosmetics – in the list of top 100 MLM companies operating in the Philippines. All of a sudden, the whole thing seems mighty self-serving.

Today, I found out why that explanation never really rang true.

If it looks like a duck and it walks like a duck … yep, it’s probably a pyramid

After having watched that – because it is truly funny, y’know? – go back to 14:00 and keep in mind the distinction between pyramids and MLM, described by an MLM guy mismo:

“The difference between MLM and direct selling is in the commission system, wherein participants in MLM generally benefit from the sales made by people under their line of sponsorship even if they are several levels deep (e.g., an independent distributor in an MLM earns commissions not only on his/her personal product sales, and not only on the sales of a person personally recruited by him/her, but also on the sales of persons recruited by his/her personal recruits).

“Pyramiding on the other hand is generally characterized by people earning primarily from the act of recruiting other people who pay significant registration fees to join the pyramid scheme.”

In other words, when you make more money from getting people into the MLM plan, rather than actually selling product to people outside the MLM plan, then your MLM plan is a pyramid. As the US Federal Trade Commission complaint cited by Oliver declared:

“Defendants’ compensation program incentivizes not retail sales … but the recruiting of additional participants who will fuel the enterprise by making wholesale purchases of product.”

When I heard those words, and I’m not bullshitting you here, a chill ran down my back when I remembered a conversation I had with a law school classmate who was trying to recruit me into an MLM. I expressed my concern that I didn’t have time to sell the supplement she was pushing and that I didn’t think anyone would want to such a product anyway since it was rather expensive. She dismissed my worries with an airy wave of her hand and said, “just focus on recruitment! In the end, you and your downlines are just going to be buying the product for personal consumption!”

Does that sound familiar? It should, because that’s still pretty much what recruiters say nowadays. So, by the very definition of a pyramiding scheme given by a spokesperson for an MLM firm, the business they’re in is actually a pyramid.

I’m not saying that the MLM guy lied in his answer, but there appears to be a subtle obfuscation of the truth there. When he says, “participants in MLM generally benefit from the sales made by people under their line of sponsorship,” he is stating a fact. When a downline sells product, the uplink does get a benefit in terms of bulk discounts. However, those earnings are, as MLMers will tell you, minimal. And this undisclosed fact gets underscored when the MLM guy declares that in a pyramid, people earn “primarily from the act of recruiting.”

In other words, the most important consideration in determining whether a scheme is an illegal pyramid rather than a legit MLM is how much money a person is earning from these two income streams. Earning more from direct sales makes it legit; earning more – or PRIMARILY – from recruitment makes it illegal. In fact, the MLM guy says exactly that:

“Even if the registration fees include products, the total amount of payment is deemed a registration fee or investment as people pay the sum to join the plan rather than to sell the products to ultimate consumers.”

Or as my friend said, you’ll just be buying stuff for personal consumption.

What now?

To be fair, there might actually be some MLMs out there that are actually legit. But then again, it’s been proven time and again that there ARE pyramids that promote themselves as legit MLMs, until the time comes to leave poor gullible bastards holding an empty bag and a room full of snake oil. You might be one of those bastards. Someone you love might be one of those bastards. But even if one of those bastards turns out to be that asshat who bullied you in school, no one deserves to have their hard-earned money swindled from them.

So what you need to do is educate yourself about MLMs and pyramids, and learn to distinguish between the two. More importantly, when someone approaches you and asks you to part with your money so you can buy into a scheme that sounds really REALLY good, don’t be afraid to ask questions until all the answers are clear, comprehensible, and logical to you; don’t be afraid to ask for product samples and try them out yourself to see if anyone else would actually buy them; and don’t afraid to turn the offer down.

I know that rejecting the promise of easy money can be very difficult in this day and age, but trust me. Losing whatever money you do have in some multi-level madness will suck infinitely worse.

Leave a Reply