Multilevel marketing (MLM) is a terrible business model that can harm vulnerable individuals and communities that don’t know the dangers of joining businesses which tout multi-level marketing as lucrative and sustainable.
MLMs tend to target people who are in vulnerable situations — young mothers, immigrants, and low income communities — promising a stable income that over time can sustain a comfortable lifestyle.
MLM involves an individual selling products while also recruiting other people to join. The distributors at the top of the pyramid make money through a ‘downline’ system in which they are paid a percentage of the direct sales from the products their recruits make, who are at the bottom of the pyramid.
These companies have crept in the shadows of the United States since the 1950s, and some have grown into huge, multi-billion dollar corporations. The top three MLM companies Amway, Avon, and HerbaLife, generate a combined total revenue of almost $20 billion annually.
With Amway leading the MLM market by generating almost $9 billion annually, most of these companies are seen as a lucrative career choice for the lower and middle class to join.
New recruits are usually lured in with a marketing kit set at an affordable price. Some of these kits start as low as $50, making it extremely accessible for any individual seeking an opportunity to profit.
These new “hires” don’t even require a professional license or other work experience to join this type of business. This sounds like a blessing for those who want to partake in the American dream through opportunities that companies like HerbaLife and Amway promise.
It’s an affordable and accessible business opportunity that sounds almost too good to be true. And that’s because it is.
MLM companies primarily target demographics that tend to be economically underprivileged, like the Hispanic community.
For example, Antonio Villaraigosa, the former mayor of Los Angeles, helped grow HerbaLife’s political influence by endorsing the company for giving business opportunities to poor Hispanic communities and lifting them out of poverty.
But it was revealed that after leaving office in 2013, the former mayor joined Herbalife Nutrition and served as its senior advisor, claiming that the company has been a “solid member of the Los Angeles business community.”
Oddly enough, Herbalife settled with the federal government in 2016 after the company claimed that recruits would be able to get rich quickly by selling its products. The company denied such allegations, but chose to pay the fine nonetheless.
However, a survey with 1,049 samples found that most MLM employees make less than 70 cents an hour, while 60 percent make less than $500 within five years, according to MagnifyMoney.com.
It’s easy to fall victim to the false promises these organizations have to offer. This seems to be fueled by baseless claims of getting rich from simply selling a product or by recruiting your friends and family members.
There is no easy solution to eliminating this plague of economic exploitation and fake business model. With their army of greedy, manipulative agents and elite lobbyists in the government, top multi-level marketing companies are powerful both financially and politically.
Yet all is not lost. College-level business schools can help by bringing up this issue in business ethics classes, or simply by raising more awareness regarding the danger of getting involved with these types of sales companies. MLM schemes will eventually fade, as the next generation of entrepreneurs become more critical about the economy and business transparency.