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MLM, Pyramid and Network Marketing Scams – Part 1

Updated on September 22, 2013

Now that I have caught your attention, you may be disappointed to see that it is not another article that declares the MLM and network marketing industry as a scam. On the contrary, I am writing this article specifically for you. This article is especially for the know-it-alls. This article is for people who don’t even know what an income statement and a balance sheet are, and try to call this industry a scam. And, this article is also for the innocent people who wish to do something, but are pulled back from the same know-it-alls.

What is MLM (Multi-Level Marketing) or Network Marketing??

So, you think you know what it is? How about me explaining you what it is? Let me put in an extremely simple way, what the industry is all about. There are two ways in which a company offering products or services can reach out to its customers. The first way is to use the traditional supply chain where the company spends thousands of dollars on distributors, warehouses, retailers, dealers, salesmen, advertisements, brand ambassadors, transportation and so on. This is the same reason why your bottle of coke costs you $2 though it costs only a few cents to manufacture and pack a bottle of coke. And you thought that the company was scamming you, didn’t you?

There is another way, a better way, of reaching to the customer. This is by removing all the mid-level players and reaching the customer directly. What is the advantage of this? The company saves on its costs and the consumer too is benefited due to the reduced price. But, how do we do it? This is where MLM or Network marketing comes into play.

Network marketing or referral marketing in essence, uses word of mouth marketing and human network instead of the traditional supply chain. A customer can choose to either simply buy the product or to partner with the company. If he chooses to partner with the company, he gets to earn a certain percentage of the revenues what the company makes by the customers he brings in. More the people choose to partner with the company; more are the revenues to the company. It also helps more people earn commissions for the customer base they have created for the company.

So, what is wrong with MLM??

Actually, there is nothing wrong with the industry. Cross your heart and tell me honestly, what is wrong with a model where the company is incurring lesser costs while developing a huge customer base and the partners (the common you and me) are earning profits? How can it be unethical in any way? Is a win-win situation immoral or unethical in any way? Should there be no alternative that is better than the traditional supply chain?

So, why the bad name??

It is the same reason why sixty years earlier people were afraid when McDonald’s came up with a new business model known as franchising. Franchising was a better model than most traditional business models. Many people were gripped by the fear of unknown. Few other traditional businesses were afraid that this was a better model and would easily hit their business. They did everything possible to declare this model illegal. There were few other businessmen who tried this model out, but failed due to reasons. And they had an excuse: This model doesn’t work. But, we all know that if this model was declared illegal, then we wouldn’t be munching on our burgers, French fries and subs.

They are the same reasons why most people are afraid of network marketing, MLM or the referral marketing industry. Of course, I won’t deny that there are numerous companies that used this and similar models to cheat thousands of customers.

Is the MLM industry perfect??

Absolutely no!! There is no industry on earth that is perfect. Every industry has its own advantages and limitations. They also have their loopholes many companies try to exploit. There are multiple companies that ran a scam in all the major industries. This does not make the industry itself a scam. However, most people don’t know the difference. That’s what makes the industry a scam. Knowledge definitely makes a huge difference.

I now hope that most of your questions and doubts are clarified about the MLM industry. The MLM and Network marketing industry is perfectly legal and ethical unless otherwise specified in your country. As I always say, ignorance is not an excuse. So, make sure that you do a proper research about the industry before filling in someone’s ears with negative propaganda about the industry. By the way, if you didn’t know, what you did was network marketing too. The only difference is that you didn’t earn a single cent from any company and you also ruined someone else’s life.

Note: The author of this hub holds a Master’s degree in Supply Chain and Operations Management from an esteemed university in the United Kingdom and a research analyst in a supply chain consulting firm in India.

In Part-2, I will be listing down the differences between a Chain, Pyramid, Ponzi and Networking marketing industries.

Disclaimer: This hub is written purely with the intention of giving out general information about the MLM/Network marketing industry. This hub is not intended to promote a particular company, brand, product or offer in any way. Any promotions done on this hub belongs to third party and this article has no participation.


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