The Rise and Fall of Multi-Level Marketing Empires
Every ancient empire has had its rise… and its fall. Through a combination of military conquest, strategic alliances, and cultural assimilation, the Roman Empire achieved success for more than a thousand years, from the start of Augustus Caesar to the fall of Constantinople. However, the same happens in the business world with techniques like multi-level marketing reaching its end just like Constantinople.
*cue the “Istanbul, not Constantinople” music!*
Multi-level marketing (MLM) is when individuals such as family members or social media influencers advertise and sell a product or service on behalf of another company because they receive a commission on your sale. If you’re on the internet, you’ve definitely come across this, whether we tell you to use GIRLSFORBUSINESSTOTALLYNOTFAKECODE10 for 20% off on all Ugg purchases, or the infamous “click the link on my bio!” only to go to an Amazon page full of the products people post. It’s out there, and it’s everywhere.
And while it seems harmless to use someone’s link or code to purchase a product, multi-level marketing has a blurred line with illegal pyramid schemes. Let’s look at it in “monkeys and banana” style.
One big monkey, monkeyJeff, wants to sell lots of bananas. MonkeyJeff tells his friends, monkeySam, monkeySasha, and monkeySimon, that if they help sell 10 of monkeyJeff’s bananas each, they get 10% in return. So monkeySam, Sasha, and Simon all hop on TikTok and Instagram to talk about how great MonkeyJeff’s bananas are. But what do they need to promote the bananas? They have to BUY the bananas first. So MonkeyJeff already sold three bananas by making his friend promote the bananas.
BUT, monkeySam, Sasha, and Simon, ALSO think like monkeyJeff and find friends Alex, Allison, and Allie to promote the bananas too. *DING* monkeyJeff just sold more bananas. And through the process of PROMOTING the job of selling bananas, more than selling the bananas, monkeyJeff is selling out all his bananas NOT because monkeys like his bananas, but because they are trying to make money by selling his bananas, therefore buying them to promote it.
This monkey-see, monkey-do scenario happened with the nutrition company, Herbalife, which was accused of running a pyramid scheme by the Federal Trade Commission (FTC).
While multi-level marketing started around the 1930s and 1940s, Herbalife’s pyramid scheme is one of the most popular business frauds in the MLM industry. As a six billion dollar Wall Street mystery, Herbalife did not sell its products online or in its own stores, but to members that bought products in bulk and sold the product themselves, whether through their own stores or to their friends. However, members didn’t just make money off of the product they sold, but also by the amount of people they recruited to become a member. And once you became a member, you were influenced to buy thousands of products to sell and were only able to return them in 90 days max.
To put it in practice, the highest leaders in selling Herbalife products only made $300 max a year. Most members would actually only lose money rather than make a profit.
With lots of legal action against Herbalife and its exploitative practice of selling, Herbalife has pushed back, claiming they give people “a chance to quit their jobs, change their lives and gain financial freedom” and agreed to pay a $200 million fine to the U.S. Federal Trade Commission. While Herbalife still exists today, this instance proves the blurry line between multi-level marketing and infamous pyramid schemes.
But how are the rest of the multi-level marketing companies doing today?
According to William Keep, a Professor of Marketing at The College of New Jersey, the “MLM industry is at its lowest since 1992,” and this is good news! Support for MLMs has greatly declined with lots of social media comments pointing out MLMs and discouraging its success.
With the FTC cracking down on any illegal pyramid schemes from multi-level marketing and apps such as TikTok, banning MLM promotions on their platform, multi-level marketing is clearly becoming too much work for nearly any profit, leading to the decline of its 90-year empire.
