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Multi-level Marketing (MLM), Network Marketing, and Pyramid Selling, whatever you call them, are controversial marketing strategies for the sale of products or services where “independent agents” sell the company’s products or services for commissions derived from a pyramid-shaped or binary compensation model.
Whenever I am asked for my opinion on MLM, I always tell friends to stay clear of it. Needless to say, my advice is often the target of vicious comments extolling MLM as a legitimate business model and labeling me “naive” (to put it nicely) to dismiss MLM.
Allow me to explain why I believe MLM does not work ….
False Demand. In all MLM schemes, sales for the product or service are not driven by real demand, but by the use of PSV (personal sales volume). Generally, in order to qualify for overriding commissions from ones downline, the upline must be a member of “good standing” and that requires meeting a monthly PSV. Members in the scheme thus have to buy the company’s products every month, whether they need it or not, creating an artificial demand. Some schemes try to get around this by selling products or services that members would use daily. Unfortunately, in order to pay the various tiers their commission, the price for the product or service is either inflated or the product is of inferior quality. Without real…
