Flaws of the Network Marketing (MLM) Model

It is important that we define multilevel marketing and point out the difference between multilevel marketing and direct selling which are sometimes wrongly used interchangeably. Direct selling is an approach in the distribution and marketing in which product(s) or service(s) are sold via a network of independent distributors or representatives. This method relies on distributors engaging in personal sales, rather than opening retail shops. These distributors/representatives earn a commission on the sale price of the product(s) or service(s). 

A multilevel marketing model is usually employed by companies that engage in direct sales. Otherwise known as network marketing, multilevel marketing builds on the direct sales method, incorporating the recruitment and training of other representatives/distributors. Distributor A recruits and trains distributor B and receives a commission on distributor B's sales, and on distributors C and D recruited by distributor B; that's how multilevel marketing works. With a strict direct sales method, the company only pays a commission on products sold by distributor A.

There are companies that operate legitimate direct sales models and others that operate pyramid schemes. Those running pyramid schemes encourage individuals to "invest" a certain amount into a company, and promise them they will make lots of money by recruiting other investors, who in turn recruit more. They typically encourage representatives to buy more inventory than they can sell, emphasize on recruiting other representatives instead of selling the overstocked inventory bought by representatives, and sell typically unnecessarily overpriced products. The supplements they sell for example may be three or four times more costly than those sold at drugstores. The inflated prices cater for the payment of commissions on multiple levels of distributors.

Multilevel marketing (MLM) models may not be initially employed to scam representatives but the model is fundamentally flawed and dangerous to participate in.

Firstly, MLM is built on the promise of passive income. All you have to do, they say, is recruit enough good reps under you. These reps, they say, will earn the company and you, the recruiter good monies with you doing nothing more. So, the focus is suddenly on recruiting people and not on selling products. What becomes of the products (which we can call baits) when every recruit is to focus on recruiting more people to let them sell products? Let's not forget that distributor A is supposed to earn a commission on distributor B's sales and on sales done by distributor B's 'downline'. When all distributors are focused on recruiting more distributors (who don't sell), everyone loses commissions that should have come from the sales of products. Moreover, the only to climb up the MLM ladder is to recruit more distributors or purchase products for them. Once you're stuck and cannot recruit more, it's game over for you.

Secondly, the MLM model is flawed by an assumption of an infinite market. Truth is the market is not big enough for every distributor to sell. Distributors are required to create their own competition. Here's how. Distributor A sells a product to B and recruits B as a distributor. These individual distributors have as target market their friends and family. When distributor A succeeds in recruiting most of his/her friends as distributors, they soon find themselves all selling the same product; too many sellers, not enough buyers. The market gets saturated and sales gradually dwindle to zero. 

Thirdly, the distributor will become a nuisance to their family and friends (their social circle) as they keep harassing them to join the "latest biggest opportunity" to become rich with little effort. Before joining the "latest biggest opportunity", note that more than 99% of individual distributors lose their money in multilevel marketing. The failure rate was arrived at by a report published in the Federal Trade Commission's website, which studied the business models of 350 MLMs.

Thirdly, it doesn't make much sense to have to pay a company to distribute its products.

Fourthly, some companies operating the MLM model sell "fake" products. Customers end up spending huge sums of money in purchasing products that usually do not live up to their claims. You'll lose 10 kilograms in a week, clear skin in two days, cancer-free in a month, arthritis healed in a day, and many more claims that aren't backed by science or experience, as the users tardily come to realize.

After reading, I'm sure you can add more reasons why people should stay away from MLM models. Here are some prominent companies operating the MLM model in Africa: Edmark, Longrich, TIENS, Forever Living Products, Herbalife Nutrition, GNLD, Trevo, you name the rest.