Network Marketing vs. "The Pyramid Scheme" -- It's Time to Debunk the Misinformation!
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"It's all just one big pyramid scheme!" is one of the biggest and most frequent objections many people have when they hear about network marketing. Network marketing (a.k.a. mlm or "multi-level marketing") seems to be one of those things that people either love or hate.
Some people seem to "go off the deep end" by simply hearing the mention of the words network marketing simply because they can't get the idea out of their heads that network marketing = pyramid scheme.
Clinging to this "pyramid scheme view" of network marketing mainly shows that that person hasn't done his/her homework on the industry itself. There is really no need to have extreme views about network marketing. It's simply a business model that you can use if it's useful for you and your financial goals.
The Network Marketing Business Model – How It Works
Before you dismiss it, it's important that you understand the business model of network marketing. Here are some interesting facts about the industry:
1. Pyramid schemes are illegal almost everywhere.
2. Many multi-national corporations have used network marketing as part of their product distribution model. These include AT&T, Colgate, Gillette, General Electric, MCI, Toyota, Texas Instruments, Sprint, General Motors, Xerox, Citibank, MCI, and Coca Cola.
[Do you really think large multinational companies could operate year after year using an illegal pyramid scheme?]
3. A number of well-known business entrepreneurs, including Donald Trump, Robert Kiyosaki, Steven Covey, and Warren Buffett, have stated that network marketing is the best opportunity available today for ordinary people to gain financial freedom.
4. A network marketing company can diversify and find new markets, just like all companies have to.
5. Network marketing is an extremely cost efficient way for a company to move it's products to the consumer marketplace.
Think of any company that comes to mind. The company will likely have a CEO, a president, vice presidents, middle management, a sales force, and hourly employees.
It goes without saying that the person at the top, the CEO, is going to make the most money, and the compensations continue to decrease down the ladder which starts at his/her cushy leather chair.
The only way for someone to get paid more and move up the ladder is to boot someone else out of their spot - and this is what most people call okay and normal!
Employees must work to their limits, and then, they will often be laid off or fired before any of the benefits kick in. Of course there are always exceptions to this scenario. However, is this any less of a pyramid scheme than network marketing?
All people in the company work hard, but ONLY those at the very top have "permission" to make a lot of money.
In network marketing the game plan is for everyone involved to help people who are new reach the top. In fact, the whole business idea hinges on this idea! The only way to become really successful in the long term is to help others.
There will always be a mathematical limit to how large a network can become; however, in today's global marketplace, plus the power of the Internet, and a suitable compensation plan, there is plenty of room for everyone to grow their business as large as they want to.
Now yes, I admit, there ARE plenty of scams out there today; but network marketing is not a dirty word AND it is not a synonym for scam.
Click Here to learn about the movie Economic Power. It does a great job of explaining the network marketing business model.
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About the Author: David Lazear
Member Since: 09/15/2010
I'm a Distributor For:: SendOutCards
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GREAT article
This is extremely well done and written. Clearly covers the issues with pyramid scheme versus a legitimate Network Marketing company.
The one thing I would add is "signup fees". Although loosing favor, many companies continue to charge these fees for an introductory sample of product and your manuals, etc. - all unnecessary in todays internet age. Often, those companies with high fees use them to pay bonuses to the upline sponsor - skirting the legality issue and definition of a ponzi scheme.
In short - avoid companies with high signup fees.
Thanks for your comment
Hi Jon,
I couldn't agree more about the large sign-up fees. Especially in today's economy this is a quick way to turn off prospective business partners. I appreciate your insights.
Dealing with ignorance.
Thanks David for taking the time to "deal" with the age old ignorance of "That's a pyramid". As you said, one of the simplest responses to that belief is to have this person explain how things are structured at where "he" works.
With the explosion in the network (social/viral/affiliate) marketing industry, and the endorsements by blue chip companies and business leaders like you mentioned, it becomes almost comical that the pyramid question/excuse even comes up. I tend to just laugh and ask the person if he's been living under a rock or something. I might even offer a big smile and say, "Oh my gosh, do you think we should call Donald Trump, Sir Richard Branson, or Sears and tell them." Maybe we can get Robert Kiyosaki to stop the printing of his new book "The Business of the 21st Century", boy I'm glad you have this information, I guess I should be thankful that I've enjoyed 22 years of financial freedom, and didn't get caught."
My Dad had a saying : "Ignorance we can work with, we just help de-ignorfy people. If they don't want to listen, well... stupidity is irreversible."
Back to your great article - Here's a Pyramid 101 lesson for those who might be interested;
Years ago, before technology and the information age, some companies did surface and there were some illegal pyramid schemes out there. Many of these scams were designed to look similar to what legitimate companies like Amway, Shaklee, Avon were doing, thus the guilt by association. Back then it might take awhile for these companies to be discovered and shut down. About the time enough complaints surfaced about the company, the orginators mysteriously disappeared with the all the money.
But come on people !!
In present times, information is global in seconds/minutes now. It's become virtually impossible for something that's illegal to last very long. Identity theft is much more popular today.
As David mentioned, do some homework. If you don't have any interest or ambition to create extra income, or options for you and your family just say so. There's no need to embarrass yourself by showing off your ignorance and trying to convince someone that somehow you have better information than the major companies and business people David mentioned in his article.
Tips - The FTC has strict guidelines that legitimate network marketing companies have to follow. Here's some additional things to watch out for:
If you can get a commission for just signing someone up ... it's probably illegal...
If you can "buy in" at different levels... it's probably illegal.
If you find successful leaders that are willing to train,mentor, and give you access to a proven training and support system... you are in the right place.
Take the time to check things out.
Scott R Kelly | Opportunity Facilitator
http://scottrkelly.com
Dealing with ignorance. . .
WOW Scott,
Thanks for such a thoughtful response to my article. It really puts this whole "pyramid objection" in a tragically comical light. Why is it that this objection seems to always come from people who are broke or stuck in a job they hate and they have no intention of trying to change their situation?
Again, thanks for your comment.