Multi level Marketing-The Expanding Pyramid ?

Published by MBA Skool Team, Published on May 23, 2011

"Let me tell you about an exciting business which I am associated with". Does this line ring a bell in your mind of having heard this recently. The answer is most probably yes. Welcome to the world of multi-level marketing (MLM).The people associated with MLM would be a complete stranger to you but would invite over to their house for a lunch /discussion. This itself should trigger a nerve of yours suggesting a hidden agenda. This is the first step in making you part to expand their network. So is there anything wrong with MLM?

Multi Level Marketing

So what exactly is multi level marketing? It is a marketing strategy on which the sales force is compensated not just for the sales which they personally generate but also for the sales which others whom you have recruited generated. So it basically motivates you to expand your pyramid going forward as it enhances your chances of making more money. The first known MLM scheme was introduced in 1945 by the California Vitamin Company. The idea was to allow the existing distributors to rope in more in their network provided they had 25 existing customers. With every new customer they could earn 3% commission from their sales. So this was beginning of MLM scheme which has now mushroomed in all parts of the globe.

"Doomed by design and doomed to fail" - this has been the characteristic of every MLM strategy. The reason being the person would earn money only if he is able to recruit newer members on his network. What if he is the last person on the planet with no one else to recruit? The person is sure to lose the money. So there is a limit upto which the pyramid can grow and hence the experts have always warned people of such schemes and there has always been criticism all over the world for such schemes.

There have been numerous such companies operating in India. Some of the names that come our mind are Gold Quest, Team Life Care, and Amway etc. Taking the example of Gold Quest, the scheme was extremely simple. You pay a certain amount of money to enroll yourself and you get a gold coin in return. The price of membership is much higher than the gold coin and thus the company makes a killing from the membership fees. Incase you are unable to get new members in your network you are bound to lose.

The lure of easy money is reason why the people from these economies fall into the trap. The schemes offer huge returns in short period of time. The stories of people making huge money attracts them further and they caught in the euphoria and hand over their money to such schemes without applying a little common sense which would prevent them doing so. In countries like ours where the per capita income is low, the chances of people falling is much higher than other developed countries. Over the years if we look at the pattern where these companies operate we see a clear strategy of them actually targeting the developing/poor economies

These MLM schemes play on the human psychology of wanting more in the least possible time. They play with the greediness of the people enrolled in the scheme. Members would understand that they are entering a Ponzi scheme but would still go ahead as they feel that they would fool others to join the network and in turn make a killing on their investments. Investors ignore one aspect of investment that huge returns are high risk usually go hand in hand. So for the larger interests of the entire community it is better that people don't fall to such schemes and stay far away from it.

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