Truth In Network Marketing
Perspectives On Multi-Level Marketing
adapted from an article by Fugi Saito
Some "schemes" are specifically developed to sidestep Pyramid Scheme legislation by offering a "product" or "service". Generally, the product or service is of poor quality, overpriced, or has no purpose other than as a ploy to give the company the appearance of legality. Careful consideration should be given to the products or services from a customer's perspective.
Offering a product or service does not automatically make anything legal, and if a company passes the "legal" requirements it does not prevent the entire thing from being a confidence game. A con can be legal, and you might be buying a product or service that is, quite simply, a bad deal. Those that excel at the confidence game are wolves amongst sheep.
There are specific activities that should clue you in to a selling scheme, whether or not they are done in a MLM format or traditional marketing format. Here are the "red flag" activities that you should look for:
Red Flag #1
Commissions paid for recruiting rather than product or service sales.
A good test to use to prevent this from happening to you is to ask yourself whether or not you can make money by NOT recruiting people. In other words does the product or service have a value in the "real world" to an end user (customer). If I am forced to recruit to make money I just got scammed.
Glenn Wesley Turner (no relation to me) was the undisputed master of this ploy. In 1967 he founded Koscot Interplanetary, Inc. The company supposedly marketed cosmetics, but in fact they marketed a variety of "distributorships" which allowed an individual to market "distributorships" to other people. The recruiter got half of the money, and so did Koscot.
By 1969 a thousand new distributors a month were signing up inspired by the evangelical rhetoric and revival style meetings of Turner and his crusaders. Within three years there were over 75,000 distributors in 8 countries. Koscot's revenue measured in the hundreds of millions of dollars and more than doubled every year. By 1971 it began to unravel. Formal investigations revealed that the vast majority of the people in Koscot's empire didn't make a dime. And of those who were at the top, their revenue was less than half of what was "proclaimed" by Turner's crusaders.
Its been said that money can't buy happiness, but it did allow Turner to obtain the expertise of none other than the legal giant F. Lee Bailey. His legal expertise staved off the government hounds for awhile, but in 1972 F. Lee threw in the towel, and Koscot took a dive. In the end about 100,000 people were taken for 1/4 of a billion dollars.
Interested in more information on
Koscot Interplanetary, Inc.?
John Frasca, Glenn Turner: Con Man or Saint? Self-published, n.d.
The Great American Mail-Fraud Trial: USA vs Glenn W. Turner, Nash Publications, New York, 1976
Rudy Maxa, Dare to Be Great, William Morrow, New York, 1977.
The Marion Star, 1970-1972, Marion, South Carolina
Red Flag #2
Commercially unreasonable prices.
Consider a person who runs a retail store. If his supplier wants him to buy a product at a price the general public would not pay for it, he wouldn't buy the product. If I am a distributor and I have to buy product that is over-priced in order to earn commissions I just got scammed.
Red Flag #3
Commercially unreasonable purchase amounts.
There are some products, that no matter how good the price is, I will not be able to move that product. Even a little bit is simply too much. My choice as a business person is to not buy that product.
Many of the bad eggs of the industry are the stories of people who "bought" a level of achievement by purchasing large quantities of product. We call these people "garage qualified". This means that the qualifying amount is stored in their garage collecting dust.
Qualifying inventory purchases are called "loads" and the practice of buying an inventory amount to qualify for a commission check is a front-end load. A load is any amount of inventory beyond what you would use yourself in the course of a normal buying cycle. If, as a distributor, I have to buy an inventory level that I cannot dispose of I just got scammed.
Red Flag #4
No commercially reasonable buy back policy.
I bought the products, and I don't want them. What do I do? Most retail store suppliers charge a 10% re-stocking fee or even offer a full refund.
Some of the MMF (Make Money Fast) operators on the Internet threaten with lawsuits when you point out that their program is illegal. It is pretty much a universal requirement that MLM programs MUST have a buy-back policy.
In any legitimate MLMs that I have had the opportunity to either participate in, or examine, there has been a 100% guarantee. So, if I buy and if I can't get my money back I just got scammed.
Red Flag #5
Mandatory purchases of extraneous products or services.
If I purchase candy to sell in my retail stores, I don't have to buy the racks if I don't want them. If I want them, they are either given to me, or I pay only the "cost" with no markup. After all, the companies are in the business of marketing candy, not marketing the racks. The same should be true in a legitimate MLM, otherwise I just got scammed.
Red Flag #6
Exaggerated income claims.
Exaggerated income claims designed to entice you to participate in the program are illegal. Those who do that are trying to scam you. This is one of the most obvious abuses on the Internet. Claims of thousands of dollars being made or thousands of dollars that can be made violate most of the laws and statutes in North America UNLESS earnings by "average" participants are also provided. Testimonials of non-representative participants (real or imagined) should be backed up with the facts showing what typical participants are making.
Keep this in mind: Are they trying to make money with you... or from you?
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