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I Hate Multi-Level Marketing

Posted Sep 14 2008 5:34pm 1 Comment

I have used nutritional supplements for the last few decades. I literally have a roomful of "retired" products. Some have worked for me, some have not.

Over the years I have been exposed to a number of products that use Multi-Level Marketing (MLM) as their distribution method. We've all been approached by friends or family to join an exciting new business opportunity, right? This is MLM.

For those that don't know, MLM is basically a pyramid system. A company produces a product and signs up individuals as distributors. Each individual distributor is incentivized to sign-up other individuals underneath them because they get a percentage of everything those individuals buy and the people that those people can setup below them. This is generally referred to as a "downline." Everyone distributing the product is looking for distributors to put under them. Theoretically, if you recruit well and the people that you sign up recruit well, and the people they sign up recruit well (and so on), you could could end up with tens or even hundreds thousands of individuals in your downline. Everything that they buy, you get a cut of!

Sounds good. And in fact, there are several good brands selling reputable products through this distribution model. Mark Kay comes to mind.

However, there are a few problems that really make me dislike MLM as a distribution channel, especially as it relates to the nutritional products industry.

1. The number one problem with MLM companies in the nutritional products industry is hype. Hype builds a large downline and creates an explosive fad, but it rarely creates lasting value and satisfied customers. I am aware of some people in MLM who simply move from one fad to the next, taking their entire network/downline with them when they do. A very successful MLMer recently told, "The money never goes away, it just moves from company to company." Most MLM companies take off like rocket ships riding an enormous wave, but then burn out just as quickly when the downline moves to the next fad.

MLM is a powerful marketing channel that really does not care all that much about what they are selling. What successful MLM distributors are asking themselves is, "Is there enough here that I can convince others to sign-up?"

2. Since so many nutritional products are sold via MLM, I believe that this hype then encourages/fosters the view that all nutritional products are "snake-oil." As I have learned personally, some nutritional products (MLM and non-MLM) are truly junk, but good products can also have a dramatic impact on health.

Junk products aside, if you go from the Standard American Diet to just about any decent nutritional supplement product(s), you probably will feel a difference. But it's rarely a magical ingredient from the Amazon or a patented process that is responsible for this. You're just finally giving the body more of the nutrients it needs! Duh!

Don't get me wrong, the source of ingredients and the way products are manufactured do make a big difference in the effectiveness of each supplement. But they are rarely these hyped "magical" elements that MLMs would like you to believe.

3. The incredible hype surrounding MLM amazing "business opporunity" claims leads to attracting distributors who are only in it for the money. I have no idea how many distributors this applies to, but I believe that many people who get involved in MLM lose sight of the fact that businesses are supposed to provide real value to their customers through good products, hard work, and customer service. Anything else is basically hype.

4. Many of the customer testimonials promoting these products are from the distributors themselves who stand to make financial gain. But this is rarely disclosed.

5. It is important to keep in mind that as the MLM company, they can't really control what the downline is saying about the product(s). And a number of MLM companies are today being sued by the FDA and FTC for the illegal product claims ("this product cures X,Y, and Z") being made by their distributors. But the MLM companies cannot exert control over what all their independent dealers say in one-on-one sales presentations. So the MLM model itself basically encourages the deceptive marketing and false cure claims that are rampant in the nutritional products industry. And considering that there are so many MLM companies with so many distributors, the entire industry gets a black-eye from this.

6. I often use the phrase "follow the money" on this blog. Well consider this: Almost all MLMs require their distributors to purchase a minimal amount of the product each month, generally in an "autoship" type arrangement. Clearly, to be good at selling a product, you have to know the features/benefits intimately. But in MLM, the distributors themselves actually become the bulk of the customer base. Can they really be considered customers?

7. When you're chasing the dream of the good life through MLM, who better to sign up in your downline that your own friends and family. Everyone becomes an opportunity. I have been asked to meet with a friend of mine only to be pitched for his or her latest MLM opportunity of a lifetime. I don't like that.

8. Continuing to follow the money, one must look at the price of MLM products. MLM products tend to cost a lot more than the comparable products because the revenue must support the commissions for the downline. The typical markup for MLM is around 8 times the cost to produce the product. So the end consumer pays $24 for a $3 bottle of fruit juice. (And quite a bit of cost goes into all those fancy Noni, Xango, etc. glass bottles)

9. MLM has gone from "Pyramid" to "MLM" to "Network Marketing" to it's latest misleading name: "Direct Sales." MLM is not"direct selling" though. When I think of "direct sales," I think of direct to consumer, like what Dell Computer became famous for. This model basically says, "we can sell a better widget for less than our competition by cutting out cost in the supply chain."

I decided to use a direct-to-consumer model for Jigsaw Health for numerous reasons. Mostly because I believe it shouldn't cost so dang much to get and stay healthy! In short, I wanted to offer products with premium ingredients that had scientific research backing the claims to know that they were going to work (remember the room of retired products?), but be able to sell the products at a fair price, utilizing the built-in efficiencies of the web and eschewing MLM, retailers, doctors, etc. altogether. So far, so good as we get wonderful feedback everyday from customers... real customers! :)

In summary, I'm sure that all these things are not true for every MLM. I'm sure there are a few MLMs that are very serious about providing a real service to people. More often than not though, it seems to be based almost purely on hype, especially in the dietary supplement business.

Techorati Tags:Health and Wellness,Multi-Level Marketing,MLM,Sales and Marketing

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