
Colette Fountain investigates the reality of multi-level marketing, how people are manipulated into the schemes and to support people wanting to leave them
Pyramid schemes are hardly a new phenomenon – Charles Ponzi became the namesake for the fraudulent ‘ponzi schemes’ after his business antics in the 1920s, however, in the digital age they are more accessible than ever before. Whereas previously, founders of these schemes would be restricted by geography, nowadays a single post can reach thousands of potential recruits making it the easiest it’s ever been to launch a pyramid scheme.
The defining characteristic of both pyramid schemes and multi-level marketing (MLM) businesses is their pyramid-like structure. Essentially, there is the founder at the top of the pyramid with the highest income. This founder then recruits people who in turn recruit more people and so on, until the business is big enough to produce profit. Pyramid schemes don’t exist within one set industry, instead they can encompass anything from beauty to finance to travel. Some pyramid schemes rely on selling products, often priced far above their actual value, while many simply rely on providing a service such as financial advice. For many pyramid schemes, profits from sales is often overshadowed by the main income source: recruitment. Usually, recruits will pay an extortionate entry fee, ranging from several hundred to potentially thousands of pounds; a percentage of which is given to the person who recruited them, with the rest of the money being divided as it travels through the upline (recruiters). This allows the founder of the company to amass immense wealth while those at the bottom of the pyramid lose money.
The distinction between MLMs and Pyramid Schemes is very hard to define. MLMs follow a similar business structure with distributors and recruits who serve as ‘independent business owners,’ selling company products. Famous MLM businesses include companies like Avon and The Pampered Chef; hardly seen as sleazy, under-the-table businesses.
“Some critics consider all MLMs to be pyramid schemes
As I have established, the main issue with pyramid schemes is the heavy reliance on recruitment, something that often leads to the involvement of close friends and family. When faced with the realisation that without recruitment, they are unlikely to make enough money to even cover the initial investment cost, pyramid scheme members turn to recruitment, despite knowing the problems with being at the bottom of the pyramid. Essentially, recruitment helps the individual move up a rung of the pyramid, giving the potential for higher earnings at the detriment to their recruits. This is my main issue with pyramid schemes. I understand the appeal of wanting to belong to one – after all their marketing relies on the idea of the perfect job which seems ‘too good to be true’; however, I lose some of my sympathy when individuals begin to exploit others. Pyramid schemes rely on the powers of manipulation and essentially brainwashing. They create this idea of the ‘dream job’ which, in reality, only exists at the top of the pyramid. And to get to the top, you have to exploit others.
One of the best ways to find recruits is through social media, something which has enabled the seemingly sudden boom of pyramid schemes. We’ve all seen people on social media promoting their jet-setting, wealthy lifestyle which they’ve achieved from ‘the comfort of their own home’; I’ll even admit that I’ve caught myself becoming jealous of these people who seemingly have the dream life.
“One of the best ways to find recruits is through social media
So, you’ve come to the realisation that you’re trapped in a pyramid scheme – what now? Unfortunately, due to their illegitimacy, it is very difficult to escape a pyramid scheme, although not impossible. Waiting for the pyramid scheme to collapse is perhaps the worst thing to do as you continue to pay into the business while relying on so many factors that are out of your control; instead try to get out as soon as possible.
“Waiting for the pyramid scheme to collapse is perhaps the worst thing to do
Pyramid schemes and MLMs have existed for decades and it doesn’t look like they’re going to go away any time soon. The internet and social media have only exacerbated the issue, making it easier than ever before to find new recruits and grow the business. The main lesson here is, as with a lot of social media, don’t believe everything you see; if something seems too good to be true, it probably is. And if you find yourself in a pyramid scheme, know that there are ways out and you aren’t trapped there indefinitely; after all, without recruits the pyramid schemes become worthless.
Comments