Aljazeera America publish “in-depth look at MLM”
This popped up on my radar in conjunction with Herbalife, but I soon discovered it wasn’t a once off.
The article in question was published as a part of a series Aljazeera America are publishing this week, titled “An in-depth look at multilevel marketing”.
It’s a four-part series, with the first three articles published over Tuesday and Wednesday. At the time of publication, a fourth article “Your Company Loves You” has yet to be published.
Below you’ll find a brief break down of the three thus far published articles:
An Army Of Recruits (Vemma)
This article opens with the story of Lena Nguyen and her recruitment into Vemma by an ex-boyfriend.
Lena Nguyen was pregnant at 14, bounced around four high schools and multiple part-time jobs and grappled with decreasing self-esteem in the face of her parents’ growing disapproval.
She dreamed of going to college without having to rely on student loans. She had been told her son might inherit her student loan debt and she didn’t want to take that chance.
Vemma seemed to offer the things she desperately wanted: a sense of community and financial autonomy.
Although Nguyen remained skeptical about Vemma, she promised to try it out for a year, signing up in late July. But she didn’t have enough money to pay for the $500 Affiliate Starter Pack, which she would need to qualify for the tempting car bonus.
All Nguyen was able to scrounge together was $150.
It then broadens out into a greater expose of Vemma.
Seeing Green With Herbalife
Kate Kilpatrick offers up an expose on Herbalife, with particular focus on the company’s nutrition clubs.
While controversy swirls around the nutrition-club system, which opponents say targets poor, often-uneducated Latinos, many of whom are living in the country illegally, here in this working-class immigrant neighborhood there are plenty of Herbalife believers.
They have small bank accounts but big American dreams.
Before opening her nutrition club, Maria earned roughly $180 a week babysitting. She won’t give exact numbers, but she makes more with her new business, she says, which is visited by about 20 clients a day.
Leonel, who used to work in construction, says his current lifestyle is more relaxed; he has no boss to report to, and his health has greatly improved thanks to changing his diet and consuming the Herbalife shakes.
But Ruth Lopez, who moved to Queens from Colombia six years ago, says it’s only a matter of time before nutrition club owners like Maria and Leonel realize they’re in a very bad business.
She, too, once ran a nutrition club in the neighborhood — until deep financial losses forced her to throw in the Herbalife towel.
She hates to see so many in her community falling for the very same “opportunity.”
Legal Remedies
This is a general knowledge article covering the regulatory side of MLM.
Alia Malek goes into a brief history of the regulation of MLM and provides insight into the roles of the FTC, SEC and State Enforcement.
The federal government’s oversight of alleged pyramid schemes is undertaken by the Federal Trade Commission and the Securities and Exchange Commission.
Extremely interesting real-world examples and thoroughly satisfying reads all three of them. Instead of covering pissing contests on the stock market I wish more mainstream media coverage of MLM was of this calibre.
I’ll update when the fourth article goes live.
Update 17th October 2014 – Looks like there’s going to be five articles published in the series, with the fifth titled “Thinking Outside the Pyramid”.
The fourth article, “Your MLM loves you”, went live yesterday. It examines the relationship between an MLM company and its affiliates.
Manipulation is an inherent part of marketing, says Dr. Claudia Gross, who studies the culture and structure of MLMs at the Institute for Management Research, part of the Radboud University Nijmegen, in the Netherlands.
But, she says, manipulation has an outsize effect with MLMs because of their organizational structure and the lax regulatory environment in which they operate.
Participants in MLMs are caught in a situation in which they are not strictly self-employed, because they are part of an existing company, whose rules they do not set.
So while they have some of the benefits of the self-employed — such as the ability to set hours and determine which markets to operate in — they also lack the support of unions or other intermediaries they can rely on for help when needed.
This makes participants in MLMs particularly vulnerable, experts say, built as they are on personal relationships and atypically structured.
Any emotional manipulation employed in this environment makes it easier for participants to believe the unbelievable, ready to silence any doubts, unquestioning of failure and unwilling to act against the company.
Update 19th October 2014 – The fifth article in Aljazeera’s series, ‘Thinking Outside the Pyramid” is written by William K. Black. Black describes himself as ‘a white-collar criminologist and former financial regulator‘ and provides readers with two rules to follow when evaluating potential pyramid schemes:
1. If it sounds too good to be true, run — don’t walk — away.
2. You don’t need to know or prove that the proposal is a fraud to have reason to reject it.
These rules are elaborated on in Blacks article, which then goes on to briefly discuss some of the thinking behind those “who get in early”.
such misleading bunkum!
the heart of MLM’s problems is the allegation of inventory loading .
the above sentence from al jazeera’s article is such an insidious well crafted lie. it’s either a purposeful lie, or al jazeera should stop throwing badly researched material at the world.
most of the worlds reading public ,is not familiar with MLM , to create an impression that herbalife distributors have to buy products ‘in bulk’ to sell or consume , is malafide. approx 70% herbalife distributors do not have any inventory requirements. this is completely different from what the article portrays.
It’s nice to tell real life stories and impress oz, but facts should remain facts, especially when you are reporting on a controversial subject.
Who said anything about requirements?
I think you’re confusing “requirements” with “what actually happens”.
If a sizeable number of Herbalife affiliates are bulk-purchasing product themselves instead of selling product to retail customers, then that’s what’s happening. Whether it’s required or not is irrelevant.
They obviously believe that’s the way to run a Herbalife business for a reason. (read: Their upline pressured them into buying their excess stock which they have to now sell to someone they recruit)
the article ‘legal remedies’ establishes that california has the most stringent anti pyramid rules and most states follow the california model:
Well , THIS is what California law says :
[ ie unforced internal consumption is perfectly OK]
WHY has aljazeera ‘misreported’ to create the impression that US law requires compensation to be based ONLY on retail ? WHY has Aljazeera purposefully DELETED the last phrase of the California definition?
How can a leading world news organization like al jazeera MISGUIDE the public about LAW?
who has sat behind and held the pen of the al jazeera journalist who wrote this stuff ?
They haven’t.
Nobody buys excess inventory in MLM for any other reason than to qualify for commissions (to participate in the scheme).
Personal use legitimate internal consumption falls within affiliates “who are not purchasing in order to participate in the scheme”.
Any more derail bullshit from you will be marked as spam. If you wish to intentionally misread and misquote do it elsewhere.
that’s not what the al jazeera reporter has said . the reporter has just made a BLANKET statement that distributors join and buy products in bulk . this is a lie and misleading .
if someone wants to insist that distributors are making bulk purchases , without inventory requirements, then they should do the research and show the data .
If that is what is happening based on the reporters talking with Herbalife affiliates, it is neither a lie nor misleading.
I wonder why the affiliates they spoke to were fearful of their last names being published…
correct , so why has al jazeera deleted this phrase in their publication of the california definition ? can and should leading publications OMIT such important legal phrases .why have they done it , they cant be stupid.
Well if one looks up California law, as you’ve done – you’d see they are correct.
Using the Californian definition of compensation (restricted within the context of that law you quoted), what Aljazeera stated is not incorrect, with or without the last statement (the law doesn’t not apply when you don’t quote it).
As per the Californian definition of compensation, it’s entirely illegal to self-purchase for the purposes of anything other than personal consumption.
If a comp plan enables PV to qualify an affiliate for commissions and self-purchases generate PV and there is no significant retail activity taking place (as plainly the case with Herbalife), then there’s a problem under Californian law.
They aren’t, but evidently they might not have anticipated some of their readers requiring to be spoon-fed common sense.
its not incorrect but (Ozedit: no buts)
I agree with anjali on some points. Mainly, I don’t see inventory loading being the fault of mlm companies this day and age.
Perhaps in the past, but nowadays you don’t have to take large inventory to sell product since it can be drop-shipped.
If there’s no financial benefit people don’t do it.
Companies draw up compensation plans, of course it’s their fault. If you’re going to have monthly volume quotas, make it retail volume only that counts or a mix between the two.
If affiliate’s can spend a few hundred dollars to qualify themselves, and the comp plan makes it worth their while, some will do it.
Qualifying volume, in most cases, is not much. It doesn’t typically require buying large quantities, unless we’re talking about qualifying at a higher level in the comp plan.
At that point, however, it becomes stupid to buy so much inventory JUST to qualify because then you would have to rely on being able to sell all/most of the inventory to break even or make a profit.
Very interesting read. Thank you for sharing.
I believe the 4th part is online and there is possibly also an upcoming 5th part.
The take home points I got from reading this series of articles are:
1. A large part of MLM is recruitment driven and not product driven
2. Self-consumption is often used as a means to “grow your business”
3. A variety of deceptive tactics are used to get people (often those who are young, poor, and/or impressionable) to attend meetings and to join the team.
As an example, when I was in college, I was invited by a “friend” in Spanish class to play table tennis at someone’s house who had a table. When I went there ready to play, I realized that the main reason I was invited there was for a recruitment/motivational meeting for Excel Communications pyramid scheme.
4. When recruiting others into an MLM opportunity, the full picture is never given and the focus is on success stories and dreams that are within reach.
But, only a few individuals at the top reach these successes and dreams. A large portion of people put in hard work for nothing.
5. Once the individual in question pays and joins, the recruiter often doesn’t care if any product is sold on a retail level. The recruiter hopes that the new member will be good at recruiting others, but that’s about it.
6. The FTC does have guidelines in place to identify illegal pyramid schemes and, from my understanding, these guidelines identify the majority of MLM as illegal schemes.
Not if you’re recruiting others who by a stupid amount of inventory so they can qualify too…
Throw in some sort of bonus or incentive at a specific rank and then market it as something to buy into off the bat. Boom, you’ve got people marketing an autoship opportunity.
@Naz
Ah indeed. The 5th link wasn’t there this morning, but looks like they’re doing an article for every day of the week. I’ll update tommorow.
Part 5 of the series is a must read for anyone contemplating joining an MLM.
Prior to joining, read part 5 of this article and, then ask yourself: do I still want to do this?
well, the moderator is asleep at the wheel, because i dont see no part 5 linked here .
i think the article ‘your MLM loves you’is biased.the perspective of MLM critics [read :haters] like douglas, fitzpatrick and keep, is highly compromised by their extreme views.
Update: 5th article in the series added – “Thinking outside the pyramid”