MLM Basics: Why are there so many names for MLM?

Have you ever wondered why are there so many different names for multi-level marketing? Here are most of them:

• 

  Network marketing? Multi-level marketing?
  Home-based Franchising? Direct Sales?
  Concentric Marketing? Affiliate Marketing?
  Referral Marketing? Inline Marketing?
  WTFIsIt Marketing?
  (Photo credit: Wikipedia)

  Multi-level marketing, the main term
• Network marketing (most often used alternative)
• Home-based Business Franchising -- WARNING: franchising is NOT multi-level marketing
• Direct sales -- selling direct to consumers, related to but NOT equivalent to MLM
• Affiliate Marketing -- now used by Vemma, often plagued by fraud
• Seller-Assisted Marketing -- mostly a "business opportunity" scam
• Referral Marketing / sales -- marketing via word of mouth; some forms may be illegal
• Dual Marketing / Dual-Level Marketing -- mainly used by Mary Kay, still MLM
• Concentric Marketing -- used by convicted pyramid scheme Burnlounge, replaced "levels" with "circles", but otherwise, the same as MLM
• Consumer Direct Marketing -- the consumer is doing the marketing, potentially illegal if recruitment heavy, as it becomes recruiters recruiting more recruiters. 
• Inline Marketing -- trademarked by "Nutraceuticals Inc", it's still MLM

There are probably a few more I missed. If you spot some new ones not on this list, as a something-marketing, feel free to let me know via the comments.

Any way, why are there so many fancy names for the same thing?  Fraud experts, such as Tracy Coenen say this is an attempt to obfuscate and distract from the bad reputation multi-level marketing had picked up over the decades it had been in existence. However, I think this is also a symptom of how the decentralized nature of MLM became a sin, not a virtue. People are just appropriating terms that sounds SOMEWHAT similar to multi-level marketing, and in some cases, inventing them out of thin air.

First, let us define multi-level marketing... a marketing strategy where the sales force is compensated on multiple levels... direct sales profit, and portion of sales profit achieved by other salespeople they recruited (downlines). Remember, MLM = direct sales + commission based on downline sales.

But first, we have to clear up a few myths...

NEWS UPDATE 03-JUN-2014: Burnlounge is a pyramid scheme (duh); Merrill about to flip on Wanzeler in TelexFree case? Rippln + Mannatech = ?!?!?!

Remember folks, get your news from REPUTABLE news sources (which I link to) so you can decide for yourself, rather than just one-sided narrative by unknown people.


Burnlounge appeal rejected by Federal Appeals Court

Burnlounge appeal of their 2012 judgement as a pyramid scheme was rejected by the Ninth Circuit Court of Appeals, affirming that they are indeed, a pyramid scheme.

My short profile on Burnlounge:
http://amlmskeptic.blogspot.com/2012/09/scam-study-burnlounge.html

In their decision, the court stated that:

The district court found that because purchasing a package was required for participation as a Retailer or Mogul, and because Moguls earned cash for selling packages, “[Moguls] by default received compensation for recruiting others into the program.”

The 9th Court's decision can be read here:
http://cdn.ca9.uscourts.gov/datastore/opinions/2014/06/02/12-55926.pdf

The short of it is, if you claim you sold something and are getting paid for that, but in effect you recruited and the recruits are required to buy something, then  your claim of sales is invalid... You are getting paid for recruiting, not selling.

What is interesting is the court's decision reaffirmed Webster vs. Omnitrition as a precedent, but it's no surprise as it's also the Ninth Court that made the Omnitrition decision.

You can read my summary of Omnitrition case here:
http://amlmskeptic.blogspot.com/2014/01/mlm-dictionary-omnitrition-case_30.html

This would have some profound impact on some very big players in network marketing that relies on recruiting 'self-consumers' who then recruit more self-consumers to make themselves rich. Those who emphasize retail sales by sales teams should not be affected.

MLM Commentary: Think VERY HARD If You Want To Pivot to MLM

United States Census Bureau.
 (Photo credit: Wikipedia)

Generally speaking, network marketing (or multi-level marketing) is a niche that grows, but the rate is hardly noticeable against inflation, despite having been around for decades. Most products are launched through traditional retail channels, and only a few very niche products are launched with network marketing.

Consider this: According to US Department of Commerce, Census Bureau, 2011 total retail is

4,136,352  million dollars (not counting auto sales or auto parts)

According to Direct Selling Associasion (DSA), estimated direct sales to retail 2011 is...

29,870  million (i.e. 29.87 billion)

That's 0.72% of all US retail (again, not counting auto sales or auto parts)

DSA (US) Logo
(Photo credit: Wikipedia)

Not much of a niche, is it?

How much did it grow? Let's take a look at 2010's data (2012 data will be published in March or April 2014, according to Census Bureau).

3,841,454  million dollars

That's 7.6% growth from 2010 to 2011.

How did direct sales do in the same period?

28,560 million

That's 0.74% of all US retail, only a 4.6% growth from 2010 to 2011.

If a company can't make it in regular retail, how do they expect to make it in network marketing?

Thus, if a company that was originally launched as retail business want to switch to direct sales... That company should consider ALL the angles, lest it end up with a disastrous pivot.

MLM Mythbusting: When Will DSA Recognize the Danger of Product-Based Pyramid Scheme to the MLM Industry?

DSA, or Direct Selling Association, is the "industry group" of network marketing, direct selling, multi-level marketing... whatever companies. It periodically holds surveys, and has a code of ethics that it requires its members to adhere to, which it claims will protect the consumers and affiliates from unscrupulous companies. DSA thus far has done an admirable job, both in Public Relations, and Industry Watchdog. However, DSA has a severe blindspot: DSA does NOT acknowledge the existence of product-based pyramid schemes and how similar it is to MLM, and that denial may lead to the destruction of itself and the industry it serves.

DSA pretends that "product-based pyramid scheme" doesn't exist, by pushing multiple narratives which are myths, not reality:

• MYTH: "Internal consumption is legitimate"
  REALITY: Internal consumption is legitimate... only in "reasonable" amounts, else it is indistinguishable from product-based pyramid scheme
• MYTH: "There is a CLEAR divide between pyramid scheme and MLM"
  REALITY: "Product-based pyramid scheme" is VERY close to MLM and this clear divide no longer exist. It's one huge gray area. 
• MYTH: "Pyramid schemes rarely involve products. If they do, they aren't worth much."
  REALITY: "Product-based pyramid schemes involve actual 'legitimate' MLM type products."

It recently re-emphasized these blindspots by pushing its article "The difference between legitimate direct selling companies and illegal pyramid schemes" which again emphasized the three myths, which is no surprise as this was penned with the assistance of mlm attorney Jeff Babener, whom I have previously identified as having a bit of blindspot himself 

Let us go over each myth on why each is a myth, and what is the reality.

How to Fake Being Infallible (and how to spot such fakes)

Derren Brown at the Garrick Theatre, June 2008 (Photo credit: Wikipedia)

Ever run into some guy who claims they invented a system that will do absolutely great in the stock market or foreign exchange market or commodities market or whatever market that involves trading, and he'll reveal the secrets to you for a price? You'll probably dismiss him as crackpot. He offers to sell you the secret, but only for 72 hours (3 days).

What if he mailed you a prediction, and next day, he turned out to be right?

And the next day?

And the next day?

Do you feel a need to buy his system now? As he's withdrawing his offer?

Don't. This is easily faked. And I'll explain why it's fake.

Chicken And The Egg: a MLM Startup Problem

English: A chicken egg
(Gallus gallus domesticus)
(Photo credit: Wikipedia)

Recently, on the subject of a "launching" MLM, an interesting question was brought up... How does a MLM company sustain interest in itself when it is mainly in an affiliate acquisition mode instead of customer acquisition mode? At first this question seem to be a "chicken or the egg, which comes first" question, but in the end it turns out this just means the company has a serious identity crisis.

For discussion's sake (as it's company neutral), I'll only mention the name at the end. Let's just say their business model is to launch a way to let people try products, and if they like them, buy them, then they'll get revenue that way (or get some affiliate fees / commission), then share with the affiliates (using whatever formula / rule that was defined).  The affiliate's job is to show people that specific way.

So now you have a problem... The chicken and the egg, or in this case, customers and affiliates.

MLM relies on affiliates to advertise to customers, and turn some of those customers into downline affiliates (who then goes out and advertise to more customers).  You can't have one without the other.

So in case of this business, people who buy the products are the customers, and people who share the "way" would be the affiliates.

Except this business can't keep them apart. In the way business was described, any one can "share" the way (it's an app that shows off other apps, and if you like it, you share it). Any one can share anything.

So what is the difference between an affiliate and a customer?

Nothing... except one had paid into the system (and can earn via the system), and one had not.

Burnlounge, a pyramid scheme shut down by the FTC, had the same problem: no distinction between affiliates and users/customers. The end result is affiliates are getting paid to recruit affiliates. You'd be stupid NOT to upgrade yourself to affiliate (mogul) "just in case".

Scam Study: Burnlounge

20060720_BurnLounge_
Meeting_Flyer2
(Photo credit: Fuzzytek)

EDITOR'S NOTE: Scam Study is a quick summary of the various proven Ponzi or pyramid schemes. It is meant to be a summary, with relevant scam factor analysis. 

Introduction

Burnlounge was supposedly an online music store founded in 2004 by Alex Arnold, Ryan Dadd, and Stephen Murray. It was described as a MLM online music sales with its own download / subscription / chat client to users, but also allowed almost anyone to open their own "online music storefront" by purchasing a storefronts. It was marketed as iTunes meets eBay meets MySpace (remember, this was before Facebook became famous). It entered public beta in 2005, and formally launched in 2006, FTC said it's a pyramid scheme in 2007, and charged its execs as well as several high ranking affiliates for running it. The case went before a judge in 2008, and a final judgment was entered in 2012, that Burnlounge is indeed a pyramid scheme. 

Burnlounge has two general types of affiliates: Burnlounge Retailer, and Mogul. The former can only earn "credit", while the latter can earn cash. 

Burnlounge Retailer create "Burnpages", i.e. custom mixes of music they like from Burnlounge's catalog (which are licensed), but can only earn credits to be spent on more Burnlounge products. There are three sublevels of retailer: basic, exclusive, or VIP.  Basic lets you create Burnpages. Exclusive gets you monthly subscription of a DVD video news magazine, as well as downloads, while VIP gets you special access to venues and set of "music history" DVD. 

Any retailer (any level) can become a mogul by paying $6.95 per month, and perform some one-time sales goals like "sell two exclusive or VIP packages". They may get more if they meet some other sales goals. Moguls earn commission from sales of music, as well as recruiting other people to join as retailers or moguls. 

Moguls gets paid on "sales" done by their downlines through 6 levels, though Burnlounge use the term "rings" instead of levels and the term "concentric retail" instead of "multi-level marketing". However, the mechanics are the same. Moguls obviously gets paid for selling music through their own burnpages.