5 Reasons Pyramid Schemes Are Worse Than You Thought (Cracked.com)

Cracked can be relied on for controversial and irreverent take on some topics, and their supposed "5 Reasons Pyramid Schemes Are Even Worse than You Thought" was no exception.

Let's just say they gloss over a lot of the details, like calling MLM Pyramid Schemes without noting the legal distinctions, then backpedal and claim everything is just shy of illegal. However, the other points are quite salient and worth a read, if just for the style.

MLM Basics: Critical Thinking for MLMers -- Errors in Perspective

Previously MLMSkeptic have pointed out various reasoning problems of many participants in MLM, but someone pointed out why don't I have a guide on what *should* be done instead?

So here's the effort, called it "How not to argue for MLM" series. You can also think of it as "Critical Thinking for MLMers".

Many of these have been covered previously as "Bad Arguments".

There are many kinds of errors in your thinking process. As the old saying goes, "To err is human." However, one must learn from the errors to improve oneself. Today, we will discuss "Errors In Perspective".


What is Errors in Perspective?

Errors in perspective basically means you have a biased perspective of the world; you don't see the world as it really is, but only as you saw it. It's as if you've been wearing a bad set of tinted glasses all your life that you didn't even know it was there. And that's why they are very dangerous for you to think critically... You may *think* you are doing so, but you're doing it from the wrong perspective / viewpoint.

If you are not in MLM, keep in mind that many MLMers will accuse you of having the wrong perspective, with bad argument such as "unless you're in it you don't have the right perspective" (i.e. "you have to try it to know it / criticize it")

There are many different types of errors in perspectives.


Unwarranted Assumptions

One of the hardest errors in perspective to detect are unwarranted assumptions, because they are usually implied, rather than stated outright, and thus, you almost have to read between the lines to see them. A lot of "folks wisdom" or "commonly held facts" are actually unwarranted assumptions.

Not all assumptions are unwarranted, as you can't live a life without some assumptions, like the guy you pass on the sidewalk is not going to jump up and stab you, or your car will start in the morning, and so on. You may be wrong sometimes, but most assumptions you made every day are based on your knowledge or experiences. It is when you assume too much, more than justifiable by the circumstances or experiences, that you get unwarranted assumptions.

One of the most frequent unwarranted assumption held by victims of scams is "because Scheme X paid someone, therefore Scheme X will pay me (in the future)." When you think about it, this is basically "the sun will come up tomorrow" assumption. It makes sense for the sun, but it makes no sense for Scheme X, no matter how good / honest / rich Scheme X appears to be.  Furthermore, pyramid schemes and Ponzi schemes always pay a few people and make them "judas goats" to draw other people in. Some people (even you) getting paid does not prove everybody will continue to get paid indefinitely.

So how do you stop making unwarranted assumptions? First you have to FIND the unstated assumptions, THEN you have to logic check them to determine if they are warranted or not.

Scam Basics: When you're beyond "not right", but into "not even wrong"

Why do victims of a scam never seem to listen to reason, before, during, and even AFTER the scam?The problem is, at least partly, due to lack of skeptical mindset.

"It is impossible for a man to learn what he thinks he already knows."
-- Epictetus, Greek Philosopher (55-135 AD)

If a victim already believes he knows all that he needed to know about a company or the product (usually by listening to some PR copy, and/or attended some cheerleading meetings), he will not do any further investigations, and will discount or ignore what other people tell him about the company or the product, esp if he already put money in or worked on promoting it ( also see IKEA effect)

Unfortunately, the demand for "MLM confidence" has produced a TON of so-called "internet marketers" that refused to understand they don't know ANYTHING about what they claimed to be doing. As a result, they believe blindly the bad info they have learned (or been taught), and attempt to deny reality with it. That, is dangerous behavior.

Here's one example... A gentleman by the name of "David Cant", who claimed to be internet marketer out of Australia.

First a little background info.  Mr. Cant created that website of his because he had a scheme that sells virtual units to alleged estores and you get paid if other people also buy into these virtual estores. It was reviewed as a pyramid / ponzi scheme. Mr. Cant was not pleased with the review and created the "counter" website (from which the above screenshot was taken).

This was what he wrote on his counter website about what was his definition of pyramid and ponzi scheme. Yes, I emphasize, this was *his* definition. Any red markups are mine.

Which has absolutely NO correlation to the actual laws of Australia on "pyramid selling schemes". Cant's definition basically picked and chose bits and pieces of Wikipedia along with a lot of wishful thinking ("there isn't any get rick quick schemes", yeah right) and some outright denial ("I don't agree with the definition"). As a result, the claims on his website bears NO resemblance to reality, such as actual laws and legal definitions.

In other words, Mr. Can't thinks he knows what pyramid schemes and ponzi schemes are, but he actually has absolutely NO IDEA. It's basically an incoherent rant by someone denying reality. Which is quite amusing since he claimed he used to work sysadmin at the Aussie Supreme Court Library in his LinkedIn Profile.  Yes, I checked. It's the SAME GUY. He's right next to tome of legal information that had he bothered to look up he'd have FOUND the actual definitions. Instead, he created this website to deny reality.

As the saying goes... "your position is not only not right, it's not even wrong."

MLM Basics: The Truth Behind "MLM Confidence"... When Being Confident Is Actually Stupid, not Smart

It seems that MLM / NM placed a LOT of emphasis on "confidence". If you search for "mlm confidence" you will get 441000 results (as of post date)

But what does this really mean? The first link, from which I quote:

If you lack confidence it doesn't matter how much studying you do you won't be able to grow your business... The key to creating rock solid confidence is to develop your beliefs. 

So what are the "beliefs" that this author advocates?

• Trust MLM industry (by reading Robert "Rich Dad" Kiyosaki)
• Trust Your Company (by looking for the upside)
• Trust Your Products (by consuming them yourself)
• Trust Yourself (by telling yourself "I am the best")

While I'm reasonably certain the author meant well, and these tips may have helped him, none of the nuances in his advice were discussed. And there are indeed a LOT of info that the author had not presented about how to develop this positivity.

Basically, all this confidence build tips means throwing "due diligence" out the window.

And that's very stupid.

Let's find out why.

Bad Argument: Distributors can't lose money if they enjoy the product (WTF?!)

One of the contentious issues between MLM proponents and critics is the definition of a "customer" vs. a "distributor".

Logically, the differences are crystal clear:

Customer spends money, buys stuff (from distributors).

Distributor earns money, sells stuff (to customers).

However, in the MLM world, things are never so clear. And one of the arguments proponents often use is "if the distributor enjoys the product for internal consumption, they could not be considered having suffered financial loss".

Or as someone argued on reddit /r/vemma...

Because even those "poor souls" who join the business but don't earn commissions still aren't losing money, just like when you buy anything else in life that you ultimately consume or use you don't think of it as losing money. 

This is bogus logic. Can you imagine a bar owner drank all his own stock of liquor, and need to close the bar, and then tell himself, "I didn't really lose money because I got drunk"?

There's another reason though... consuming the stock prevents distributor from getting a refund.

MLM Mythbusting: Is MLM really a growth industry? (The Numbers May Surprise You)

When you listen to MLMers / Network Marketers, you're often told that MLM is the big thing, it's "experiencing record growth", it's "amassing fortunes for millions of people each year", it's "#1 millionaire producing industry", big companies are going MLM, and so on and so forth. They'll dazzle you with numbers such as

• Every week 150000 people join network marketing around the world (but how many quit?)
• Worldwide sales of MLM is estimated to be 90 billion (still less than 1% of world economy)
• DSA estimates 200 million new distributors in next 10 years (again, how many quit?)

Is MLM actually growing that much, when compared to other industries? Let's look a little closer. 

Is MLM the "next big thing"?

Claims have been made since the 1990's that MLM is the next big thing.  Back in 1990, Richard Poe wrote in Success magazine that network marketing is "the most powerful way to reach consumers in the 90s". He also wrote a few books, specifically, Wave 4.  This quote was reproduced ad infinitum by various MLMers trying to legitimize their own little niche. You can see this example where the author changed it to "21st century economy".

Basically, they've been saying it for THREE DECADES (going into FOURTH) and it STILL haven't come true. 

Those claims had not come true. Internet soon surpassed network marketing as the way to reach consumers, with online shopping, and ready access to review sites, peer reviews, and more. E-Commerce is a 289 BILLION dollar industry in 2012. For comparison, direct sales and network marketing is a 31.6 Billion industry in 2012, as per DSA. (see below)

One more point of comparison... Total US retail for 2012 is $4.9 TRILLION.  That makes direct sales 0.64% of stuff sold. It's a niche market, and it's not growing much, and hadn't done so for decades. 

Is MLM "experiencing record growth"? 

A lot of places repeat big words like "record growth"... 

The problem is... relative to what? DSA itself reports that sales has been down since 2006 and only just recovered in 2013 or 2014 (not counting inflation). See for yourself (all graphs courtesy of DSA.org):

1991 to 2000

2000 to 2008

2008 to 2012 (latest data from DSA)

So "record growth"... In relation to what, exactly?  It's now 2014 and they probably did break their old 2006 record... but that just means they are not as recession proof as they claimed to be... 

Also, is 31 billion a lot? Again, in relation to what?  Franchising is a 740 billion industry as of 2011, according to a PricewaterhouseCoopers analysis. And franchising started at about the same time as network marketing.  In fact, franchising may have success rate of up to 95% (the stats are old, per 1991, and no new data had been compiled since)

"Record growth" statement is meaningless. 

MLM Basics: Is MLM considered entrepreneurship?

A recent discussion regarding a certain suspect MLM already fined in Europe for pyramid selling brought up an interesting point of discussion... Is participation in MLM considered entrepreneurship?

But first, what exactly is entrepreneurship?

BusinessDictionary.com defined it as "The capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit."

From the surface, it does appear that participating in network marketing could be considered a business venture, but again, we have to look a little deeper: is becoming an IBO / affiliate a "business venture"?

Same place defined "business venture" as "Start-up entity developed with the intent of profiting financially. A business venture may also be considered a small business."

Ah, here lies the problem.

Most network marketing company deal with you as a hybrid... You're not a business (so it's not a business to business) but you're NOT an employee either. You are an "independent contractor". Here, for example, is Amway's agreement on this specific topic:

3. Independent Contractor Status. You agree this authorization does not make you an employee, agent, or legal representative of Amway, your sponsoring IBO, or any other IBO. As a self-employed independent contractor, you will be operating your own independent business, buying and selling products and services available through and by Amway on your own account. You have complete freedom in determining the number of hours that you will devote to your business, and you have the sole discretion of scheduling such hours. Amway will not provide you with a place of business, and if you desire a place of business other than your own residence, you will be responsible for procuring, furnishing, and paying the rental for such place of business. As a self-employed independent contractor, you are responsible for complying with any provincial licensing requirements and Municipal Zoning and Business Licensing By-Laws. With respect to services performed by you under your IBO Contract, you will not be treated as an employee for federal or provincial tax purposes, and you will be responsible for
payment of any self-employment and other income taxes. 

Well, Amway certain wants you to think you own an "independent business". In fact, they refer to all of their distributors as "IBOs"... Independent Business Owners. And you are REQUIRED to print that on your business card.

So what's the problem? The problem is in the PROFIT motive. Being an entrepreneur means you intend to profit.

Yet for a MAJORITY of participants in network marketing, apparently profit is NOT a motive.

You're probably going, WHAT?!  Let me give you examples:

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...

MLM History: The (Not so) Secret Origins of Amway

English: Honda- Amway（AVCL）Hồ Chí Minh (Photo credit: Wikipedia)

You can't mention multi-level marketing without mentioning Amway, but do people actually know the real origins of Amway?

If you go to Amway's website, their timeline only goes up to 1950's, when Jay Van Andel and Rich DeVos founded "American Way" in Ada Michigan, and later shortened the name to Amway. But in reality, their history goes back a bit further.

Carl Rehnborg,
courtesy of nutrilite.com

Origin of Amway can actually be traced back to 1930's to a gentleman named Carl Rehnborg, founder of Nutrilite (exclusively distributed by Amway). According to Nutrilite's website, Rehnborg, who lived in China as early as 1915, had experienced much of the unrest during that uncertain era in Shanghai, and experimented with soup/broth made from various locally procured ingredients, including herbs, plants and vegetables, animal bones (source of calcium), and even rust from rusty nails (source of iron) to supplement the meager army rations at the time.

It is worth noting that Mr. Rehnborg was only verified to be a salesman for Colgate in China at some time (there are some doubts, according to some sources, that he may or may not be in China at the time he claimed) and has no verifiable formal training in nutrition. There are some unverifiable or self-referential claims that he may have been a "doctor of chemistry".  According to yet another source, he's "trained in biology and chemistry" but apparently did not have a degree.

Upon returning to the US in the 1930's, healthier than others due to the broth/soup (so he claimed) but broke, he started experimenting with the beginnings of multi-vitamin / nutritional supplement market. When he felt he had perfected the formula, he started "California Vitamin Corporation" in 1934 and started selling "Vita-6" (later "VitaSol") to friends and friends of friends. What was not mentioned was upon returning to the US (he had sent back his wife and children before the unrest in China started) Rehnborg apparently turned down a job from Colgate in order to pursue his dream, which caused his first wife and two children to leave him. His second wife died at childbirth with the child.

According to Carl's son Sam (from Carl's third wife) , Carl discovered "contrafreeloading" at this time, as the supplements given to friends for "trial" was left on a shelf and forgotten. When he started CHARGING MONEY for the supplements, then people really started wanting to buy them.  When people started referring people to Rehnborg to buy his products, Rehnborg told them that they should sell the stuff themselves, and he'll give them discounts. Thus is the seed planted for multi-level marketing.

Anti-Scam: Rough Guide to Spotting Shady Opportunities, Part 1 of 3.

This guide is an adaptation of "A Rough Guide to Spotting Bad Science" by "Compound Interest", converted for spotting "shady opportunities". For length reasons, this is presented in 3 parts. This is part 1 of 3.

A Rough Guide To Spotting Shady Opportunities  (part 1 of 3)

Shady Opportunities are out there, waiting to take your money on promises of fabulous income... if you hand over your money first. There are twelve signs. Obviously a shady opportunity may not have all the signs, but the more signs you spot, the more shady the opportunity is.

1) Sensationalized Headlines

Headlines are often click bait or link bait, such as "everyone makes money" or "How to turn $289 into $1040 guaranteed"

As Carl Sagan said, "extraordinary claim requires extraordinary evidence". Don't believe the headlines, even if they are made/repeated by people you trust. Remember, they could have been duped. If they don't bother asking for extraordinary evidence, then you cannot trust their judgement on this specific matter.

2) Misinterpreted results

Nothing beats DIRECT access to the data. If you listen to someone's pitch, you are listening to his or her version of what s/he is telling you, which may be just a sales pitch with certain amount of untruth... truth as s/he know it, or the actual truth. You don't know which one it is, or even how much of each.

Without the actual data, any interpretation is just that... an interpretation. You may look at the same data and reach a completely different conclusion.  Much like these two gents used the same data and came to opposite conclusions.

Scam Psychology: What is Survivorship Bias and How It Screws You Over (esp. in MLM)

Ever heard of "survivorship bias"? No? It means you gain a skewed view from examining only the "winners" (or survivors) of a particular process, and the skewed view is wrong. But to illustrate this, it's best to start with an example from the annals of history, namely, Mr. Abraham Wald, and Department of War Math.

Abraham Wald is a brilliant mathematician that lived in Hungary before World War II. Being a Jew, he was discriminated against, and when the Nazis took over, he emigrated to the US, and quickly joined the new "Department of War Math", where he and other scientists are asked to help solve math problems that is related to war. And one of them is about bomber survivability.

English: Boeing Y1B-17 in flight (Photo credit: Wikipedia)

In World War II, the Allies launched huge bombing raids against the Axis territories, and suffered tremendous losses. Chances of a bomber crew surviving two dozen missions is very very small. On some early mass bombing missions Allies suffered as high as 25% (i.e. 1 out of 4 bombers sent out were shot down). And remember, HUNDREDS were sent out at a time.  DAY AFTER DAY.

Obviously, one cannot armor the bomber enough to make it bullet proof, and make it still fly and carry bombs. So where should the armor be added? And how much? Where should the trade-off be done between bomb payload and armor? That's where Wald and his colleagues come in.

The story goes that the scientists and assistants flew to Washington, to be briefed by the US Army Air Corp generals and their staff, where they explained the problem, along with representatives from Boeing (the builder) who explains the structure of the airciraft and explains the problems. Then there's data from the USAAC where they present the data they gathered from the bombers that survived, where they are hit and patched, so on and so forth. And they tried armoring the parts that keep getting shot up, but it's not helping the aircrafts to come back safely.

Allegedly Wald listened to some more of this, then stood up, told the generals that they are looking at it ALL WRONG. The parts that got shot up on the bombers that came back are the parts that should NOT be armored.

Wait, what?!

Really! He's right! Think about it for a minute...

Scam Psychology: Charlie Munger on How You Screw Up: Part 3 of 6

Charlie Munger (Photo credit: Wikipedia)

You may have heard of Charlie Munger. But if you haven't, you should have heard of his partner: Warren Buffet, one of the 5 richest man in the world.  In 1995, Charlie Munger gave a speech at Harvard... about how people misjudge things. Here's my personal interpretation of his lessons, as applied to network marketing. You can read the full speech.  Please also check out the previous sections 1-4, and 5-8

----------

In the speech given at Harvard in 1995, Charlie Munger identified what he called "24 standard causes of human misjudgment." What he really meant is "24 reasons why you screw up".  Here is 9 through 12

9) Failure to Recognize Contrast Bias

Contrast bias is simple to explain... If I give you one item and ask you to rate it, you will give your honest opinion. However, if I have you rate that item, plus an HORRIBLE item, that original item will be rated higher, on the average, because there's a contrasting item.

Here's a simple experiment by Professor Cialdini. Two buckets of water, one quite cold, one quite hot (neither will actually harm). Volunteers are asked to put one hand in hot water and one hand in cold water for 5-10 seconds. Then both are removed and placed in the same bucket of water. The hand what was in hot water now feels cold, and the hand what was in cold water now feels warm/hot, but they are feeling the SAME bucket of water. It's the contrast that makes the water feel hot or cold.

And this experience shows up everywhere. It's often recommended in some pickup artistry books that you bring along an ugly friend or two to make yourself look better. This is the same idea: contrast.

A somewhat anecdotal and apocryphal real estate sales technique if you want to get rid of a not-so-good property is you show the prospects two really awful properties, have them go tsk-tsk and shake their head, then you take them to this "better" property, and they'll probably bite.

On the flip side, without a contrast or a measure against a neutral background (control group), you may not be aware of creeping changes. This can be termed "anti-contrast bias".

Then there's the "boiled frog" urban legend, where the claim is if you put a frog in a pot of water, but you cook it VERY VERY slowly, the frog will never jump out. It's not true, but it's an interesting legend and illustrates this point. You can "creep" in changes and if the movement is small enough it may escape notice.

So beware of this being used on you... Either a special contrast example is used to make a position to look better or worse than it really is... this coercing a bias, or someone tried to "creep" in some changes and rely on your momentum bias to say nothing.

MLM NEWS AND ABSURDITIES, WEEKEND of 22-MAR-2014

Cover of GoodFellas

In various MLM News and Absurdities... We have 3 events to cover.

RAY LIOTTA (the actor) SUES NERIUM, CALLED IT "PRODUCT-BASED PYRAMID SCHEME"

Ray Liotta, best known for his role in "Goodfellas", is pretty famous for having a somewhat pocky-face. One can imagine his outrage when some before/after photo on social network popped up claiming that his face is now MUCH smoother, thanks to some products by "Nerium".  And this was repeated from October to December of 2013, and may still be happening. So he sued, and he outright stated that Nerium is a "product-based pyramid scheme" in the lawsuit.

Nerium claimed it had no knowledge of such photo or alleged endorsement and will investigate.

And thanks to Rod "MLMWatchdog" Cook, here's the lawsuit itself.

COMMENTARY: Don't EVER make up **** like this without getting it straight from the company, not upline, not sales leader... STRAIGHT FROM THE COMPANY! Now somebody will pay the price.

Duke University's Free Coursera Course on Critical Thinking: Take it!

Duke / Coursera has a free course on critical thinking. It can even lead to a certificate if you take a couple other classes, but by itself it's a great intro to critical thinking and proper arguments, as well as detect improper arguments being used on you.

https://class.coursera.org/thinkagain-003/lecture

Class is free, though they're already on Week 8, so you'll have a bit of catching up to do!

Scam Psychology: Charlie Munger on How You Screw Up, Part 2 of 6

You may have heard of Charlie Munger. But if you haven't, you should have heard of his partner: Warren Buffet, one of the 5 richest man in the world.  In 1995, Charlie Munger gave a speech at Harvard... about how people misjudge things. Here's my personal interpretation of his lessons, as applied to network marketing. You can read the full speech.

----------

In the speech given at Harvard in 1995, Charlie Munger identified what he called "24 standard causes of human misjudgment." What he really meant is "24 reasons why you screw up".  Read 1 through 4 here. Here is 5 through 8.


5) Not Understanding momentum bias and its causes

You are under the influence of other people every day, much like the dogs in Pavlov's famous experiment, so you have learned to associate two completely unrelated events, like the dogs salivate at the ringing of a bell, after they've been conditioned to associate bell with food. And you will continue to recognize the unrelated events as being related when they are not, and base your decisions on factors that were never relevant, or are no longer relevant. You have momentum bias.

Momentum bias is basically... that's the way it's always done... why change? Though there are some additional factors such a s Pavlovian association and how your mind looks in your memory and tries to find correlations... even when those aren't really applicable.

My dad once fixed a transmission problem by replacing the battery in a vehicle. Apparently the bad battery is confusing the computer and causing it to shift improperly. It is a very rare circumstance. However, ever since, my dad advocates "swap the battery" for all transmission problems even when it makes no sense. He has momentum bias. 

In terms of network marketing, you are trained early on that company = success and leaders = success, even though that may not be the case, and if you took that attitude with you to the next opportunity where it no longer applies, you have a momentum bias.

Learn to detect momentum bias in yourself and others. Do things because they are the proper decision for the time based on available evidence, not because "that's the way things are around here".

Scam Psychology: Charlie Munger on How You Screw Up, Part 1 of 6

You may have heard of Charlie Munger. But if you haven't, you should have heard of his partner: Warren Buffet, one of the 5 richest man in the world.  In 1995, Charlie Munger gave a speech at Harvard... about how people misjudge things. Here's my personal interpretation of his lessons, as applied to network marketing. You can read the full speech.

----------

In the speech given at Harvard in 1995, Charlie Munger identified what he called "24 standard causes of human misjudgment." I call it "24 reasons why you screw up".  Here is 1 through 4.

1) Not understanding power of incentives

Incentives is the standard way if you want to influence someone's behavior. If you are not getting the results you want, you are probably using the wrong incentives. And if you don't understand how incentives work, you won't get the full use out of them (or understand how they're used on you)

One of the most direct ways network marketing company influences its affiliates is the compensation package, also known as the comp plan. And comp plan is the best indication how serious the network marketing company about retail is how it structures its comp plan. If the comp plan rewards self-consumption by tying commission to your downline's self-consumption, you have a pyramid scheme, as little if any product is actually being retailed. By studying how the incentives are actually applied, you can see which way the company wants the affiliates to jump. And if that doesn't match what they say they are, perhaps the business is not what it appears to be.

Another way incentives play into network marketing is not realizing the way incentive actually works, generally by overestimating one type of incentive vs. another kind. One of the most frequently used rebuttals in network marketing "So-and-so is famous and works with MLM X. So-and-so can't POSSIBLY work for a scam as it would ruin his reputation, so MLM X can't be a scam." This argument basically postulates that Incentive A: MLM X paid So-and-So 75K for a special appearance at a convention for a speech is NOT sufficient to overcome Incentive B: Negative reputation due to MLM X may be a scam. However, when you think about it, this makes absolutely no sense at all. Plenty of celebrities have pitched for scam at one time or another. Snooki had shilled for Zantrex the super-caffeinated diet pill that was called out as bunk by doctors. Bob Eubanks was once tricked into making a test show which was then used as "pilot" to scam investors into funding a show that doesn't exist.  Celebrities are people too. They can be tricked, or they simply don't care as you're more focused on his/her celebrity status rather than what s/he endorses. The negative incentive is nowhere as big as the rebuttal claimed to be.

By not understanding the power of incentives (even negative incentives), some people came to the wrong conclusion.

Found This Pix on Reddit: VERY appropriate

Actual Advice Mallard says:
If you have to pay anything up front before you start a job, you're a customer, no an employee. 

Isn't it surprising that so many MLMers fail to realize this, and manage to convince themselves that they are "entrepreneur" instead?

Bad Propaganda: Avon was NOT a sterling example of MLM success

 u

Avon logo  (Photo credit: Wikipedia)

When trolling for new members, the recruiters for MLM often cite Avon, Amway, and until recently, Herbalife as sterling examples of network marketing. But are they really?

Since Amway is a private company, I have no stock data to show you, and Herbalife prices are crazy because some hedge fund managers are having an ego trip by playing with HLF stock. That's not a good indicator of the confidence in the company.

But Avon, that company had been around for over 100 years. How did it do?

If you enter AVP into Google, you'd find that Avon had been in STEADY DECLINE for the last ten years... since it adopted MLM. That's right, Avon did NOT adopt multi-level marketing until 2005. And it had been FAILING every year.

Avon Products, as of 18-FEB-2014

The stock chart is clear: for the last 10 years, S&P 500 had gone up 71%, while Avon stock price had gone DOWN 52%.

And one of the MAJOR change during that decade is Avon adopting MLM in 2005.

Please recall that MLM was started in 1979 when Amway survived an FTC challenge in court.

It took 25 years for Avon to go MLM, after MLM was created, and 100+ years AFTER the company was founded.

And it had done steadily WORSE every year, ever since.

Think about that. What do the stockholders know that we don't?

(And why would MLM defenders cite Herbalife's stock price rise since Ackman's challenge as proof that MLM is thriving, while ignoring Avon's price drop?)

MLM Absurdities: MLM may be a Cult... revisited. Why Do Herbalifers get Tattoos?

Previously, MLM Skeptic has discussed how often MLM resembles a cult (of money/greed), where members are to worship their upline and their company, any dissent is stamped out with shame, any defectors ridiculed and denounced, any critics ignored.

Today we will discuss a different part of cult behavior... identifying marks... such as tattoos.

Michael Burton
showing off his Herbalife
tattoo at an Herbalife event
in Serbia 2012

Tattoos used to belong to the realm of gangs and religious cults. It is only in recent years that the more elaborate tattoos have made the transition to "fine art".

Think about it. Tattoos are semi-permanent. It's on your body. It is intensely personal. It is extremely difficult to remove (often costs thousands of dollars), so you are REALLY showing your commitment if you choose to get one.

No wonder gangs often have gang tattoos, so much so, law enforcement have gang tattoo databases to readily identify gang affiliations.

And religious cults often have tattoos, special signs or greetings, and such.

But tattoos for a company? Really?

Back in 2013, a real estate company in New York offered 15% pay raise if its employees get a company tattoo. Owner said he was inspired by one employee who got a tattoo just for the heck of it, and the owner offered him a raise, and from there he decided to go for broke.

Putting a company tattoo on yourself just for the heck of it? That takes some dedication... Or mental illness.

Meet Michael Burton... member of (cult of) Herbalife.

Here's Michael Burton, showing off his Herbalife tattoo. He said he used to be a flabby used car salesman and went backrupt, so he went into Herbalife (at insistence of his in-laws) and became so fit, he competed in those fitness competitions.

Then he went bankrupt. And he owes tons of people money. And he has almost nothing left. Except his passion for Herbalife and his Herbalife tattoo.

But he's hardly the only one with Herbalife tattoos.

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.