Wednesday, March 13, 2013

Genre Analysis: Does Precious Metal MLM Make Sense?

English: gold bar 400 ounces, sample at the Pr...
A gold bar. But doesn't it make sense as a MLM?
(Photo credit: Wikipedia)
You can mix almost ANY business with MLM by adopting some sort of a multi-level compensation plan. However, as I have explained many times before, MLM comp plan, due to its nature, requires a product with very high margins. The company has essentially spent the advertising budget on the affiliates instead of traditional media advertising like TV spots, magazine ads, and so on.

Which is why precious metal MLM, such as Auruma, makes absolutely no sense at all. Clearly, it should NOT exist the way it was described.

As the genre suggests, Auruma lets you "subscribe" to gold or silver purchase, except you don't actually get the stuff, but rather, a certificate that says you own this much, but it's store in their vault somewhere. And you can trade your ownership of those with other members. They charge a nominal "storage fee", and pay out multi-level "commission" if you can get other people to sign up as members (i.e. buy silver and gold stored at their place").

The price for gold and silver is published in newspapers every day all around the world. The prices don't vary much in what's known as the "spot" market. Jewelers charge a little more, and so on. Thus, there is NO margin to support multi-level payout.

So where is the mulit-level payout money coming from?

Quartz magazine just named gold as worst investment of 2013, having gone sideways in the past few years, while gold speculators keep hoping for the currency to devalue due to all the extra money various financial authorities are pumping into the market. That has not happened.

So how does a company actually make money to afford multi-level payout if they aren't really making any money on the transactions? Clearly it's doing it from the "subscription fees" (i.e. autoship, in form of a certificate that says "you own this much", that's only worth anything if the company stays in business.)

So, can you actually trust this company to actually have that much gold on hand if you demand it, and if it doesn't, what happened to your money?

At least with a local jewelry store you get something in your hand.

What do you get with a company that's somewhere on the other side of the globe, when you hand over your money? A piece of paper. How much that is worth depends on the company, and do you really know enough to trust this company?

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