What Do MLMs Have in Common with Pyramid Schemes?

Question

Could you clarify how MLMs can be equated to pyramid schemes and what makes them legal?

Answer 1

MLM, or multilayer network marketing, is troublesome in the same way a pyramid scheme is because it operates in a network fashion towards its members where the members make a profit out of their own sales as well as recruiting others into the business. They, however, delink themselves from this structure by the virtue of legally emphasizing the existence of real products and services to be sold and not just recruitment. This structure allows them to function legally, as pyramid schemes are illegal because they do not incorporate the selling of a product or service to earn income, rather, they depend on recruitment.

Comments

Melaleuca says the exact thing.  They deny that they are an MLM and use direct sales company.  Only thing is, compensation structure is the same, conventions are the same, same motivational books etc., Christianese, money money money focus.  I have been in several MLMs and they are not pyramids but there are a lot of issues and there are a lot of positives as well.  It’s not for me, but I have friends who do very well in them and are very happy.

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As a 7 or 8 year old, I entered a pyramid scheme called sticker club. My friend sent me a letter that instructed me that to send the letter to six more friends. I also had to buy a sticker packet and send it to the person who sent my friend the letter. Best case scenario, I would get 36 sticker packs. I got about 15. It was the only and best pyramid scheme I got into.

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“Kind of looks like a pyramid but more about that later”

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I'm glad you've covered this topic. Thank you.

I've always hated how MLMs make any relationships a person has or enters into sources of income, which is not okay. It's distorting what relationships are supposed to be for. Anyone involved with MLMs needs to find legitimate forms of income that aren't unethical and spread awareness about what's wrong with MLMs, so less people are duped into giving the crooked companies their money.

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The math doesn't work. MLMs  are supposedly built on recruiting a successful downline, but if most people were successful, the downline would rapidly exceed the population of the earth.
The reality is that an mlm is highly profitable for the few at the top because people underneath them pay a recruitment  fee and quit, not succeed.
Failure is not a bug. It's in the design.