Chances are, we all know at least one person who's in a multi-level marketing company. Maybe it's you or used to be you! Multi-level marketing companies, also known as MLMs, have been labeled as commerical cults. Commercial cults are organizations that are based around the idea of making money. Multi-level marketing companies are often labeled as pyramid schemes, and while people in the MLM world will tell you multi-level marketing companies are not pyramid schemes because there's a product involved, what necessitates a pyramid scheme isn't necessarily if there's an exchange of product; it's the promise and assertation of the ability to make a lot of money from selling the product/recruiting people to join your team. In reality, 99% of people who join an MLM end up losing money, a statistic from the Federal Trade Commission. In fact, the chance of profiting in an MLM is statistically lower than winning the lottery (Andrew, L., 2021).
But if we have all this information at our fingertips in 2023, why are people still joining MLMs? What makes them so appealing? Are certain people targeted to join? And if people aren't making money in MLMs, is it their fault, or are MLMs designed to keep people at the bottom?
Let's dive in.
Success Stories & FOMO
Riddled across social media, you'll come across women posing with their new Mercedez talking about how their company paid for their car. You'll see people taking lavish vacations and thanking their company for sending them all over the world for free. You'll see moms talking about how much they love being able to work from home with their kids. If MLMs are good at one thing, it's getting their consultants to sell a reality that, well...isn't real.
Let's break down the MLM car program, the typical "success story" we often see on social media: it's alluring, right? Driving a car completely paid for by your company?! That's a dream come true, right? ...right?
There's a lot these MLM distributors aren't telling you about their "free" car. First, MLM car programs often require distributors to meet challenging sales and recruitment targets to qualify for the car incentive. These sales and recruitment targets start over monthly. That's right; you start from 0 every single month. Second, there are hidden costs, reponsbilities, and potential implications for people who may not fully understand the committment they're entering into. For example, once you hit the rank where you're eligible for the car incentive, the MLM company takes the car out in YOUR name, not theirs. These cars are all typically newer models within a few years of the current year, so that's some pretty high monthly payments. The MLM company will send you a monthly check that covers the majority of the monthly car payment, but typically not all of it. You're also financially responsible to pay for your own gas and any repairs the car might need while you're driving it. If you drop rank, the MLM company will give you a 3 month grace period to try to get your rank back. If you're unable to do so within 3 months, you are financially responsible for your monthly car payments.
In the world of MLMs, stories of success often paint a glamorized picture of financial freedom and personal achievement. But behind the scenes, the psychology of MLM companies raises concern about whether success is fueled by genuine motivation or manipulation. MLM companies hold yearly conferences or conventions (that cost hundreds of dollars to attend, not including the cost of a flight and your hotel room), and they play on the fear of missing out. Distributors are often recognized on stage and given titles that don't actually mean anything and aren't transferable in the outside world, like "Marketing Mentor" or "Diamond Coach." MLM events and promotions often play on the fear of missing out by creating a sense of exclusivity and urgency. They typically do weekly "sale drops", where they randomly put items on sale, driving people to make hasty decisions.
MLM companies capitalize on the human need for social validation. When they showcase success stories or have distributors get the chance to walk on stage to accept awards after hitting certain ranks, they create a sense of belonging and the belief that anyone can achieve similar success. Cialdini (1984) explains that when people are uncertain, they typically will follow the actions of others, reinforcing the power of social validation in MLM recruitment.
MLM companies target certain demographics that are more susceptible and vulnerable to their recruitement efforts.
Young Adults & College Students - many young adults and college students are seeking flexible job opportunities or part-time work to supplement their income. The promise of being able to work from anywhere and obtaining financial freedom can be appealing to this demographic.
Stay-at-Home Parents, Typically Moms - MLMs offer the promise of flexible working hours that can be adjusted to fit around childcare responsibilities. They promise the ability to work from home while raising children and prey on that being the "dream" for most mothers.
People in Financial Distress - MLM recruiters often talk about being able to earn back the money you invest in the MLM (and then some) very quickly, which can be enticing for people who are having financial issues and are looking to make money fast.
Community & Faith-Based Groups - The majority of MLMs have a religious flavor to them, and this is because there's a sense of trust and shared values within religious groups that help make recruitment efforts in MLMs more effective. MLMs typically target religious or faith-based communities and individuals.
Retirees & Empty Nesters - People in this transition of life often fall into MLMs because it offers them a chance to stay active, engage with a community, and supplement their retirement income.
Aspiring Entrepreneurs - MLMs often position themselves as opportunities for entrepreneurship without the typical startup costs, which can be enticing for people who have entreprenuerial aspirations but limited resources. They're promised the ability to "run their own business", when in reality, it's not their business: they are 1099 employees of a massive corporation.
Although these groups are commonly targeted, it's important to note that MLM recruitment tactics are widespread and impact people from various background. MLMs often use emotionally charged language and promises of financial success to attract a diverse range of people.
Are MLMs Designed to Fail?
MLMs are not designed for everyone to win. The MLM business model is structured in a way that involves recruitment, hierarchical commission systems, and emphasis on building a downline. While 1% of people find success in MLMs, there are several factors that contribute to their 99% failure rate:
Saturation: The market is saturated with MLMs. As more distributors join, it can be more challenging for new participants to find customers or recruits. This can lead to increased competition and make it more challenging to achieve the monthly required sales targets.
Pyramid Structure: Because success in an MLM relies on recruiting new members, the people at the top of the pyramid stand to gain the most. Every sale made at the bottom of the pyramid trickles up the top. This can create challenges for those at the bottom who aren't able to build a downline that's sustainable.
Recruitment > Product Sales: In the majority of MLMs, there's a major emphasis on recruiting people to join your team rather than selling the actual products. If your goal is to make money, selling products won't get you there. You have to continously be recruiting. This is one of the main reasons MLMs are considered pyramid schemes.
False Income Claims: Some MLMs and their distributors exaggerate income potential, creating unrealistic expectations. When people join with the belief that they can achieve financial success but reality doesn't align with that promise, they can be left psychologically damaged and made to feel as though they weren't working hard enough; they blame themselves instead of the system.
Product Quality & Pricing Issues: MLM products are typically overpriced compared to similar products on the market. The reason for this is because your distributor (and their distributor...and their's...and their's...) are all making money off of that one sale. In order to compensate everyone in the pyramid, the prices of the products are set at a higher price. You'll often hear about MLM products being overpriced because of the "high quality", but this simply isn't true. Additionally, there are concerns about the quality of products due to lack of trusted third party testing in most MLMs.
Understanding the psychology and hidden information behind MLMs is crucial for anyone considering involvement in MLMs or if you want to have a conversation with someone you know that's in one. It can also help you remain vigilant against potential MLM recruiters. By recognizing the potential for manipulation, we can then make informed decisions about participation.
Andrew, L. (2021). 8 controversial MLM schemes to stay away from.
Cialdini, R. B. (1984). Influence: The psychology of persuasion. New York: HarperCollins.
At Root Counseling, we work with clients who have been or currently are involved in cults by providing an empathetic space for them to process their experiences without judgment. To schedule an appointment, you can visit us here.