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DM Confidential is a leader in the Affiliate marketplace. The DM Confidential Newsletter and web site is focused on the online marketing industry. To read more from DM Confidential visit: www.dmconfidential.com

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The Cult of Multi-Level Marketing

Written on
Oct 14, 2011 
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DM Confidential  |
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The Cult of Multi-Level Marketing

DM CONFIDENTIAL – Sometime in 2002, we took a meeting with a former coworker to discuss the online space. Instead of discussing the online space, though, it became a pitch to join them in their multi-level marketing business.

In MLM parlance, it meant becoming part of their down line, but they most likely pitched it in a more team-oriented fashion than using a term that if not demeaning feels so limiting. In performance marketing terms, what the couple pitched was to become their affiliate, but there has always been something about MLM, known today as network marketing, that never sat well with us… at least from the standpoint of being an affiliate.

While similar in theory, we argued years ago that a huge fundamental divide exists between performance marketing/traditional affiliate marketing and network marketing. Part of that divide becomes more evident as we think of the latter as network marketing instead of multi-level marketing.

It still does promote a person getting paid on multiple levels (generations) — i.e., if you sign up under us, we get X; when someone signs up under you, we get some percent of X; and so on, often for five levels. Payouts on multiple levels sounds sexy, but anyone in our space can share that trying to pay out past one level quickly becomes an expensive proposition.

If a company can do that, it means that the products have a high amount of margin, be it through high cost or ancillary services that do not trickle down. But a high-margin business is just the enabler. It alone doesn’t explain why we struggle to like the networking marketing businesses. A recent conversation with a person who should have been a arbitrager helped explain why.

Limited Upside

Google created something like 1,000 millionaires. Facebook will create several hundred at the very least, and many of them did not come in that early. Not to call some “just engineers,” but many of the future millionaires will get truly lucky instead of actually being good.

They didn’t have to take a major risk or even a pay cut. They simply joined a company that has grown from $5 million to $100 million to $1 billion to more than $80 billion since inception. If you joined at a time when your options might have come to $100,000 at a $10 billion valuation (a small percentage of the total), they will turn into about $1 million when the company gets sold.

True enterprises experience a rising tide lifts all boats. Network marketing businesses do not. The bigger the network marketing company gets, the bigger only the head gets. Even if you come up with a new trick to help sales, which they will then take and tell others, you receive nothing for the growth you create.

Inequality

MLM businesses are deliberately closed organizations. As mentioned above, they promote a dream and a vision, but they treat those in the business like sheep. There is no upward mobility, no advancement and no room for creativity. How they are run is at odds with what they say a person can achieve.

A minor example that has always rubbed us wrong, little to none of the new member setup tends to benefit the referring affiliate. And, given that almost everyone fails, that long tail of revenue bypasses all of those doing the work.That was our rub from many years ago.

Another discrepancy for us is that they are always presented as chances to be independent business owners. You aren’t a business owner, though. You are a contract salesperson. Business owners run businesses and build assets.

Putting a Price on Friendship

Perhaps the modern-day MLMs should call themselves “social shopping organizations.” Calling them network marketing hits pretty close to home, though, as people are expected to sell to their network of direct relationships.

We spoke to one marketer, and they explained it so well. This person said basically that you are expected to delve into their emotional issues and figure out how you can position the business as a solution to some of their problems.

The conversation ended with the comment, “I cannot believe how many friendships I have seen this business ruin.”

These models want and demand the personal sale. They do not want a person to use more scalable techniques. Those that do can actually run afoul of certain programs’ guidelines.

It’s also why they don’t share the setup costs with the referrer. If you did, then you could create a truly successful online campaign.

It’s a Cult That You Pay to Join

More than anything, network marketers sell a dream, and they sell a dream through a series of ongoing indoctrination. Everything about the network marketing business is based not on reality, but on a buy-in of what could be. It operates like a religion in that they have an answer for everything where all success comes from proper behavior and all failure stems from an individual shortcoming.

These are faith-based organizations with no room to question and little tolerance for true creativity. They need and demand obedience. That they have a disproportionately large percentage of very religious — usually Christian — members is unsurprising. They either come from a branch with direct sales built in or just thrive in that type of environment.

Bright Future?

Network marketing businesses have existed for 50-plus years, but it would seem in the past five years, they have really started to take off (again). Many of the newer versions aren’t going by the traditional network marketing moniker. They call themselves direct sales businesses.

These are the modern day Tupperware parties, where people get together to view “sample sales” where those in attendance will ideally purchase and sign-up. Some of the newest come from known names — the doctors behind Proactiv — while others are even venture backed – Stella and Dot.

Whether the economy or simply that people have started to realize the power and flexibility of the model, network marketing businesses are going through a revitalization, and much to our dismay, we have not figured out how to run one yet; we mean, we have not seen them become that much better for the members yet.

Cross-published at DM Confidential’s blog.





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