Summary About Multi-Level Marketing Scams

Summary About Multi-Level Marketing Scams

Summary: Multi-Level Marketing - Why it IS a Scam

The fundamental question that MLM cannot answer is: If this product or service is so great, then why isn't it being sold through the customary marketing system that has proven to work for thousands of years? Why does it need to resort to a "special marketing" scheme like an MLM? Why does everyone need to be so inexperienced at marketing this? Is the product just a thin cover for what is really a pyramid scheme of exploiting others?

CFR cannot tell you whether a particular multilevel marketing plan is legal. Nor can it give you advice about whether to join such a plan. You must make that decision yourself. However, the Federal Trade Commission (FTC) suggests that you use common sense, and consider these seven tips (below) when you make your decision.

It is hoped that by clearly pointing out what is wrong with Multi-Level Marketing, that many might be spared the inherent and associative pitfalls by avoiding the practice.

As well, for those who insist on practicing MLM, it is hoped that this analysis will serve as a handy framework of problem areas to be avoided if and where this is possible.

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Summary of What's Wrong With Multi-Level Marketing

1. MLMs are "doomed by design" to recruit too many salespeople, who in turn will then attempt to recruit even more salespeople, and so on.
2. For many, the real attraction of involvement in multi-level marketing is the thinly veiled pyramid con-scheme made quasi-legal by the presence of a product or service.
3. The ethical concessions necessary to be "successful" in many MLM companies are stark and difficult to deal with for most people.
4. Friends and family should be treated as such, and not as "marks" for exploitation.

Tips to Avoid the MLM Scam

1. Avoid any plan that includes commissions for recruiting additional distributors. It may be an illegal pyramid.
    
2. Beware of plans that ask new distributors to purchase expensive inventory. These plans can collapse quickly -- and also may be thinly-disguised pyramids.
    
3. Be cautious of plans that claim you will make money through continued growth of your "downline" -- the commissions on sales made by new distributors you recruit -- rather than through sales of products you make yourself.
    
4. Beware of plans that claim to sell miracle products or promise enormous earnings. Just because a promoter of a plan makes a claim doesn't mean it's true! Ask the promoter of the plan to substantiate claims with hard evidence.
    
5. Beware of shills -- "decoy" references paid by a plan's promoter to describe their fictional success in earning money through the plan.
    
6. Don't pay or sign any contracts in an "opportunity meeting" or any other high-pressure situation. Insist on taking your time to think over a decision to join. Talk it over with your spouse, a knowledgeable friend, an accountant or lawyer.
    
7. Do your homework! Check with your local Better Business Bureau and state Attorney General about any plan you're considering -- especially when the claims about the product or your potential earnings seem too good to be true.
8. See this checklist of questions to ask when considering an MLM.

For More Information

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a FTC Fraud Reporting or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.