What’s Wrong with Multi-Level Marketing?

DF: “I was wondering about MLM in general, and if you might know what or if the Church has a teaching on these methods of income?”

For those who have never heard of  multi-level marketing (MLM) or “network” marketing, this is a form of business that uses independent representatives to sell their products. Representatives, or “distributors” as they are sometimes called, earn commissions from their own sales and also from the sales made by other people they recruit to sell the product. Examples of this kind of marketing strategy would be Amway and Mary Kay Cosmetics.

MLM, which is legal, should not be mistaken for pyramid schemes which are illegal in the U.S. The difference between the two is that instead of emphasizing the sale of a product, pyramid schemes are more interested in signing up more distributors.

As Michigan Attorney General Bill Schuette explains, in a pyramid scheme, “little or no effort is made to actually market the product. Instead, money is made in typical pyramid fashion…from recruiting other people to market the program. Sometimes, new ‘distributors’ are persuaded to purchase inventory or overpriced products/services when they sign up. Pyramid companies make virtually all their profits from signing up new recruits and often attempt to disguise entry fees as the price charged for mandatory purchases of training, computer services, or product inventory.”

It’s referred to as a “pyramid” scheme because this is how it looks on paper – one person sits at the top, then recruits a second who invests in the product and then attempts to make his or her money back by recruiting someone else. The fraud in a pyramid scheme is that it deceives people into believing they can make money by investing in it but, when the scheme runs out of recruits, which they all do eventually, no money has been made, nor has any product or service been provided.

There is a very fine line between a multi-level marketing company and a pyramid scheme, but suffice to say, most of your major supplement providers operate on a basic MLM model. These would include Herbalife, Reliv, AdvoCare, NuSkin, Protandium among many others.

While they are not illegal pyramid schemes, they have their own issues.

First of all, most of the products they sell are over-hyped, lacking in unbiased clinical testing and supported almost exclusively by customer testimonials. Because the supplement industry is not required to meet FDA standards of safety and truth-in-labeling standards, these products can contain just about anything.

In fact, a major controversy is taking place in the supplement market at the present time after the NY Attorney General ordered four major retailers to pull popular herbal supplements off their shelves after the products were found to contain almost none of the ingredients listed on the label. Even more disturbing is that some were found to contain ingredients such as peanut, soy and wheat which were not listed on the label (in one case the supplement containing wheat specifically cited that it was “wheat free” on the label) and yet could be dangerous and even fatal to persons with allergies.

In this article by Phil Lenahan appearing in Our Sunday Visitor, even though the products may be perfectly safe, the selling tactics of their distributors leaves a lot to be desired.

“The first concern is that there is a tendency for multi-level marketers to ‘oversell,’ especially regarding the potential of how much income one can expect to generate,” Lenahan writes. “In addition, promoters tend to be vague in describing how the business works, using phrases like: ‘in just a few hours a week’ and ‘huge’ when describing what one can expect.”

He’s right. According to MLM expert Robert FitzPatrick, a statistical analysis of income disclosures made by 10 major MLM companies (Arbonne, Cyberwize, Free Life, Herbalife, Melaleuca, Nikken, Nuskin, Reliv, Usana and Your Travel Business (YTB)) found that, on average, a whopping 99 percent of all participants earned less than $10 a week – before expenses!

“Additionally . . . total losses of the participants exceed $5 billion each year, if only the entry fees, basic business expenses, marketing ‘tool’ purchases and the pyramid commission portion of their product purchases (about 40% of their purchase price) are totalled.”

These are dramatic numbers!

But Lenahan mentions another problem with MLM tactics that I have had personal experience with – the tendency of promoters of the product to start looking at friends and family as potential clients.

“I’m not fond of that, and those considering becoming a part of such an organization should seriously consider whether they want their relationships with others to be affected in such a manner,” he writes.

In my experience, I’ve seen perfectly wonderful people turn themselves into pariahs after becoming involved in these groups. People become so tired of hearing about this wonder-product, about being pressured to buy it or to listen to “just one more testimonial” that they begin to avoid the person altogether. This has caused rifts in families and has been the demise of many a friendship.

Another negative about MLM is how they tend to use spiritual concepts to promote enrollment in the program or use of their products. For instance, they love to tell Catholics that Pope John Paul II and St. Teresa used or endorsed their products, or to use Christian-sounding words like “communion” to describe the relationship of the company with its consumers.

“When a product is wrapped in the flag or in religion, buyer beware! The ‘community’ and ‘support’ offered by MLM organizations to new recruits are based entirely upon their purchases. If the purchases and enrollment decline, so does the ‘communion’,” writes FitzPatrick.

There is also a disturbing amount of cult-like behavior to be found in many of these MLM groups. As I will be detailing in Friday’s blog on Protandium, when anyone points out legitimate deficiencies in these product they are instantly maligned as liars and accused of being “biased”. Often, promoters of the product will send links to critical articles and encourage their distributor-friends to engage in campaigns which flood the news site or mail box of the author with hate mail. This is precisely the kind of behavior that experts associate with cults in which members are brainwashed into thinking that anyone who disagrees with them is “the enemy”.

So what does the Church say about MLM companies? Nothing specific, but it doesn’t have to because the bible is full of warnings about the kind of dishonesty and lack of charity toward our neighbor that can too often be found in the operation of many MLMs.

For instance, even if the seller of the product isn’t aware that only one percent ever make any real money in these organizations, they certainly can see that their own scant profits are hardly “huge” enough to warrant such an over-sell.

It’s also dishonest and uncharitable to insist that a supplement can cure diseases or conditions for which there is no proof except user testimonials. Blaming “big Pharma” and the “evil medical world” is no excuse for ignoring the fundamental requirements of unbiased scientific scrutiny. If not for these requirements, consumers would have no protection against the physical and economic damage that could be done to them by untested products and treatments that at best simply don’t work and at worst could leave them permanently harmed.

This is also why the Catholic Church insists that the faithful use ordinary means for the treatment of any condition that is life-threatening or contagious. This is because unscientific medical cures such as alternatives that are either untested or failed to pass the test of rigorous scientific scrutiny (as is the case with most alternatives in use today) are not considered to be real means at all.

As theologian Dr. Kevin G. Rickert explains, “As such, they are neither required nor permitted. The main problem with these kinds of ‘cures’ is that they don’t really work; they are irrational, and as such they are contrary to the natural law.”

The Church refers to these untested treatments as “superstitious”, which the Catechism specifically condemns in No. 2111.

For more information about multi-level marketing schemes, visit MLM the Truth and Pyramid Scheme Alert.

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