Tag: MLM

Is “It Works!” A Pyramid Scheme?

Is “It Works!” A Pyramid Scheme?

It Works! sells the weight loss and cosmetic wrap products (“crazy wrap thing”). It Works! claims to be a ‘Multi Level Marketing’ company. MLMs share many qualities with Pyramid Schemes. Because they share so many qualities it can be incredibly difficult to tell if the company is a […]

Last Week Tonight: Multi Level Marketing

Last Week Tonight: Multi Level Marketing

Check out this great video from John Oliver about Multi Level Marketing

Is LuLaRoe a Pyramid Scheme?

Is LuLaRoe a Pyramid Scheme?

Probably, it’s hard to tell. LuLaRoe claims to be a ‘Multi Level Marketing’ company. MLMs share many qualities with Pyramid Schemes but are a bit different. Because they share so many qualities it can be incredibly difficult to tell if the company is a legitimate marketing company or a pyramid scheme.

The US Government’s Federal Trade Commision has more information about pyramid schemes to help.

How to spot a Pyramid Scheme:

  • Large profits are based primarily on recruiting others not on the real sale of goods.
  • Recruites are forced to buy more products than they could sell often at inflated prices.
  • People at the bottom (new recruits) make excessive payments for inventory that accumulates in their basements.
  • Many schemes will claim product sells like crazy — but actually sales are only occuring between people inside the structure or to new recruits. Check to see if price is inflated.
  • Commissions for recruiting new distributors, no legitimate product or service, OR separate up-front membership fee (having a product/service doesn’t remove all danger).

    Pyra

How does LuLaRoe stack up?

  • If you look carefully at the compensation plan for LuLaRoe much of the big profits come both directly and indirectly, from recruiting others to sell LuLaRoe.
  • In order to join those recruits have to buy thousands upon thousands of dollars of merchandise. See: LuLaRoe: Cost to Get Started
  • The inventory is encouraged to be passed inside members of the structure because inventory purchased from LuLaRo is random (you cannot choose the patterns, sizes, etc). Or recruits are encouraged to purchase more in order to get more chances to get the more rare items.
  • The leggings, dresses, and more aren’t valued at what the company says they are (check out ebay.com for LuLaRoe for current market pricing by checking sold listings).
  • Though there are not direct commissions for new distributors, compensation is based on the number of distributors on your team, and bonuses are paid for reaching the next the next levels sooner, each require recruitment. In this way, there are indirect commissions for recruiting new distributors.
  • There are costs to join. Inventory, and materials for selling LuLaRoe (“starter kit”) are rolled up and you cannot become a consultant without purchasing a starter kit.

LuLaRoe probably is a Pyramid Scheme

Pyramid schemes will disguise themselves as MLM or direct sales companies, and it appears that LuLaRoe is doing that because of the red flags above. Whether it’s a pyramid scheme, a scam, or just an unhealthy business, LuLaRoe shares many bad qualities with Pyramid Schemes. These qualities make it a dangerous opportunity and everyone should probably avoid LuLaRoe.

What do you think?

More Resources

Investopedia: What Is A Pyramid Scheme

How Pyramid Schemes Work

Joining Jamberry

Joining Jamberry

Jamberry is a multi level marketing company which sells a nail ‘wrap’ product (kind of like a polish replacement). It’s relatively easy to find information about Jamberry, their company, products, and compensation plan. You can sign up on their site to become a consultant and […]

Becoming a Stella & Dot Stylist

Becoming a Stella & Dot Stylist

Stella and Dot is a multi level marketing company which sells jewelry. They are known for their trunk shows and stylists who help customers with creating overall looks to go with the jewelry. You can find vague information about Stella and Dot’s compensation and initial costs […]

MLMs Break the Internet

MLMs Break the Internet

If you heard about something that seemed like it might be too good to be true, your first reaction would probably be to Google it. Maybe if you’re really suspicious, you might add “reviews” or “does it work?” to your search. We trust the internet to make available to us all of the best information–and most of the time, it does.

Unfortunately, with products distributed by multi-level-marketing companies, such as Plexus and Lularoe, your go-to Google search gives you bad information. That’s due to a clever trick that these companies use to exploit a common weakness of algorithms used by companies like Google, Facebook, and Twitter.

How MLMs Break Google

The internet is made up of millions of pages of content. In order to answer your every question, your favorite search engine has to know about all of that content.

There’s so much content out there that when you ask a question, your search engine can’t show you every possible answer. Instead, it has to examine all of that content to decide what it thinks are the best answers. “Good” content rises to the top of the search results, and “bad” content gets demoted to the end of the list, where you likely never see it (most people only look at the first few results). To decide what’s good and what isn’t, your search engine scans everything for clues, including how frequently different kinds of content appear. The internet relies on wisdom in numbers, just like we do.

This ranking system is how multi-level-marketing companies control their online presence. These companies encourage a lot of people to create a lot of positive content (videos, tweets, reviews, blogs, websites, and more) all over the internet to promote their products. The huge volume of unique results tricks website search engines, feeds, and trends into thinking that this positive content is the best content about these companies and products. Critical and unbiased stuff gets drowned out.

MLM companies know that If you search for a bad review of something online and you can’t find one, you will probably conclude that the product is great, not that you just can’t find the bad reviews. If you search for a product online and you can’t find it, you probably will conclude the product doesn’t exist at all.

Searching

The implications of this are a little bit mind-blowing. The algorithms behind Google’s search results, Facebook’s feed, Twitter’s trends, and are so powerful that they can change how we think about what’s important or even what exists.

But isn’t that spam?

Really, this is a system where companies blanket the internet with a huge amount of biased information about their products. If they were blanketing your inbox, your mailbox, or your windshield with that information, we would call it spam. Does that mean that all of these chirpy blog posts and motivational tweets are spam, too? And if so, why don’t search engines notice and banish it all to the “bad” category, never to be heard from again?

This is where the MCMs’ plan get even more sophisticated. Breaking the internet isn’t just a numbers game. It’s the kind of content that really counts. Search engines are diligently trying not to show you spam and other undesirables, like your classmate’s old Geocities site from 1999. On the other hand, sites are also sniffing out good content that’s important to you.

As far as Google, Facebook, Twitter, and their ilk are concerned, MCM content isn’t spam. Spam is generated by computers, sent out to huge lists of unsuspecting people, and is really obviously scammy to humans. Spam is not created by a bunch of individuals creating unique blog posts and videos talking about their experiences, and sharing with their personal friends and family. But since MCMs encourage individuals to do the company’s promotion for them, it’s individuals who are generating all of the blog posts, tweets, videos, testimonials, and motivational updates. Those are your friends or your family members posting, so all of that content must be “good” content. At least, that’s what the time-tested logic of the internet would say.

The problem is that the internet’s ideas about good and bad content haven’t caught up to the age of social media. These posts may seem important, but in reality, they are a brand-new kind of spam. Like the chain letters of your childhood, this spam is made by social networks, not computers. Multi-level-marketing leaders actually even train their teams to avoid detection (read: seem less like a computer, more like a human) by teaching things like “don’t copy and paste posts” and “get creative, be unique.” Part of the reason these companies have flourished is because their model is strongest where the internet is the weakest: algorithms are not as creative as people are. And unlike clicking “report spam” on an email, you’re not nearly as likely to block your friend or loved one.

So, posts by the people who are selling the products or recruiting for the company seem important because to the algorithms — they look important. This means these posts show up at the top whenever you search YouTube, Google, and Twitter. If you look for reviews–even if you search for bad reviews– all you’ll find is content that the company, or its representatives, has personally crafted. The company has total control over what shows up online.

The problem just gets worse

The people creating this content are good people, doing their best to sell products and recruit new team members, caught up in something larger. The problem snowballs out of control as new people rely on the flawed information online for protection, only to get entangled themselves.

research
Regular tools for researching MLM products and companies just don’t work.

Suppose Jamie is thinking about joining a team selling an MLM vitamin product. Even if she is smart, she knows how to research, and she cares about doing her due diligence, she can’t. The tool Jamie trusts to do that research–the Internet–is effectively presenting the company’s advertising materials as the factual truth. Extensive research leads Jamie to the very biased conclusions presented by the masses of people already involved with the company. So Jamie joins the company, and creates even more content. If Jamie joins a particularly bad MLM she might end up losing a lot of her money and time, and involving family and friends along the way.

Learn more

Check out these links to learn more and leave questions in the comments!

How does Google search work, more

No. 1 Position in Google Gets 33% of Search Traffic

Info about Facebook’s feed algorithm, F8: How News Feed Works

NYTimes: Facebook’s Bias Is Built-In