• Pyramids by any other name

    Posted December 5, 2010 at 11:09 am by Alexandra    

    You’ve probably seen those posters stapled to telegraph poles that advertise working from home opportunities. You know the ones I mean – they usually say something like ‘Work from home and earn thousands every month’. 

    To tell you the truth, I’ve always thought these signs smack of some sort of con because if you could earn thousands of dollars a month working from home everyone would be doing it. What strikes me as strange about these signs is that they never say what the business is – they usually direct people to a website. And in my mind, anything that is purposely opaque should be given a wide berth.

    Driving through the suburbs recently I saw one such sign. So, for the purposes of this blog, I thought I’d investigate to find out what these types of businesses really offer.

    I went to the site and filled out a form with my details and got an email back asking me to click on a link to verify my email address. Pretty standard stuff. I then received a pro-forma response back congratulating me on being a person of action and letting me know someone would be in touch to do a phone interview. At this point I Facebooked the person whose name appeared on the sign and told her I was a journalist researching a story.

    I’m not going to name the person I interviewed. But I thought I’d outline the series of conversations I had with her to give readers an idea about what these sorts of businesses are selling.

    As far as I understand it, what she’s trying to do is sign up people to sell self-help courses, which she tells me are not affiliated with a particular religious group. She says she has signed up 30 people so far, who all pay a license fee of $49.95 to become part of the system. She told me she receives between two and 10 per cent of the price of products sold by the people she signs up and says products cost between $10 and many thousands of dollars, and it’s possible to earn a commission of thousands of dollars from the sale of one of the more extensive self-help programs. She told me she doesn’t know how many levels of people are above her, but assumes it’s only one or two.

    As to why the nature of the business is not disclosed from the outset, I was told that as soon as someone expresses interest in the business and agrees to be interviewed they are told about what the business does.

    The person I interviewed suggested that having a conversation with a prospect before disclosing the nature of the business allows her to gauge whether they are suitable to be part of the network.

    She also told me that what she’s doing is not ‘multi-level marketing’. What she’s doing is called ‘a hybrid compensation plan’ that involves both profit and a residual component attached to the products people she signs up sell. She also said that in the first year she more than doubled what she was earning in a job.

    I’d never heard of multi-level marketing or hybrid compensation plans before. I suspect all they really are is a form of pyramid selling. I googled ‘the difference between multi-level marketing and pyramid selling’ and up came a page of the UK Skeptic’s Society, excerpts from which I will reproduce here:

    “Much emphasis is made of the fact, by those who promote it, that MLM is legal and therefore not a pyramid scheme. Opponents of MLM object that even though it is legal, it is still based on the pyramid system, and it has all the inherent dangers and drawbacks of a pure pyramid scheme.”

    It defines a pyramid scheme as “an illegal multi-level program wherein people pay an entrance fee for the sole opportunity to recruit others to do the same. Members to the scheme pay a joining fee, which is passed on to those above them in the scheme. Their purpose is to recruit new members below them in the scheme in order to qualify for a share of their joining fee.”

    On the other hand multi-level marketing is defined as “a multilevel program wherein people pay an entrance fee for the opportunity to sell products and to recruit others to do the same.”

    The site then notes that “pyramids are illegal. MLM schemes are legal because of the fact that products are sold. This is the only real difference between the two systems. No amount of rhetoric; wishful thinking; self-delusion or fallacious reasoning can alter that fact. If you remove the products from an MLM, all that is left is a pyramid scheme: this is why MLMs are known as: product based pyramid schemes.”

    I suspect ultimately, all those signs on telegraph poles are selling are product-based pyramid schemes. I have no doubt the person I spoke to believes in her product and the system she’s part of. And I’m sure if you work hard and use the right internet marketing you probably can get people to sign up to the system and earn money from it. But personally, I’d prefer to earn my living a more conventional way.

    I’d love to hear from anyone who’s been a part of one of these systems. Post a comment and let me know about your experience.

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