A client of ours came in last week with a rather sad story. She spoke of how one of her friends had met with her to introduce her to "an amazing opportunity to make money"; which involved selling hair care and beauty products online. All she would need to do is go on the Twitface, FaceTik and InstaTok and whatnot, and be a brand ambassador, to extol the virtues of the product. Seeing as everyone has access to a camera and a social media platform these days, this meant that all she had to do was go out and find the potential customers.
I shan't name the brand (because we have lodged a formal complaint with Scamwatch) but there is no way that this is not a multi-level-marketing scheme; which is the fancy way of saying a pyramid scheme. I thought that these things had died out long ago but it seems that the internet's ability to find an unlimited number of marks, gives licence to an unlimited number of hucksters, to pull an infinite amount of confidence tricks.
To start the seed project and begin her business, she first needed to buy some of the stock (for more than $400) and she was told that for every ten people that she could recruit to sign up, she would be entitled to a higher rank within the system as well as 5% of all the sales than everyone downline sold. This proved to be a very very difficult first step. Not only would she have to try to endanger he friendships by enticing them to sign up for a commercial relationship which would then put her into competition with her but if we assumed that her potential recruits were people she only had an acquaintance with, then making those connections would be in principle, harder.
Once you understand the maths behind this kind of multi-level-marketing scheme, it becomes pretty obvious that they are nothing more than a set up to extract money out of well-meaning but gullible people. Let's assume for a second that you have decided to sign up for this scheme. Let's also assume that everyone down the chain is able to recruit 6 people.
1 - 1 (you)
2 - 6
3 - 36
4 - 216
5 - 1296
6 - 46,656
7 - 279,936
8 - 1,679,616
9 - 10 077 696
10 - 60,466,176
11 - 362,797,056
12 - 2,176,782,336
13 - 13,060,694,016
This illustrates perfectly why this kind of scheme is doomed to fail from the beginning. Even if it was perfectly efficient, by the time you hit the 7th level, you already have more "private businesses" selling a product which is competing against all of the other sellers of that same product, than any market can logically absorb. If we assume this was your job and you are getting receipts from 5% of everyone downline from you, then not only do you have to believe in the system that would ensure transparency of payments but you would be at the top of a system employing as many people as entire industries.
13 levels down, and you've got literally everyone on the planet selling hair care and beauty products. I imagine that these kind of numbers only exist in the realm of science fiction, where you have entire planets who have specialised in producing only one thing. Beware of such planets. They are very close to being on the verge of a grey goo situation or perhaps if the computers are sentient, a Universal Paperclips type arrangement.
Not only are we looking at a system which requires the input of more people to an industry than is sensible (in this case hair care and beauty products) but it assumes that the company at the top is so profitable that it can to afford such a leaky payments scheme. I put it to you that if the product was that good, then the company would just sell it themselves through supermarkets. There are reasons why brands like Cussons, Palmolive, Redken, TRESemmé etc. occupy yards of space in supermarket. Clearly the thing actually being sold in these schemes, isn't the hair care and beauty products but the gullibility of the marks downline.
Meanwhile, there is no guarantee that the people upline are trustworthy. The opening premise of economics is that people are selfish and I think that it's pretty easy to prove that where there is the chance to spin a profit out of trusting people, then the chances of finding a huckster who will relieve them of the burden of their money is great. There is much wisdom in the proverb that a fool and their money are soon parted.
I imagine that there is an initial adrenaline rush which people get once they have made their first sale and this is enough to sugar coat their expectations. All the while, the person at the top of this small chain has already taken the train to West Woop Woop where presumably they will never be seen again (if in fact their identity was real in the first place). Of course once someone has a batch of stock, then there is a kind of sunk cost fallacy which exists; where people place an obligation upon themselves to get rid of their stock because unless you are a weird old person like my Great Uncle George who had an entire hall cabinet stacked from floor to ceiling with toilet paper, then you don't want hundreds of dollars of hair care and beauty products in your house.
It took until the time to prepare a BAS Return that this lady realised that she'd been taken for a ride. The person above her kept on asking her to buy more stock and she only really grew wise when she grew a spine and told them that she hadn't cleared the existing stock she had. For three months' work, she had made $272 in sales but stil had 66 bottles of stuff left over. Whatever way you look at it, $272 in three months is hardly enough to live on and instead of recruiting 6 people as in the example above, she had only signed up 3. Instead of 5% of downline receipts, she was entitled to 0% of them.
Multi-level-marketing/Pyramid Schemes might not actually be illegal in Australian Consumer Law. Owing to the nature of a set of voluntary contracts which are entered into by nominally sound people, then the law is somewhat powerless to do anything about this. Hair care, beauty, and nutrition, are the three broadest arears where these things are likely to occur because the stock can be shipped quite easily, the individual items themselves are small and they all manipulate people's vanity to some degree. The particular company in question (which I refuse to name) dirtied its copybook in the United States with a series of highish level scandals but that hasn't stopped it from eyeing this side of the Pacific Ocean because we have no shortage of marks who are prêt à manger.
I find something utterly insidious about all of this. I really really hate it when companies take advantage of gentle people. The kinds of people who are generally marked by perps are people who are easily convinced and more trusting of people than the rest of us. Multi-level-marketing schemes disproportionally target women because power in society is not equitable. At their worst, this kind of thing eats the houses of widows.
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