REALITY CHECK

Network marketing lures fortune seekers who often strain in vain

MLMs preach success and give ambitious targets to sell and recruit

In Summary

• Multi-level marketing (MLM) programmes never turn away anyone eyeing success

• Youths seeking employment, retrenched employees and retirees are most attracted

Illustration of network marketing
Illustration of network marketing
Image: NEEDPIX

There is a frantic search for new income-generating opportunities as people across the world face an uncertain future. Multi-level marketing (MLM) is easy to join because it does not require any professional qualification, but is it worth the investment?

Multi-level marketing, according to the Investopedia dictionary of finance, is a business model where a company depends on person-to-person sales of its products.

The sales team is not employed by the company but consists of individuals working from home and usually referred to as distributors, independent representatives or independent contractors. In Kenya, there are multi-level marketing companies selling dietary supplements, household goods, cosmetics, jewellery and travel packages.

MLM companies have their origins in the United States, where they are a billion-dollar industry. The original target of MLM was women because they have stronger social networks among neighbours, friends and relatives, to which they can sell the products.

Today, both genders, all age groups and all social classes are actively participating in MLM to make money out of it.

Over the years, MLM companies from Asia have grown large enough to challenge the dominance of US-based companies.

 

The US Federal Trade Commission (FTC) has published an advisory listing the common characteristics of MLM companies:

  • Extravagant promises about earning potential.
  • An emphasis on bringing in new distributors for your sales network as the real way to make money.
  • Playing on emotions and use of high-pressure sales tactics, saying you’ll lose the opportunity if you don’t act immediately.
  • You have to buy more products than you need or can sell just to maintain an active status or to qualify for bonuses.

“Eventually, most distributors find that no matter how hard they work, they can’t sell enough inventory or recruit enough people to make money,” says the FTC advisory.

“They also can’t keep up with required fees or the inventory purchases they need to make to qualify for rewards, and they can’t earn enough money to cover their expenses.”

MLMs operating in Kenya are required to comply with business laws and product quality standards, but there are foreign-based MLM companies recruiting over the internet, where they are beyond the reach of Kenyan laws. The online MLM companies are recruiting people into foreign exchange trading and bitcoins with promises of quick riches. It is impossible to trace such companies should they disappear with your money.

Youths seeking employment, retrenched employees and retirees are attracted to MLM programmes because the companies never turn away anyone. One does not need to write an application or wait for an interview. All MLM companies have one catch, though: you must pay to gain admission into the marketing programme. Some MLM firms call the payments training fees, others say the fee is payment for a ‘starter pack.’ Several MLM companies require new entrants to buy a specified minimum amount of the product or service as a show of commitment.

The second catch with MLM companies is they are constantly recruiting distributors in order to collect joining fees and to expand their consumer base. Distributors are often the biggest market for MLM products. New entrants almost immediately fall under pressure to bring their own recruits so as to get higher earnings or bonuses.

The promise is that each time your recruits buy the products, you get a commission from the sale. When those recruits in turn bring their own recruits, you still get a commission from the sales made by your “grandchildren.” MLM companies call this a ‘downline’. The thirst for fresh recruits, and the money they bring, makes MLM companies look dangerously similar to pyramid schemes.

“These [MLM] schemes do not conform to conventional definitions of fraud but bring suspicions of it to the fore, doubts that haunt their glamorous marketing presentations,” says Dr Jan Beek, a German-based researcher who has studied MLMs in Kenya. Beek published a report in August 2019 where he wrote that, “hundreds of thousands of Kenyans have joined multi-level marketing schemes”.

 

Critics of MLMs say the products they sell are merely a cover for their real objective of making money from membership fees and compulsory purchases. Most MLM products are not in high demand, but they are overpriced.

For instance, there was an MLM company recruiting Kenyans to sell vacation packages to the Caribbean. Few Kenyans can afford such a vacation. Some MLM products are completely useless; an MLM firm was selling magnetic necklaces that supposedly have medicinal properties. Even where MLM companies have products that are in high demand, the prices are usually too high.

Most people joining MLM programmes struggle to make sales because there is no real need for those products. They try selling to family and friends, but this ends up straining those relationships. Friends stop picking calls when they realise you are trying to turn them into customers.

People join MLM programmes expecting their lives to change, but the disappointing sales plunge the once-hopeful recruits into depression. They were told they would be earning Sh50,000 a week. 

Social media and mobile phone apps have opened up new recruiting tools for MLM companies. The local social media scene is filled with posts of glamorous looking persons, claiming they have the secret to financial independence.

“Earn Sh12,000 weekly,” says one post. “I am looking for hardworking young men and women ready to earn Sh5,000 per day,” writes another. The individuals making the posts almost always direct interested persons to an MLM website or to a recruitment meeting.

The ongoing Covid-19 crisis pushed lots of people into frantically searching for new income-generating opportunities. MLM seems an easy way out because the companies do not turn away anybody wanting to join. People think MLM companies are employers. In reality, MLM companies are manufacturers and importers looking for distributors.

For sure, there are individuals that have succeeded in the MLM business. Success has a lot to do with the individual’s business acumen and ability to push sales. Perhaps the mistake MLM companies make is assuming that everybody can deliver on the rather aggressive sales targets.