Multi-level marketing schemes are gaining momentum in New Zealand, riding a wave on the back of hashtags and messages of female empowerment.
Arbonne, Herbalife and Nu Skin are among big names recruiting people to sell products ranging from diet shakes to makeup.
The companies have been likened to pyramid schemes for incentivising team members for bringing in and coaching new recruits.
Tess Nichol is a writer for Metro Magazine. She has been keeping an eye on multi-level marketing schemes (MLMs) and their growing popularity.
In response to a reader’s concerns, Nichol shared her research on the inner-working of the direct sales business.
She says there is a difference between MLMs and pyramid schemes.
“The distinction with multi-level marketing companies is that there is technically a product.”
But Nichol says the sale of these products plays a varying role in making money for MLM companies.
A documentary on Herbalife, ‘Betting on Zero’ revealed the product was mostly bought by the people recruited to sell it.
“And that doesn’t matter to the company – they’re not actually looking for a consumer market.
“They’re looking for recruits to purchase the products and they don’t care if it ever gets resold.”
MLM schemes recruit everyday people, usually, women; in particular, stay at home mothers and people looking for dignified work.
Nichol says more people sign up to MLM schemes when employment opportunities are low.
The drawcards for these schemes can be enticing, with companies offering trips around the globe and expensive cars.
The messaging is also empowering; allowing flexible hours, a work-life balance, thousands of dollars, business coaching and a support system.
But this message is a double-edged sword; it places the onus of success or failure on the recruit.
Nichol says companies peddle the same message, “the only person you can blame for not succeeding is yourself, rather than the fact that economically the way that these things are structured is that somebody’s going to lose out.”
With people recruiting from their friend circles and continuing to sell to this same circle, the market for MLM products quickly becomes saturated.
Nichol says people at the top of the food chain, those who get into the market early, can be successful.
As for the rest of them, studies on the schemes show as many as 73 percent – 99 percent of people lose money.
Nichol says, “the worst thing is, people who don’t have money to lose are losing money.”