advertisement 1
advertisement
SEARCH:
Sunday, September 24th, 2017                                                 SUBSCRIBE TO OUR RSS FEEDrss feed

Why ‘Network Marketing’ Can’t Work

Published by on May 8, 2011

Why ‘Network Marketing’ Can’t Work thumbnail

What’s Wrong With Multi-Level Marketing?

by Dean Vandruff

“LET ME TELL YOU ABOUT AN INCREDIBLE ground-level business opportunity…” someone says, and you are invited to a house or to lunch for “a discussion.” Funny enough, you feel in your gut that there is some hidden agenda or deception. “Probably a multi-level marketing (MLM) organization,” you think. Suppose it is? Should you trust your instincts? Is there anything wrong with MLM?

This article will analyze four problem areas with MLM. Specifically, it will focus on problems of I) Market Saturation, II) Pyramid Structure, III) Morality and Ethics, and IV) Relationship Issues associated with MLMs. Thus, you can properly assess your “instincts.”

I. Market Saturation: An Inherent Problem

Back to the Basics

A tutorial on market saturation hardly seems necessary in most business discussions, but with MLM, unfortunately, it is. Common sense seems to get suspended when considering if MLMs are viable, even theoretically, as a profitable means of distribution for all parties involved. This suspension is created by a heightened expectation of “easy money,” but more on that later.

New, Innovative?

MLM can no longer claim to be new and, thus, exempt from the normal rules of the market and the way goods and services are sold. They have been tried and, for the most part, have failed. Some have been miserable failures in spite of offering excellent products.

Marketing innovations are not rare in the modern world, as evidenced by the success of Wal-Mart, which found a more efficient and profitable way to distribute goods and services than the status quo, providing lasting value to stockholders, employees, distributors, and consumers. But this is not the case with any MLM to date, and after 25 years of failed attempts, it is time to point out the reasons why.

Don’t Some People Make Money in MLM?

First, we will analyze the “driving mechanism” of MLMs. We will detail how they are intrinsically unstable, guaranteed by design to oversaturate the market with no one noticing. We will look at why MLMs can never equalize into profitability the way companies in the real world can, so that the result will be that the organization as a whole cannot, even in theory, be profitable. When this inevitable destiny occurs, the only money to be made is not from the product or service but from the losses of people lower down in the organization.

Thus the MLM organization becomes exploitative, and many high-level MLM promoters have been shut down, the “executives” incarcerated, for selling the fraud of impossible success to others. Other, larger, MLMs have survived by hiring large batteries of attorneys to ward off federal prosecutors, even bragging about the funds they have in reserve for this purpose.

The unfortunate “distributor” at the bottom is the loser, and once this becomes apparent beyond all the slick videos and motivational pep-talks, good people start to get a bad taste in their mouths about the whole situation.

So, yes, money can be made with MLM. The question is whether the money being made is legitimate or “made” via a sophisticated con scheme. And if MLM is “doomed by design” to fail, then the answer is, unfortunately, the latter.

But how exactly does this happen, and must it always?

Doomed by Design?

The first question is this: Is any company choosing this marketing strategy destined to fail, to degenerate into an exploitative venture, regardless of how good the product is?

To see this clearly we must go through an, otherwise, obvious and elementary discussion of how any business must be careful not to overhire, overextend, or oversupply a market.

The Real World

Any business must carefully consider supply and demand. For example, if the ReVo Corporation thinks that it will have a full-fledged fad on their ovoid sunglasses next summer, perhaps they should plan to build and distribute, say, 10M units. This involves gearing up factories, setting up distribution and dealer networks, and carefully managing the inventories at each level so that ReVo will still have credibility with their distributors, retail outlets, and the public the following year.

If it turns out that there is a “run” on ReVo products, and they sell out in mid-June, then they have miscalculated demand and will miss out on profits they could have made. The more serious problem, however, is overestimating the saturation point for the product. If they make 10M units, and sell only 2M units, this may be the end of ReVo as a company.

The all-too-obvious point here is that management of supply and demand, and keen insight into realistic market penetration and saturation are crucial to any business, for any product or service. Mismanagement of this aspect of a business will eclipse good market access, excellent product design, human resource assets, production quality, and so on. Simply stated, a failure to “hit the target” of supply and demand can ruin a company if the market is oversaturated.

Market Dynamics and the End of the Cold War

Interestingly, the issue of supply and demand is what brought the USSR to its knees. By design, the Soviet government tried to macro-manage supply, where bureaucrats would decide how many potatoes were needed, how much toilet paper, etc. Assuming these bureaucrats did the best they could, unfortunately their efforts to deliberately manipulate the control “knob” of supply and demand was not good enough. Notwithstanding their good intentions, they were usually wrong, which created huge shortages and surpluses, and led to a massive economic collapse.

Seeing the disastrous end of market naiveté in Russia should help clarify the fundamental problem with the MLM approach. In the real world, the profit of a company is directly related to the skill and prescience of the “hand” on the “supply knob,” so to speak. In the USSR, that “hand” could not react fast or accurately enough to market realities through the best efforts of the bureaucrats.

With MLMs, the situation is much worse. Nobody is home. Even the Soviets had someone thinking about how much was enough! If the bureaucrat in Russia was having a hard time trying to play Adam Smith’s “invisible hand” in setting the supply level in the Soviet Union, then an MLM “executive” is in a truly unfortunate position. Not only is there no one assigned to make the decision of how much is enough, the MLM is set up by design to blindly go past the saturation point and keep on going. It will grow until it collapses under its own weight, without even a bureaucrat noticing.

MLM is like a train with no brakes and no engineer headed full-throttle towards a terminal.

“Everyone Will Want to Buy This Product!”

All products and services have partial market penetration. For example, only so many people wish to use a discount broker, as evidenced by the very successful but only partial market penetration of Charles Schwab. Not everyone wishes to join a particular discount club, or buy gold, or drink filtered water, or wear a particular style of shoe, or use any product or service. No one in the real world of business would seriously consider the thin arguments of the MLMers when they flippantly mention the infinite market need for their product or services.

The Demand Problem: Of Widgets and MLMs

Imagine a neat new product called a Widget that will sell for $100 (a fixed price, to keep it simple). Now, while everyone could use a Widget, not everyone will. Some will be afraid of anything new. Some will be loyal to existing brands. Some will want to buy an inferior product for less money. Some will want a more expensive product for prestige, regardless of quality. The reasons go on and on, and the fact is that only “X” Widgets will sell at $100.

The question for would-be marketers is: What is the quantity “X,” and how can it be predicted to maximize profits? The fact that “X” is hard to pin down does not mean that it does not exist, and every Widget built beyond “X” will end up producing a problem for the organization. The market only wants “X” Widgets at $100. What are you going to do with your extra inventory of Widgets beyond “X” that no one wants — and the sales people you hired to sell them?

No one can perfectly predict “X,” and the situation is not nearly as simple as considered here, but the objective for marketers is to forecast “X” as closely as possible in order to provide lasting value to all parties involved: to avoid missed opportunities as well as waste, loss, or failure.

The MLM Forecasting Approach: Ignoring the Target

Who has an eye on “X,” the point of market saturation at a given price, in an MLM? Well, the funny thing, or perhaps the tragic thing, is that “X” will be reached and exceeded without anyone noticing or caring.

Let’s just suppose that “X” has been reached today in a particular MLM; the number of possible units sold at this price has just been exceeded, and you happen to be a starry-eyed prospect sitting in an MLM meeting listening to the pitch. Now consider: Does anyone in this company know about “X”? Does anyone care? Is the issue being suppressed on purpose for some other motive? Since we are supposing that the market saturation number “X” has been reached, everyone joining the MLM from now on is buying into a false hope. But that is not what the speaker will be saying. He will be telling you, “Now is the time to join. Get in on the ‘ground floor’.” But it is all a lie, even though the speaker may not know it. The total available market “X” has been reached and nobody noticed. All the distributors will lose from here on out. Could this be you? How could you possibly know at what point you will become the liar in an MLM?

Pop or Drop

Perhaps a better paradigm than the runaway train analogy offered earlier of how MLMs perform over time is this: a helium balloon let loose in an empty room with a spiked ceiling, where product quality is analogous to the amount of helium. The better the product, the faster the balloon will rise, accelerating unhindered, towards disaster. The other option would be the case of a lousy product, in which case the balloon will sink of its own accord, never getting off the ground. To be sure, equilibrium is not in the cards, except perhaps as an accident, and then only temporarily. MLMs are intrinsically unstable. For any company that chooses an MLM approach, it’s pop or drop.

MLMs vs. the Real World

The basic question that needs to be asked is this: If this product or service is so great, then why isn’t it being sold through the customary marketing system that has served human society for thousands of years? Why does it need to resort to a “special marketing” scheme like an MLM? Why does everyone need to be so inexperienced at marketing this? Is the product just a thin cover for what is really a pyramid scheme of exploiting others? But more on that later.

From Contracted, Protected Distribution… to Mayhem

Imagine that Wendy’s became suddenly possessed by the idea that “everyone needs to eat,” and opened four Wendy’s franchises on the four corners of an intersection in your neighborhood. Who would benefit from this folly? The consumer? Certainly not the franchises; they would all lose. Wendy’s corporate? Perhaps temporarily, by speculative inventory sales while the unfortunate franchises were under the delusion that they could all make money. But in the end, the negative image of four outlets dying a slow death would likely offset the temporary inventory sales bubble. Even the most unreflective of the hapless franchisees would think twice about doing business in such a manner again. This is why real-world distributorships and franchises are contractually protected by territory and/or market.

Again, the simple fact is that even the most successful products will have partial market penetration. The same is true for services. Demand and “market share” are finite, and to overestimate either is catastrophic.

So why are MLM promoters obscuring this? Who is in control of the supply “knob,” carefully and skillfully managing the size of the distribution channels, number of salespeople, inventory, etc., to insure the success of all involved in the business? The truth is chilling: nobody.

Imagine trying to write a computer model of how MLMs work, and you will see this point most vividly. An MLM could never work, even in theory. Think about it.

The People Machine

Chernobyl had a control system that failed. MLMs have no control mechanisms at all.

Where is the “switch” that can be flipped in an MLM when enough sales people are hired? In a normal company a manager says, “We have enough, let’s stop hiring people at this point.” But in an MLM, there is no way to do this. An MLM is a human churning machine with no “off” button. Out of control by design, its gears will grind up the money, time, credibility, and entrepreneurial energy of well-meaning people who joined merely to supplement their income. Better to just steer clear of this monster to begin with.

There is simply no way to avoid the built-in failure mechanism of MLMs. If a company chooses to market this way, it will eventually “hire” (with no base pay — and charging to join) far too many people.

Thus, the only “control system” will be the inevitable losses and subsequent bad image the MLM company will gain after it does what it was designed to do: fail. And sooner or later we have got to stop blaming this particular MLM company or that, and admit that the MLM technique itself is fundamentally flawed.

Read more of this article at Dean Vandruff’s page

SHARE THIS VIA EMAIL OR SOCIAL MEDIA:
Email this to someoneShare on FacebookShare on VKTweet about this on TwitterShare on Google+Share on TumblrShare on RedditPrint this page

Related Articles:

Readers' Comments





  • hotbed of anti-semitism
  • Literature, US News »

    Homeless Jack on “Grabbing Some Pussy”

    November 7, 2016

    Homeless Jack on “Grabbing Some Pussy” thumbnail

    We discovered this piece scrawled on some foolscap left on our doorstep, an all-lower-case Kerouac-style stream of consciousness rap, and offer it as we found it. by H. Millard trump is an american original and a throwback to the days when americans were bursting with confidence and energy and the sheer joy of freedom and […]

    Africa, History »

    ‘The Choice of Achilles’: John Alan Coey Against the New World Order

    January 3, 2013

    ‘The Choice of Achilles’: John Alan Coey Against the New World Order thumbnail

    by T.R. Bennington AS EVER, BUT ESPECIALLY in our present state of civilizational malaise, there is a need for figures with the power to inspire — men who in less confused and cynical times would have been unabashedly described as heroic. One such figure is Corporal John Alan Coey, a young soldier who has perhaps […]

    Science »

    Quarter of Americans Convinced Sun Revolves Around Earth

    March 2, 2015

    Quarter of Americans Convinced Sun Revolves Around Earth thumbnail

    “DOES the Earth go around the Sun, or does the Sun go around the Earth?” If you answered the latter, you’re among a quarter of Americans who also got it wrong, according to a new report by the National Science Foundation. A survey of 2,200 people that was released Friday revealed some alarming truths about […]

  • Reader’s Comments

  • Categories

  • Archives

  • Pages

  • Login / Register / RSS

  • Vintage Mercury »

    Jailbirds

    June 7, 2017

    Jailbirds thumbnail

    by Jim Tully; from The American Mercury, September, 1928; transcribed by Kevin I. Slaughter THE jail room was thirty-five feet long, twenty-five feet wide, and seven feet high. In this large cage were fifty prisoners. Some had been sentenced and were serving jail terms; others awaited trial, or removal to the penitentiary. The floor was of […]

    Opinion »

    The Old Right and the Antichrist

    June 7, 2017

    The Old Right and the Antichrist thumbnail

    by Richard Spencer (pictured) The following address was given to the H.L. Mencken Club’s Annual Meeting; November 21-23, 2008. BEFORE William F. Buckley settled on writing God and Man at Yale in 1951, the 25 year-old had something quite different in mind as a debut volume. Buckley planned, and may have begun drafting, a book caustically […]

    Literature »

    The Fame of a Dead Man’s Deeds Audio Book: The Turner Diaries

    September 24, 2017

    <em>The Fame of a Dead Man’s Deeds</em> Audio Book: The Turner Diaries thumbnail

    by Bradford L. Huie for The American Mercury WHAT IS PROBABLY the most controversial novel ever written — The Turner Diaries — is the subject of this week’s chapter of our new audio book, The Fame of a Dead Man’s Deeds. (ILLUS.: The cover and autographed title page of a first edition copy of The Turner Diaries, […]

  • Names and Topics



  • FEATURED ARTICLES

    Frank Audio Books, History »

    New Audio Book: The American Mercury on Leo Frank – Frank’s Trial, Week Two

    August 3, 2017

    New Audio Book: The American Mercury on Leo Frank – Frank’s Trial, Week Two thumbnail

    TODAY we continue the new audio book version of the American Mercury’s centenary series on the 1913 trial and conviction of Jewish sex killer Leo Frank, recorded by Vanessa Neubauer. Many have described this as the trial of the century: Not only did it forever alter Jewish-Gentile relations in the United States, but some say it […]

    Literature »

    The Fame of a Dead Man’s Deeds Audio Book: First Contact

    July 27, 2017

    <em>The Fame of a Dead Man’s Deeds</em> Audio Book: First Contact thumbnail

    by Bradford L. Huie for The American Mercury TODAY WE  continue Vanessa Neubauer’s reading of Professor Robert S. Griffin’s masterful biography of Dr. William Luther Pierce, The Fame of a Dead Man’s Deeds. This audio book will be published in weekly chapter installments on The American Mercury and will be available from the Mercury as a full-length audio book […]

    Frank Audio Books, History »

    New Audio Book: The American Mercury on Leo Frank – Frank’s Trial, Week One

    July 26, 2017

    New Audio Book: The American Mercury on Leo Frank – Frank’s Trial, Week One thumbnail

    THIS WEEK we continue the new audio book version of the American Mercury’s centenary series on the 1913 trial and conviction of Jewish sex killer Leo Frank, recorded by Vanessa Neubauer. Frank was a Jewish sweatshop  operator convicted of murdering his 13-year-old employee after she rejected his sexual advances. (ILLUSTRATION: a photograph of the trial in […]

    Radio »

    The Fame of a Dead Man’s Deeds Audio Book: Introduction

    July 21, 2017

    <em>The Fame of a Dead Man’s Deeds</em> Audio Book: Introduction thumbnail

    by Bradford L. Huie TODAY WE begin one of the most important audio book series of our new century — one which we believe will become more and more relevant as the century matures: Vanessa Neubauer’s reading of Professor Robert S. Griffin’s masterful biography of Dr. William Luther Pierce, The Fame of a Dead Man’s Deeds. […]

    Frank Audio Books, History »

    New Audio Book: The American Mercury on Leo Frank – Introduction

    July 17, 2017

    New Audio Book: The American Mercury on Leo Frank – Introduction thumbnail

    ONE OF THE GREATEST triumphs of historical writing in the last decade was the American Mercury’s centenary series on the 1913 trial and conviction of Jewish sex killer Leo Frank. Now the entire series is being produced as an audio book for our readers, beginning today with the first installment. Frank was a sweatshop operator who […]

    Opinion »

    The Old Right and the Antichrist

    June 7, 2017

    The Old Right and the Antichrist thumbnail

    by Richard Spencer (pictured) The following address was given to the H.L. Mencken Club’s Annual Meeting; November 21-23, 2008. BEFORE William F. Buckley settled on writing God and Man at Yale in 1951, the 25 year-old had something quite different in mind as a debut volume. Buckley planned, and may have begun drafting, a book caustically […]

    Vintage Mercury »

    Jailbirds

    June 7, 2017

    Jailbirds thumbnail

    by Jim Tully; from The American Mercury, September, 1928; transcribed by Kevin I. Slaughter THE jail room was thirty-five feet long, twenty-five feet wide, and seven feet high. In this large cage were fifty prisoners. Some had been sentenced and were serving jail terms; others awaited trial, or removal to the penitentiary. The floor was of […]

    History »

    The Western Contribution to World History

    June 7, 2017

    The Western Contribution to World History thumbnail

    by James C. Russell “I SHALL BEGIN by speaking about our ancestors, since it is only right and proper on such an occasion to pay them the honor of recalling what they did.” Thus wrote Thucydides in his History of the Peloponnesian War1 and so it is fitting to pay tribute to those whose deeds contributed toward […]

    Literature, US News »

    Homeless Jack on “Grabbing Some Pussy”

    November 7, 2016

    Homeless Jack on “Grabbing Some Pussy” thumbnail

    We discovered this piece scrawled on some foolscap left on our doorstep, an all-lower-case Kerouac-style stream of consciousness rap, and offer it as we found it. by H. Millard trump is an american original and a throwback to the days when americans were bursting with confidence and energy and the sheer joy of freedom and […]

    US News »

    The American Mercury Endorses Donald Trump for President

    June 1, 2016

    <em>The American Mercury</em> Endorses Donald Trump for President thumbnail

    by Gideon Dene Editor, The American Mercury DONALD TRUMP is the obvious choice for President in 2016. It could even be argued that he is the only real choice Americans have had for a century or more. All of the other candidates have been, and are now, obvious shills for Wall Street and Zionist extremism. […]