NETWORK MARKETING IS OLD PARADIGM EXPLOITATION IN NEW AGE CLOTHING
[Originally written in 1996 for the Valley Trade Connection Newsletter – Revised in 2004 & 2014. VTC was an alternative currency/local economy association in the Pioneer Valley of MA.]
The pyramid is considered a channel of healing energy in some ancient mystery traditions, and it is a model for the archetypal structure of the psyche in Jungian psychology. But in the economic realm, and contrary to contemporary claims, pyramids are not the eighth wonder of the world.
This article is intended to raise some questions within the community of alternative economic institutions, Transition Town communities and people seeking a sustainable and respectful future about the nature and value of pyramid marketing, or what has come to be known as multi-level marketing (MLM) or, more euphemistically, network marketing.
There are at least 1,000 network marketing companies in the US with as many as 16 million distributors or “affiliates”. Many of us are familiar with the very conservative Amway organization which offers natural household cleaning products and beauty aids or the new age Celltech which sells blue-green algae “superfoods”, or perhaps the fast-growing Nikken with their “healing” magnets.
The number and diversity of network companies is astounding, offering everything from dog food to long-distance service. And, while money-making chain letters are still illegal, chain-selling is not.
The way these companies work, briefly, is by recruiting people, often with promises of significant income, to purchase a “marketing and initial inventory package”, sell the product and recruit more people to sell the product – your “downline”. The incentive is that you get a discount on the product for your own use and a percentage of all sales by each distributor in the several levels beneath you, as well as significant bonuses for reaching each new level of sales, so that the more aggressive your sales and your recruitment, the more product moved and the more distributors below you in the pyramid, the more money you make – up to a point.
The catch is that you have to make an initial investment (sometimes substantial) and continue to purchase your monthly quota of product, whether you need it or not (you can sell it or keep it), so that those above you in the pyramid can continue receiving their residual commission. This is absolutely necessary for the pyramid (and the company’s profits) to continue to grow, and this marketing system is – by its very design – highly growth-oriented. Additionally, you’re often strongly encouraged to fly to company marketing conventions and receive specialized training.
Outside of illegal drug dealing and cigarette and alcohol sales, network marketing is the only enterprise that requires an addictive quality of unnecessary consumption. Exponential growth is not a healthy natural process, but what in pathophysiology is called cancer.
Another element of many of the network-marketed products, particularly the alternative health miracles, is that they are aimed at a niche market and come with an almost evangelical sales gospel (and, not incidentally, a cult-like loyalty). And yet the marketing material that is supplied in the associate’s packet typically claims that the product is both appropriate to, and essential for, every consumer. These claims not only suggest that the market potential is virtually unlimited, but that there is no one who cannot benefit from the product. For any health-related supplement, this is a patently false and dangerous notion. The Chinese healing tradition, one of the oldest and most long-lived bodies of health knowledge, suggests that healing modalities have to be fashioned for each particular patient and that any “cure” can be harmful if misapplied.
Ignoring, for the moment, the law of diminishing returns and the reality that because no product has an unlimited market those on the top of the pyramid will come out on top financially, leaving the latecomers to pick up what’s left – let’s examine some other aspects of the network system.
Though the initial “hook” may be the quality and usefulness of the product, the other “hook” is the opportunity not only for significant income, but for continuous and unearned income. While it does take a fair amount of work to create your “base” or “downline”, at some point all you have to do is continue to buy your quota and act as coach to your “downstream” distributors.
This one-on-one marketing system (or rather one-on-ten-on-a-hundred-on-a-thousand, etc.) is purported to be an evolutionary advancement over traditional producer-distributor-retailer marketing because it creates personal relationships of mutual support. Some of the niche product producers ostensibly moved into network marketing because they couldn’t reach their hoped-for market and move sufficient quantities of product through conventional retailers. Several of those most popular with the “new age” crowd also claim altruistic, world-enhancing motives.
But they all rely on highly motivated and often passionate purveyors of not only the product, but also of the marketing system and the “mission”. In my own experience, the successful “associates” tend to be “true believers” – people with an almost total and unquestioning loyalty to the “cause”. They also tend to be financially ambitious, and they have no qualms about exploiting their neighbors, friends and family members to do so.
Part of the context in which the more “new age” companies operate is that the notion of a finite pool of wealth is obsolete and, if we act in harmony with our higher values, there is an unlimited pool from which to draw. Thus, if one invests both money and time in promulgating these life-altering products, the rewards will simply flow like honey. But they flow because those cash rewards are built into the often highly-inflated prices of the product, making them unaffordable unless the consumer becomes the distributor – thus enforcing the growth of the affiliate network.
The Direct Selling Association (DSA), a lobbying group for the direct sale industry, including multi-level marketing, reported that in 1990 25% of its members used MLM, growing to 77.3% in 1999. Legacy companies such as Avon, Electrolux, Tupperware, and Kirby all originally used single level marketing to sell their goods (the door-to-door salesperson) and later introduced multi-level compensation plans. By 2009, 94.2% of members were using MLM, accounting for 99.6% of sellers, and 97.1% of sales.
A 2009 USA Today article reported that “While earning potential varies by company and sales ability, DSA says the median annual income for those in direct sales is $2,400.” Other studies have shown between 1% and 10% of a company’s representatives making any money at all. A 2011 article reported that Roland Whitsell, a former business professor who spent 40 years researching and teaching the pitfalls of multilevel marketing said “You’d be hard-pressed to find anyone making over $1.50 an hour. The primary product is opportunity; the strongest, most powerful motivational force today is false hope.”
A 2000 FTC Consumer Alert warned: “Steer clear of multilevel marketing plans that pay commissions for recruiting new distributors. They’re actually illegal pyramid schemes. Why is pyramiding dangerous? Because plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited. And when a plan collapses, most people – except perhaps those at the very top of the pyramid – end up empty-handed.”
The Federal Trade Commission issued a 1979 decision, in re Amway Corp., in which it indicated that multi-level marketing was not illegal per se in the United States. However, Amway was found guilty of price fixing (by effectively requiring “independent” distributors to sell at the same fixed price) and making exaggerated income claims. In 2010, Amway agreed to a $56 million settlement to a class-action suit alleging fraudulent promises to distributors.
The 2003 book, The Skeptic’s Dictionary, stated that “The vast majority of MLMs are recruiting MLMs, in which participants must recruit aggressively to profit. Based on available data from the companies themselves, the loss rate for recruiting MLMs is approximately 99.9%; i.e., 99.9% of participants lose money after subtracting all expenses, including purchases from the company.” In part, this is because encouraging recruits to further recruit people to compete with leads quickly to market saturation.
As in all corporate enterprise, network companies cover the whole spectrum if products, from awful to relatively wholesome, but they are very much rooted in the capitalist, competitive, expansionist, profit-taking worldview which still dominates our culture, defines personal success primarily by income and material wealth, holds unearned income rather than productive work to be the highest aspiration, and fosters unsustainable growth.
The Valley Trade Connection and other alternative currency economies, in my eyes, is not only an alternative to federal currency, but an alternative to business as usual. Network marketing, in my view, is not. The VTC and other outside-the-box models encourage true economic networking: making local connections to foster economic interdependence; increasing the number, diversity, and quality of those interactions; creating the opportunity for non-monetary exchanges and the possibility of a less stratified valuation of personal worth. Consumer cooperatives also foster some of the same values as well as the democratization of the transfer of goods and services.
Network marketing schemes are, on the other hand, promulgated by large, centralized corporations employing an independent sales staff (the distributors) which receive no employee benefits; and, by design, offer products at inflated prices with as much as 60% going for sales incentives and commissions in addition to the company’s profits.
Though some of the companies are relatively “green” and socially-conscious, they are no different in structure or purpose from any corporation, even if they are like the better of the traditional corporate models, such as Ben & Jerry’s (before they sold out to corporate America).
What I see the VTC and the variety of alternative economic agreements contributing to in a small but important way, is a shift in paradigm: a return to small-scale and locally-responsible economics informed by a forward-looking vision of a respectful and sustainable community in which members live better with less and create each economic interaction to meet the unique needs of the parties. The industrial paradigm offers a fixed product with terms dictated by the seller (sign on the bottom line if you want to play the game), while a paradigm of mutual integrity offers an individually-crafted exchange that is determined by – and acceptable to – all parties.
In the extraordinarily fluid society that has been created by the extreme mobility of capital, we have lost a sense of place – a sense of rootedness on the Earth which sustains us – and in a community which nurtures and protects us.
Real security comes not from income or material wealth – all indigenous cultures knew this – but from the strong filaments of connection that we spin into life-affirming webworks as part of the larger web of creation into which we have been spun.
Let us not be misled into mistaking an abstract approximation – a money-generating network of top-down consumer/distributors – for the true web of life. We have too long worshiped at the altars of such false gods, and it is becoming abundantly obvious to many of us that simply painting a fresh coat on those old idols will not carry us into the new millennium.