I Do Not Belong To a Pyramid Scheme
A couple years ago I wrote a blog post about the difference between a legitimate network marketing business and a pyramid scheme! This week, one of my awesome team members and friend wrote this amazing post about the same thing. The best part for you is that it is much shorter than what I wrote! (each link is a different post)
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There’s a crazy myth floating around that I need to clear up once and for all.
I hope this doesn’t cost me any friends. (Maybe I’ll even gain some!) 😁 If this information somehow offends you, I’m going to put a link at the bottom of this post to an article posted by the United States Federal Trade Commission and you can see that I’m totally 100% on point with what I’m saying.
“Pyramid Scheme”
For some reason, this is a nasty stigma that cynical or uninformed people assign to others who:
– Have a home based business where they sell a third-party product
– Assemble and train a team of others who have chosen to do the same thing
– Earn income from both their own sales and the sales of some of their team members
Bottom line:
LEGITIMATE COMPANIES with a tiered payout and distribution structure are super-common, totally legal, and a fantastic, ethical way for companies to get visibility for their goods or services. It is sophisticated word-of-mouth “advertising.”
PYRAMID SCHEMES are illegal and get shut down by the government very quickly when they pop up. I’m going to paraphrase some of what is discussed in detail in the article at the bottom of this post.
So-called “pyramid schemes” promise members profits based primarily on recruiting others to join their program, NOT from selling any real goods or services to the public. Some pyramid schemes may sell a product, but they often simply use the product to hide the fact that the majority of the money paid out to participants comes from high buy-in cost for new recruits, not from end product sales to the public. Two things to be aware of that pyramid schemes are notorious for are (1) requiring new recruits to purchase a bunch of inventory up front that they won’t use and will probably not be able to re-sell and (2) money is made from the high sign-up fees of new recruits, not from legitimate product sales to the public.
In pyramid schemes, the people at the “bottom” spend a bunch of money on high buy-in costs and (possibly) a lot of products that sit in their garage, while the people at the top collect from everyone below, selling hype, and cracking the whip on people to bring in more and more new recruits at astronomical buy-in fees. In order to make any money, the newest recruits need to go and try to get a bunch of other people to spend a fortune to sign up, rather than actually getting customers who like the product and want to purchase it. It is very high pressure with a lot at stake.
Pyramid schemes are few and far between and get shut down quickly by the FTC. By far the vast majority of companies with a multi-tiered distribution and payment model is are totally legitimate. In the article below from the Federal Trade Commission, there is an entire section about successful, legal companies that use multi-level distribution and payment models.
I’ve been working with in this type of business for nearly 15 years and it’s been AHHH MAZ ING. Not perfect, but really, really great.
✅ Yes, I have a home based business.
✅ Yes, I market a product that my family has benefited from and uses.
✅ Yes, I help other people learn how to do the business if they think it’s a good fit.
✅ Yes, I receive commission if I do my job well and the people I have taught are successful.
🚫 NO, I am not gullible, brainwashed, desperate, foolish, lazy, or part of a pyramid scheme.
The “pyramid scheme” accusation used to hurt me.
Then it would just annoy me.
Now it REALLY ticks me off.
Why does it tick me off? It’s not because I can’t handle a little social pressure. I’ve developed a thick skin and can recognize misinformed people the second they start talking. It ticks me off because it hurts people I care deeply about. These are men and women who are taking more control of their family income and working hard with legitimate and thriving companies who are getting shaken up unnecessarily by the biting comments of people who don’t have a clue what they are talking about.
I hope this informed and well-researched post will help these people as well as those who may have never taken the time to learn exactly what the difference is between an illegal pyramid scheme and a legitimate business with a multi-level type distribution and payment structure.
In my opinion, companies with a multi-tiered distribution and pay-out model are the next logical “evolution” of authentic, decent, and ethical marketing.
Please let me explain why.
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HERE IS THE ORIGINAL “FLOW” OF PRODUCT DISTRIBUTION:
In the past, MANUFACTURERS would create a product in their factories and then ship it to NATIONAL WAREHOUSES.
The NATIONAL WAREHOUSES would store the products until they needed to be shipped to REGIONAL WAREHOUSES.
REGIONAL WAREHOUSES would keep the products until they were needed as inventory in LOCAL RETAIL SPECIALTY STORES.
LOCAL RETAIL SPECIALTY STORES would put the products on the shelves.
CUSTOMERS would see company-produced advertisements in media and come to the LOCAL RETAIL SPECIALTY STORE to purchase the product. In most cases up to 60% of what the customer pays is simply to cover the cost of moving the products from factory to warehouse to warehouse to store and to pay for the advertisement. That’s a huge expense.
(Example: Nike factories in China MANUFACTURE millions of Nike brand shoes. They ship tens of thousands of shoes to NATIONAL WAREHOUSES all around the United States. They are then sent out to REGIONAL WAREHOUSES so they are closer to the stores that will eventually purchase and re-sell them. Nike LOCAL RETAIL SPECIALTY STORES in your local shopping mall place orders from the regional warehouses for a few hundred pairs that end up on their display racks. CUSTOMER sees a $5 million 30-second Nike ad on TV during the Super Bowl, and the next day goes to a LOCAL RETAIL SPECIALTY STORE to pay $190 for their new Nike shoes. Approximately $114 [60%] of this is to cover the cost of moving the shoe from factory to warehouse to warehouse to store… plus that snappy ad he saw during the Super Bowl. 👟💸)
This isn’t the most fabulous system, but it is generally pretty standard marketing. And of course this isn’t just for shoes… you can substitute most any other type of physical product out there for the Nike shoes.
1950s EVOLUTION OF PRODUCT DISTRIBUTION
In the 50’s and 60’s there was an evolution. LOCAL RETAIL SHOPS were replaced with LOW COST DEPARTMENT STORES (think WalMart, etc.). Now you could buy shoes, and hammers, and mayonnaise in the same store instead of going to a shoe store, then a tool store, then a grocery store. Among other changes, they centralized distribution and found low-price suppliers. This also cut out at least one step at the end of the distribution process, saving money for the end customer.
1980s EVOLUTION OF PRODUCT DISTRIBUTION
In 1983 and 1984 Costco and BJs were founded and there was another evolution. REGIONAL WAREHOUSES were replaced by these MEMBERSHIP ONLY BIG BOX SUPERSTORES. Sure, there weren’t as many of them as the large department stores, but for an annual membership fee, you were allowed to go directly into the warehouse to do your shopping. You could buy the same sorts of things that were available in the large department stores, but in larger quantity, with less packaging, and the cost was even cheaper because the products didn’t need to be moved as much. Plus, advertising costs decreased with this step as well. Instead of needing to market to everyone in the country, a company would only need to market to the people who happened to be members of the big box superstore (think about that little Costco flyer that is sent to your house once a month. A lot cheaper and targeted than Super Bowl ads.) 📦💵
2000s EVOLUTION OF PRODUCT DISTRIBUTION
In the early 2000s, online retailers like Alibaba and Amazon swept in, connecting customers directly with manufacturers from their PC or smartphone. Websites like Etsy also popped up and allowed people to sell their wares to other customers. This was a MAJOR breakthrough in distribution because suddenly there was very little advertising or distribution costs. And with Amazon Prime, shipping was really affordable to people who used their service on a regular basis. It’s no wonder that a couple years ago Jeff Bezos, owner of Amazon, became the richest man in the world! He understood that if he could find a way to connect customers directly with manufacturers he could turn huge profits—and it was incredibly scaleable. He could sell other people’s products for slightly less than would be charged in another brick-and-mortar store and make a mega profit, plus the profit from under-utilized Amazon Prime accounts really adds up, too.
AND HERE WE ARE WITH THE LATEST EVOLUTION… THE MULTI-LEVEL DISTRIBUTION MODEL
These companies have been around for a long time and many have been fine-tuned for decades. A handful of companies (I can tell you which ones) have totally nailed it. These are consumer-to-consumer businesses, marketing fantastic consumable products that are both timeless and in demand by the public. These companies have created a business model that encourages customers to not only be educated about and use their products, but also to have the option to be compensated for sharing their own experiences with others if they wish. In return for a referred sale, the company pays the customer some of what would normally be spent on expensive advertising or the cost of moving products from warehouse to warehouse. The part I love the most is that customers who want to create a higher income for themselves can be compensated for effectively teaching other customers how to share company-created information about the product as well as their own experience. Advertising dollars from these companies are not spent on a expensive psychology-driven, hypnosis-inducing marketing campaigns that utilize just the right colors, sounds, and carefully crafted marketing messages that make you feel an irrational preference to buy their stuff over that of a competitor. No—with this business model, advertising dollars are paid out to customers who really like the products, can offer their own experiences with other people, give an honest recommendation, and share in some of the profits if the person they are talking to decides to make a purchase. It’s totally win-win-win.
Good companies get in trouble when their representatives start going crazy and exaggerating or making false claims. We’ve heard about a few of them in the news lately. Thankfully, the companies who I have kept my eye on are really monitoring their partners to make sure that no one is over-promising.
If you’re personally not comfortable buying from someone you know, that’s totally fine. But please don’t cry wolf on our businesses. It’s not classy. If you are leery of “pyramid schemes,” I hope that this little exposé of mine sets your mind at ease. Chances are your friend on social media, or your sister, or your co-worker is just sharing a product that they really like and are not in a cult. 😂
Here’s the link with the facts on pyramid schemes:
https://www.ftc.gov/public-statements/1998/…/pyramid-schemes
Post written by Brian Roes on 7/16/19
#familylifetransformation
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