Multi-Level Marketing Challenges - Pyramid and Endless Chain Questions
By: Jim Green
Submitted: 2010-08-31 11:27:07 | Word Count: 456
In this article, we take a look at assertions made by some of the "experts" in the industry who believe that most MLM/network marketing companies can be equated to endless chain or pyramid schemes. We wanted to look into this and see what is behind it. Is this really true for all companies, or just certain ones that tread close to the legal "limits?"
In one notable case in point, Robert Fitzpatrick, author of "False Profits" has lately accused various companies of operating based on the "endless chain" recruiting vs. product sales model, including Pre-Paid Legal, USANA, ACN and Herbalife. MlmWatchdog.com investigators have revealed that Fitzpatrick works closely with Barry Minkow's Fraud Discovery Institute, which has a history of short selling companies under their "investigations." So, is this just an example of stock manipulation, or is it truly investigative work? MlmWatchdog.com also reports that Minkow is a convicted felon who has served jail time for former fraudulent activities.
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What does the law indicate? State law seems to govern activities in this area, although the FTC and SEC have had significant involvement. In principal decisions, there have been a variety of abuses targeted as possibly illegal:
1. Products which have no "real world" marketplace
2. Products which are sold at inflated prices
3. Required purchases of company product
4. Plans which cause distributors to load inventory
5. Large cash investment requirements
6. Plans in which products are totally or substantially used by distributors
7. Plans in which fees are paid to distributors for recruiting
8. Plans where commissions are not based on retail product sales
9. Plans that have elements of a lottery; rewarding based on probability
State laws differ on key points, including, primarily, the question of whether distributor personal product usage counts as "retail sales." Three states have recognized personal distributor use as legitimate "retail sales:" Oklahoma, Texas and Louisiana.
When evaluating the bottom line whether a particular company meets legitimacy tests may be a simple question: If there were not an income opportunity attached, would the typical person honestly buy the product anyway? Understand that your answer may be "colored" by a common tendency to "justify" an emotional buying decision. If the answer is "yes," you've found the right company.
Author Resource:-
Jim Green is an attraction marketing and network marketing expert with over 10 years in the industry. His attraction marketing system uses both internet and offline recruiting techniques to assist any marketer in consistently generating MLM leads.
In this article, we take a look at assertions made by some of the "experts" in the industry who believe that most MLM/network marketing companies can be equated to endless chain or pyramid schemes. We wanted to look into this and see what is behind it. Is this really true for all companies, or just certain ones that tread close to the legal "limits?"