The Politics of Technicality: a Word from the Experts on Multi-Level Marketing
Bibi Imre-Millei, Assistant Editor Online
January 21, 2021
This article is a companion piece to “Atop the Pyramid of the American Dream: The Politics Multi-Level Marketing” (https://theobserver-qiaa.org/atop-the-pyramid-of-the-american-dream-the-politics-multi-level-marketing). To gain a comprehensive understanding of these phenomena, please engage with both works.
Multi-level marketing (MLM) can be viewed as a business model or a scam, depending on who you ask. Also associated with the term “direct sales'', MLMs usually employ a two-pronged strategy. Distributors sell products and recruit other distributors into their downline and make a commission on the sales and recruitment and those they recruit. The first element is direct sales, popularized by Avon in the twentieth century. “Avon ladies” would go door-to-door or throw parties, selling products on behalf of the company as opposed to in a store. But today, many companies with the label of direct sales (including Avon) also employ the second strategy as popularized by Nutrilite and later Amway. Most MLMs do not just happen to have a recruiting element: it’s the moneymaker. While the distributors trying to recruit you may try to tell you otherwise, recruiting is often the only way to make significant money since products are likely overpriced with low demand outside of the MLM. Recruiting new distributors and therefore creating a downline allows a distributor to participate in the commissions-based and team-building part of the MLM: making money from their downline while their upline makes money from them.
With this basic and unproblematized understanding of MLMs in mind, people tend to come across them in one of two ways. Some are approached by MLM representatives who discuss their company as an exciting business opportunity, and may eventually be recruited. Others come across the victims of MLM scams, either through their jobs as lawyers, professors, or consumer advocates or through the hashtag #antimlm which can be found on every social media and content-sharing platform. My own story is not exciting. I was always aware of MLMs as their distributors bounced in and out of my communities, and was also aware that I shouldn’t join them. Then, this year, in a quarantine-induced need to expand the content I was watching, I came across the ‘anti-MLM’ community on YouTube and was instantly hooked. While I enjoyed exploring this content, I realized that it was difficult to find academic research on MLMs. Therefore, to further investigate the academic approach to the world of MLMs and pyramid schemes, I’m writing for The Observer’s Investigative Journalism branch to bring you the insights of multiple academics with extensive knowledge about how MLMs and pyramid schemes intersect with our political and social lives.
Dr. William Keep calls himself a skeptic, or as he noted in an email following up from our interview, a non-believer in “most of the reasons people give for what they do or what they think.” From working-class roots in small town Michigan, Keep did not become a professor until later in life. As a new professor at the University of Kentucky with a specialty in retailing, he was brought in as an expert witness for a pyramid scheme case. After that, he became more and more intrigued by the world of MLMs. Douglas Brooks, an attorney in Massachusetts, has a similar story of stumbling upon work to do with MLMs and cults. In the early 1990s, when he and a friend went out on their own to start a law firm, they couldn’t pay for their office space. In exchange for rent, Brooks and his friend worked on MLM and cult cases for the class action firm they shared an office with.
Robert FitzPatrick, founder and president of Pyramid Scheme Alert and author of two books on pyramid schemes and MLMs, came across the industry when he was recruited into it. FitzPatrick joined an “airplane game,” a type of scheme common during the 1980s which has resurfaced in 2020 in which a “pilot” recruits “passengers” who also recruit others in hopes of becoming a “pilot” in a four-tiered scam. FitzPatrick discusses his shock when the scam he was part of was prosecuted -- he didn’t understand how he hadn’t realized what it was. This was only compounded in the 1990s when a variety of MLMs swept through South Florida and those who had been part of the airplane game approached FitzPatrick to join. This pushed him to write his first book False Profits: Seeking Financial and Spiritual Deliverance in Multi-Level Marketing and Pyramid Schemes with Joyce Reynolds. FitzPatrick, like those who post the hundreds of thousands of Tik Toks, Instagram posts, and YouTube videos about their experiences in MLMs, wants to educate the public and warn them of the dangers of these schemes. In 2020, FitzPatrick released his second book: Ponzinomics, the Untold Story of Multi-Level Marketing.
But not everyone believes all MLMs are bad all the time. Dr. David Soberman, Canadian National Chair in Strategic Marketing at the University of Toronto, is more optimistic about the industry. Soberman noted that the divide between MLMs and pyramid schemes becomes gray when MLMs force recruits to sign misleading legal documents and invest significant amounts of time and money into the scheme. Brooks also discussed these legal documents with me. They are typically four to six pages long and lay out a simple contractor style relationship. However, they often have a clause that encompasses all company rules and regulations, which are usually hundreds of pages long and can include: non-compete clauses, non-disclosure clauses and waiver of rights to go to court or participate in a class action against the company. Soberman was clear that there is no reason for an MLM to be immediately questionable. In fact, he believes that the media’s focus on MLMs as scams has concealed the fact that many MLM distributors can make a good living.
FitzPatrick disagrees. Both FitzPatrick and Keep pointed to the 1979 case where the US Federal Trade Commission (FTC) found that the company Amway did not fit the definition of a pyramid scheme. In this case, the FTC did claim Amway was price-fixing and exaggerating income claims, but ruled that they were not a pyramid scheme based on a set of criteria that MLMs use today to differentiate themselves from pyramid schemes. These criteria include: not explicitly requiring distributors to recruit more people, maintaining a product and sales of that product, and giving refunds for products. Keep, FitzPatrick, and Brooks all point out that MLMs carefully bypass these criteria or do not meet them in the way they were intended to be met. For example, while recruiting is not required to stay active in most MLMs, it is required to make money. Products are often sold inwardly, as they are purchased by MLM distributors themselves to maintain volume; few companies record the difference between sales to representatives and sales outside the company. There are also many horror stories about partial or denied refunds, or hidden clauses voiding certain types of refunds. In this way, the very label of MLM is a political maneuver that differentiates it from a pyramid scheme, allowing for what FitzPatrick calls “assuming the identity of a business.” Fitzpatrick claims MLMs are neither multi-level nor do they involve marketing. The “levels” are not levels reached through a certain number of hours or degree of skill but ranks based on the number of people you have recruited. There are infinite ranks, not “multiple” as the term MLM implies. Further, there is no marketing because there is no market. Products are primarily sold to the distributors themselves and are not unique, yet are far more expensive than similar products from regular retailers. In assuming the identity of a business in a society where CEOs are seen as good people, the MLM is legitimated.
But why does the trick work? As alluded to above, business is respected in Western neoliberal societies. In our interview, Dr. David Collins, the MBA director at Northumbria University and an expert in leadership and management discussed the prestige of business. Collins noted how today, many Western countries rely on a neoliberal model based largely on the US system, which focuses on enterprise, entrepreneurship, growth as not merely morally neutral but morally good. For Collins, this focus often conceals bad business practices from some of the most revered companies and normalizes the myth that successful companies have moral value. Collins points to the respect for IBM, which was involved in one of the first anti-trust cases in 1952. By calling their representatives things like “independent business owners,” as Amway does, MLMs place themselves squarely within this entrepreneurial tradition.
But FitzPatrick claims that the guise of a business is not enough: affinity is the key strategy for recruitment. Affinity is not just personal, it is a political tool used to gain access to certain demographics of the population that the MLM is targeting. Affinity is malleable, and so the MLM will not be marketed the same way to different people. Both Collins and FitzPatrick discussed the links between Protestantism and capitalism. They noted how early notions of the importance of resourcefulness and enterprise, and the idea of destiny for wealth allowed MLMs to flourish in Protestant communities. From the 1930s to the 1950s, MLMs were often focused on small-town Christians; Amway, with its Calvinist founders, was attentive in exploiting this community. Going back further, Keep remarks on the 1800s, when women were looking for occupation and income in a time when they had more independence but not much opportunity. This period led to the rise of direct selling, and Avon in particular.
MLMs will pick target demographics, often on the basis of the product sold or that the distributors already embody, but this is not always the case. A storyline can always be built which resonates with the group. As FiztPatrick discusses, if the demographic is mothers, like it often is today, the message may be tailored around financial independence or making money while staying at home with children. MLMs also often sell a particular idea of luxury. With curated Instagram feeds where the MLM is only alluded to through an emoji in the bio, with pastel colours and sparkling filters, a white woman proclaims she is a boss babe, she loves her husband, she loves her children, she loves Jesus.
But as FitzPatrick noted, religion is just one of many facades, and any identity can be taken to represent the MLM this way. MLMs with Christian women as their top sellers are simply more likely to have a high percentage of Christian women in the organization overall, due to the benefits of affinity marketing. Discussing the scheme he was part of in the 1980s, FitzPatrick described the new-age language used, which promised infinity, abundance, and prosperity, with members testifying to making tens of thousands of dollars. There are multitudes of reaction videos on YouTube where creators dissect similar income claims, calling out distributors for using the language of “manifesting” and “passive income,” while disparaging those who can’t or won’t commit (or in the eyes of their upline: do not work hard enough).
Income claims, where an MLM distributor guarantees a certain level of compensation, are illegal in the US. It’s easy to see why, since such promises can be tantalizing and incredibly misleading. Shana Mueller, director of marketing and communications for Truth In Advertising (TINA), told me that outrageous income and health claims made by MLMs are what led the organization to start investigating the industry more broadly. A large portion of how TINA receives information is through consumer complaints, which they investigate to make the public and companies aware of possible FTC violations or unfair business practices. Some of the first complaints TINA began receiving after their launch in 2013 were from students about the energy drink company Vemma. This case helped develop the relationship between TINA and the FTC. In 2015, the FTC halted Vemma’s operation and seized its inventory, labelling it an illegal pyramid scheme.
The health and income claims made by MLMs are often heavily imbued with buzzwords and trendy language, latching onto political movements and popular culture in order to create the affinity that leads to recruitment. Collins told me that it is important to pay attention to these trends. Buzzwords, for Collins, are a very powerful way to generate excitement and should be taken seriously because of their ability to create a technical language that legitimizes the topic discussed. Mueller told me the most prominent circumstance MLMs have harnessed this past year is COVID-19. MLMs and their representatives are skilled at pivoting to what’s current. Due to a lack of regulation and training on standards, uplines are quickly able to convince those below them of the newest trends and how to adopt them. During COVID-19, MLMs capitalized on both health and income anxieties, with some claiming their products could cure or prevent COVID-19 and others touting the benefits of working from home. Mueller claimed that even after warnings, many MLMs did not deal with these complaints.
Brooks laid out how Some of these recruiting tactics and claims are similar to those used by cults. While making it clear to me that not all MLMs are similar to cults, Brooks noted that both cults and MLMs use the affinity approach mentioned above. Further, both types of organizations tend to take a vague “curiosity approach” to recruiting, where the actual organization is rarely mentioned by name. Instead, representatives discuss the benefits that this new lifestyle or business opportunity might bring. As FitzPatrick also noted, a common tactic of both cults and MLMs is to call potential recruits to a higher purpose: wealth, health, and changing the world. Almost all my interviewees touched on the tactic of ‘love-bombing’, though not all gave it this name. Love-bombing is the outpouring of support and positivity when an individual first joins the organization. But soon it is made clear that a focus on positivity and support is required, and that negative or even inquisitive questions toward the organization are not tolerated. Brooks also noted a focus on charismatic leaders, who could be the founders, top distributors, or celebrity ambassadors.
Also like cults, it is difficult to leave MLMs once distributors become somewhat established. Most of my interviewees noted that affinity tactics require starting with a warm list: those closest to you. If you are successful in recruiting family and friends, you then move on to recruit others who share characteristics with you. But this initial recruitment drive leads people to stay, due to a multitude of social factors, guilt, and cognitive dissonance. After all: if you were scammed, you also scammed those you love most by recruiting them. MLM distributors are both victims and perpetrators in these scenarios, making it difficult to speak out about their experiences. MLMs also often cut off those who criticize them or leave the company, so staying in contact with family or friends might mean having to stay, or at the very least not badmouthing the MLM. Brooks has extensive experience defending clients against lawsuits by MLMs attempting to silence critics. But with the rise of social media and tip organizations like TINA, it is easier to complain and spread awareness due to the volume of complaints possible and the ability to remain anonymous.
But social media has also allowed for MLMs to quickly adapt to changing social climates and latch on to new trends. One strategy that social media facilitates is a general vagueness; not revealing the company’s name and not being associated with the term MLM. Similarly, many distributors have saved Instagram stories disassociating the term MLM from the term pyramid scheme. But this phenomenon did not start with social media. The Direct Selling Association (DSA) is a trade organization mostly made up of MLMs, but it started as mostly single-level direct selling companies. Both Brooks and Keep noted that MLMs use the language of the DSA to legitimize MLMs as just another type of direct selling. Further, they note that the DSA’s lobbying against state-level laws that prohibit endless recruitment chains has been particularly effective, as these are some of the only laws below the federal level to protect consumers from losing money to MLMs.
Many of my interviewees noted that we are no longer in the heyday of MLMs in North America. In a surprising move, Tik Tok recently banned the promotion of MLMs under a section on scams and fraud in their guidelines. MLM sales and involvement are declining. Keep himself has argued that if the MLM industry went away, the broader sales economy would not be impacted. However, the social impact cannot be ignored, as many continue to fall victim to MLMs while others defend this business model with vigour. Keep recounted an instance where a North Carolina MLM was set to be shut down, and the FTC received thousands of complaints.
But despite reduced recruitment in North America, MLM recruitment is growing in various places around the world. Those interviewed noted the growing market in Asia: Taiwan, South Korea, and China in particular. Brooks discussed how MLMs bribe their way into China in order to circumvent strict anti-MLM laws. India also has a growing number of Amway and Herbalife distributors, and other MLMs are trying to break into the market there. There have been rumblings on various Reddit forums of MLM companies selling themselves as a way out of poverty in the global South, and some early research from Ghana indicates that MLMs there are presenting themselves as an alternative to the healthcare system.
More research on the impact of MLMs worldwide is needed. When I asked FitzPatrick about this lack of content, he linked it to the lobbying power of MLMs. Funding is necessary to undertake most research. While there are few grants to research the negative aspects of MLMs, organizations like the Direct Selling Educational Foundation back studies that support the MLM industry. While other interviewees agreed this could be the case, they made clear that this is not dissimilar from other industries that pay for research and that not all research paid for by groups who represent MLMs will be pro-MLM. However, it is undeniable that there is a startling lack of academic research on MLMs and pyramid schemes.
All the experts I spoke with agreed that more research was necessary, but apart from this, they did not always agree on what people should know and how to move forward. Soberman advocated for a balanced approach with awareness-raising around predatory schemes and regulations, but also made it clear that he thought demonizing all MLMs is a mistake. Mueller was slightly tougher on MLMs, noting that most of the ones TINA dealt with often dodged regulations and were exploitative. However, Mueller also discussed working with the industry and including them in reforms. TINA does not label all MLMs as bad. “We do criticize the industry but we engage with them and want them to get better. We don’t call them all pyramid schemes,” Mueller told me.
While both Brooks and Keep also want to engage with the industry on some level, they both have more cynical and skeptical views of change. Brooks primarily advocated for traditional types of political activism: calling state-level representatives in the US and advocating for more consumer protections. For example, Brooks noted that while there is a direct selling caucus in US congress, there is no congressperson on a mission to protect consumers. Brooks told me he was encouraged to see the activity on social media, as did Keep because a high volume of activity and complaints are needed so that legislators see the problem. Keep does not always have faith in state and regulatory institutions, but keeps attempting to engage with the FTC and advocate for victims. Fitzpatrick does not believe the industry can be reformed. “This is fraud engaging in business not business engaging in fraud,” he told me in reference to MLMs. Looking back on a history of lobbying and entrenchment, he doesn’t believe that industry engagement and upholding regulations can be the answer. FitzPatrick ended our conversation by asking me to consider that Bernie Madoff was not investigated for twelve years while sitting in plain sight.
Regardless of who you agree with, there is a need to re-evaluate how we relate to businesses in our social and political lives. Assigning virtue to for-profit companies is a trap. The lines between all kinds of exploitation and unethical practices are blurred and ranking them will not save us. MLMs are not the only companies making money off failing dreams. But we can take lessons from their tactics to shield ourselves and combat injustice. We should be cautious of those who want to sell us something, whether it be liberation, leggings, or lavender oil.