MLMs, pyramids, and other dubious marketing schemes: not only illegal but immoral and unethical

A friend abandoned his successful real estate business a couple of years ago to join a multi-level marketing (MLM) operation. Because he tried to convince me to team up with him to “earn money big time” and live in luxury, I decided to look into the business and see what it was all about.

What I learned prompted me to write about multi-level marketing (MLM), focusing on the moral and ethical issues involved over and above the practical and legal. For what could be legal could be hugely unjust and unfair to a lot of people.

Here’s what I learned.

PyramidScheme-IMMORAL-530The organization my friend joined was an MLM, with one outstanding characteristic. The business focused on recruitment. This immediately raised a red flag. The operation put together a so-called 3×7 matrix. In other words, you recruit three people and each of those three recruit seven associates. Each of the seven would in turn recruit three more of their own who each again recruit seven. The process continues ad nauseam. Your earnings, including commissions and bonuses (and all other types of incentives called “coded” bonuses) depend on the number of recruits down your chain.

The first warning sign of a possible pyramid scheme is such: there is an unusual focus on recruitment rather than on the sale of a product or service. As a matter of fact, there was absolutely no emphasis on the quality of value of the product they were selling.

When you do the math – to determine how this recruitment has to continue in order for you to keep on earning commissions – you come to the conclusion that it is not endless. Eventually, the organization runs out of people to recruit – or those at the very bottom see the futility of their efforts – and the entire scheme collapses.

Similarly, a scheme where one is required to buy and keep at all times a certain quantity of a product or a service – and to keep selling in order to earn commissions – is a scam.

I tried to explain my findings to my friend – but he was dogmatic and tended to be illogical – until I brought up the moral and ethical issues.

I pointed out that it becomes morally or ethically wrong when a customer has to purchase a product or service on the basis of what they can earn from the transaction itself and not on the basis of the quality of the product or service or their need for the product or service.

I added that it becomes a larger moral and ethical issue when one considers the number of people that are disadvantaged down the line and the very few who are truly benefiting financially at the top of the heap. The fact that there are “levels” in the scheme proves that at the end there will be many victims and very few winners.

All the arguments for MLMs and other pyramid-type schemes are lame excuses for taking advantage of the gullibility and/or aspirations of the many who eventually become victims.

I couldn’t tell what effect my words had on my friend.

I have not heard from him again.

About Julius Willis

A former Philippines newspaper publisher and businessman, Julius resettled in California, USA, where he simultaneously worked as an instructional and technical writer and engineering department manager and taught college for 26 years. Now retired, he serves as a member of the Alameda County Housing & Community Development Advisory Committee. He also served as a member of the City of Hayward's General Plan Task Force and the city's Planning, Personnel, Citizens Advisory, and Community Services commissions.
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