Multi Level Marketing Products and Services The Good The Bad and the Downright Ugly

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Every now and again, life throws up little challenges which cause you to ponder life and reflect.  Just recently, a minor illness which laid me up in hospital was one such event.  Having been in the fitness industry for almost 10 years and a reasonably fit strong and healthy individual for my entire life, I suddenly learned that I was no longer 10 feet tall and bullet proof.  I was human, just like everyone else and susceptible to 21^st century illness.

My career in the fitness industry has for the most part been an awesome journey.  But one area that often leaves a bitter taste is the fact that no matter how hard fitness professionals like me work at tackling the obesity pandemic, fellow peers get sucked into the toxic void that is the multi level marketing schemes that make all sorts of promises but rarely deliver.

My well placed SEO’ed website (Google personal trainer Springwood) and my highly effective social media marketing campaign means that I am easily found on the internet and across the various social media platforms and through my longevity within the fitness industry (2yrs + means you’re a dinosaur) I’m now considered by most of my peers to be an expert /guru although the title doesn’t sit very well with me.

This has positives and negatives.

The negatives means I am contacted daily by at least one independent distributor from one of the many multi level marketing companies offering me with an opportunity.  In the old days I used to take up their offer to listen to them, then I started charging a coffee, now I just say no.

This article is a summary of my experiences and will look to cover the good, the bad and the downright ugly that I have experienced over the past 25 years that I have been around MLM companies.

In my time I have either been directly involved as an independent distributor or have sat through a number of presentations with independent distributors from: NuSkin, Interior Design Nutritionals, Amway, Nutriway, ACN, Usana, Juice Plus, Isagenix, Herbalife and Yor Health.  Given my vast experience in working with these MLM companies, I reckon I’m pretty well placed to comment on them and MLM in general.

FIRST THE GOOD!

Contrary to public belief, multi level marketing and pyramid schemes are not the same thing.  Multi level marketing is legal.  It is a well known and well tested form of business and is a multi billion dollar worldwide industry.  It spans a number of different industries, like public utilities, mobile and fixed line telephone, broadband internet, electricity, gas, holidays and tourism but is best known in the supplements, vitamins, weight loss and replacement shakes arena.

Pyramid schemes, on the other hand are illegal.  Most western countries have strict laws governing these and for good reason, they are dishonest, involve shady characters and involve one person ripping off another.

So how do MLM’s work?  To understand them fully you really have to understand business in general.  In a service industry like the fitness industry, I exchange time for money, the more I charge for the service I provide, the more I earn.  Out of my earnings, I pay my businesses expenses and the balance is left for me.

In a product based industry, businesses make an item (or buy it and add to it) and then on-sell it to their customers, with the profit being derived from the difference between what they bought it for and what they sold it for.  Traditional product industries that make their product from scratch and buy in the raw ingredients.  Coke for example is made from water, salt, sugar and caffeine.  They buy the raw ingredients and make their product and then sell it.

In order to get the product from the factory to your mouth they have to spend a sizeable chunk of $$$ in advertising, marketing, sponsorship & wages (just to name a few expenses) so that their customers learn about it (remember there’s a ton of competition out there) and these costs are included in the final sale price, hence the reason why there’s such a huge difference between the cost of making the item and the cost to the end customer to buy it.  I heard once that a particular fast food chain’s flagship burger costs 13c to make and $3.50 at the counter, with the difference being used to pay the various expenses and any leftover is pure profit.

In MLM, the system is very similar except for one point of difference.  They still have a product or a service which is created or bought at a price and then a mark up is added and the product or service is on sold at a profit.

Have you ever noticed how you’ve never seen an advert on TV, radio or in print media about the various MLM companies out there?  The reason why is because they don’t advertise and the reason why they don’t advertise is because they rely on powerful “word of mouth” advertising to sell their products.  This is MLM’s point of difference.  I’ll touch on this in the BAD section.

All of the advertising, marketing and sponsorship budget from a typical product doesn’t exist in a MLM product or service, so what they do instead, is pay this cost to their distributors in the form of commissions.  Everyone involved as a distributor gets a cut of the sale price and because there’s so many levels of commissions paid, there needs to be a sizeable portion of the sale price built in as commissions.

Like I said, MLM is a legitimate business system used worldwide and is a multi-billion dollar industry.   It works and works very well.  If you want to make money, get into business for yourself or find yourself a MLM system that best suits you and your passion because there are a ton of very rich people who have made their millions through being highly successful distributors of MLM products and services.

SO NOW THE BAD!

I’ve had a ton of BAD experiences with various different MLM companies over the past 25 years, so now I’m going to touch on one example.

Everyone has one, that favourite Indian restaurant where they serve the best buttered chicken to die for right? We have one.  It’s called “Dawat” and I’m going to give them a massive plug right here.  They’re located in Springwood Brisbane and we’ve been going to them for years.  Even when we lived 35 mins away, my wife and I used to drive 35 mins to get their awesome buttered chicken. We tell everyone about it, family, friends, uncles and aunts and guess what, our family and friends probably go there as well.  That my friends, is the true definition of, “word of mouth” advertising.

How much do you think I earned from Dawat from including them in this article?  Nil.  How much do I earn when I tell my friends about them?  Zilch.  What about my cousins, surely I get something for telling them right?  Nup.  Nothing, zero, zilch, nada.  In fact, they don’t even know they’ve been included in this article.

The reason why word of mouth is such a powerful form of advertising is because the benefactor (business) pays absolutely nothing for it, yet benefits from it and that’s why we as a consumer place so much value on it.  We tend to trust word of mouth advertising for this exact reason.

Here’s where MLM companies have crossed my moral compass line.  If you’ve ever been involved in an MLM as an independent distributor as I have, you’ll know how you’re encouraged to firstly become a customer, buy the products or services yourself, use them over and over again and then talk about not only the business opportunity (of course there is one) but about the products and how fantastic they are, how great you feel from taking them, using them, how much weight you’ve lost, bla bla bla.

I have a real problem with this form of word of mouth.  Doe the product really do what you claim it does or are you just saying that so you can earn money?

In one particular MLM I was involved in, I had a problem with a particular product that I had recently signed up for.  (If you’re interested, it was broadband internet)  When I spoke to my up line (thats the bloke who signed you up) about the problem I was having, I discovered to my horror that he wasn’t even using any of the products, yet he was happy to say how great they were!  Not a good example of word of mouth advertising in my eyes.

And here’s the thing. As an independent distributor, you have a massive financial interest in talking the products or services up, because you earn a commission on the sale of them.  I have never heard an independent distributor say that their product is rubbish.

Trust me; if I go to an Indian restaurant and their buttered chicken is not up to scratch, I’m definitely going to tell people about it.  Word of mouth in the traditional sense works well because people will believe your honest testimony about the product or service because you’ve got no vested interest in whether they buy it or not.

MLM independent distributors testimonies can’t be trusted, because they are tainted, tainted by the fact that the distributor is earning a commission every time one of their down line buy the exact same product that they are raving about.  It is not word of mouth at all, it’s simply advertising and paid advertising at that and this illegitimate form of word of mouth is deeply entrenched across MLM’s entire business system.

OK, now it’s time to take the gloves off and get down to the DOWNRIGHT UGLY.

SECRECY:

The first time I experienced this ugly aspect of MLM was when I was contacted by an independent distributor (who was also a medical doctor).  The pretext was that as I was prominent in the fitness industry and also a very professional public speaker, I was asked if I was interested in becoming a presenter at one of his “Health and Wellbeing” talks.  You can imagine my surprise when I soon discovered that I had been invited to a business presentation and that the speakers at the “Health and Wellbeing” presentation were in fact fellow independent distributors.  He wanted me in his team as an independent distributor, with a long term view of becoming one of the exact same presenters standing up in front of all the other potential prospects giving illegitimate testimony by using my vast experience in the fitness industry as credibility.

If your business is so good, why be so secretive?  Why not tell me the name of the company and the purpose of taking me to the meeting?  I’ll tell you why.  Because that particular company has a very bad reputation and if their distributors tell their prospects which company it was, no-one would turn up to their presentations.  So instead they lure you to a meeting with lies and deception and then rely on their sales and marketing at the meetings to get you in.

PROMISE OF A PASSIVE INCOME:

With over half of the adult population of Australia being overweight (that figure being set to rise by 2020 to ¾ of the population) and with unemployment currently sitting at 6% (the highest in Australia since god knows how long), the median house price in Brisbane around $500,000 and the average wage $38,000 PA, it’s pretty safe to say that everyone is looking for something RIGHT NOW and financial security & weight loss seem to be the big 2 at the moment.

What a perfect recipe then do we have for MLM companies, especially those that sell weight loss or health products. Not only do they solve their prospect’s need for financial freedom, but they also solve their weight or health issue.  They all make the same promise, the promise of creating a passive form of income.  In my eyes, passive income is where you earn money while doing nothing.

An example of this was discussed with my 7 & 9 yr old one day while out walking the dog.  I put it to them, “What would you do if you won the $15,000,000 lotto jackpot?”  (I think we were walking to buy a ticket)  The 2 kids decided they would give $1,000,000 to charity and then spend the remaining $14,000,000.  I suggested that instead of spending $14,000,000 they could invest $14,000,000 and create a passive income of $700,000 PA per year for ever. (14m invested at 5% term deposit)  We’d always have the $14,000,000 and we’d never have to work ever again.  That’s true passive income. Do nothing and earn.  My business does this when I go away on holidays.  My staff members continues to operate my business and I earn money while I’m away.

The form of passive income MLM’s promise is false.  In order to earn their passive income you still have to work, attend meetings, recruit distributors, train distributors to do exactly what you do, oh and continue to buy their products.

The fitness industry is a hard slog.  I know. I slogged in the early years, like most new PT businesses.  In fact my situation was a little different.  I had a family, young kids, a mortgage and was the sole bread winner, so i had to make it work.  Early mornings, late nights and breaks in between.  Luckily for me, I was only new to the fitness industry.  I wasn’t new to business.  I’d been a self employed private investigator for 10 years prior and so I already had the business component sorted (sort of) so all I had to do was master how to be a decent PT.

Today, I see new PT’s graduate from RTO’s and Tafe’s with ideas of charging $100 per hour, working 20 hours a week and earning $100,000 PA and pay no tax because they’re going to be working for cash cash cash.  After 9 months they’re disillusioned and looking for a magic pill and along comes a fellow PT alleging they’re making a fortune through passive income selling  shakes, pills, potions and other health products to their clients that also provide fantastic results and recruiting other PT’s to do the same also.

After becoming disillusioned with these so-called promises, I did a ballsy thing at one of the many presentations.  I took along my recent Notice of Assessment that had just arrived in the mail from the ATO.  I was proud of it because my business had just hit a 6 figure turnover and I had a tax bill that dwarfed most average incomes.  I challenged any of the independent distributors to prove to me through their Notice of Assessment that they were earning an income through their system that would generate a tax bill as big as mine.  Not one person said a word.  I called their bluff!!

QUALITY INGREDIENTS:

This one really leaves a sour taste (excuse the pun).  Remember earlier when I discussed how traditional products buy ingredients at a wholesale price, add a mark up to cover costs and then sell at a retail price?  Well common sense tells me that to maximise your profit margin you must buy the cheapest ingredients, keep your costs (advertising, marketing, sponsorship and wages) to an absolute minimum and then sell your product for as much as the market is willing to pay.  Apple and Harley Davidson are two companies in my opinion that have nailed this by creating an experience on top of their product that adds a massive perceived value.  Harley Davidson don’t sell motorbikes.  They sell the ability for a 47 yr old accountant to ride into a small country town and scare the living daylights out of the citizens.  “Hey look at me.  Under this get up, I’m a skinny little accountant by day with no criminal convictions but jeez I look tough on this bike.  Don’t MESS WITH ME!”  A Harley Davidson is a motor bike and by most non Harley bike enthusiasts, not a very good one, but their product is at least 15% more expensive than their competitors.  Same bike parts as other bikes.  2 wheels, engine & chassis.  Ditto Apple.  The latest Apple I Phone 6 retails at $1,000 AUD but it still is, just a phone.  Same ingredients as a Samsung.  I’m happy for products to be more expensive than their competitors if they provide an experience that sets them apart from their competitors.  In the service industry qualifications, experience and results usually differentiate between price levels.  A GP costs $32.50 (paid by Medicare) whereas my orthopaedic surgeon costs $220.00.  Qualifications, experience and results govern the price differentiation.

All MLM health products that I have been either directly involved in or have attended presentations on make this one outrageous promise, that their products are manufactured from the very best ingredients, better than their competitors, in other words, those sold in shops, supermarkets etc.   They say that their ingredients are the very best because they don’t spend any money on advertising, marketing or sponsorship so they can afford to spend extra on the ingredients.  Organically produced, scientifically proven, cutting edge technology.  What a load of rubbish!!!

Next time you get the opportunity, check the ingredient list of a MLM protein shake or meal replacement bar.  Chances are they’re made with the same cheap soy protein made from genetically engineered soy as the same comparable product on the shelf at Chemist Warehouse.  They’re probably full of artificial sweeteners, fillers, skim milk just like the store bought products.  The only difference is they’re a dam sight more expensive.   Their ingredients aren’t any better, they’re exactly the same, they’re just telling you that to justify the fact that their product is 15% more expensive than the comparable store bought one, without the Harley or Apple experience.

RECENTLY ADDED: Just recently I came across a fantastic article written by Natasha Longo who has a master’s degree in nutrition and is a certified fitness and nutritional counsellor. She has consulted on public health policy and procurement in Canada, Australia, Spain, Ireland, England and Germany. So you could safely assume that she knows what she’s talking about when it comes to the lack quality of MLM’s ingredients.  To read her article in full (be careful, it’s 43 pages long) click here.

BACKED BY SCIENCE

My time in the fitness industry has taught me one thing.  That all the scientific evidence that exists is simply one person’s interpretation of a set of raw data and that the only scientific research that can truly be believed is the research that is independent of any vested interest.

When tobacco companies release scientific research to prove that smoking cigarettes is NOT dangerous to your health can it be believed?  When a food manufacturer releases a similar paper saying that it’s highly sugary laden energy drink does Not contribute to weight gain, should it be believed?  When a pharmaceutical company backed scientific study proves that taking a statin lowers blood cholesterol, should it be believed?  Should you believe a registered dietician when she claims that sugary breakfast cereals are a healthy breakfast option for Australians, when you discover that the same cereal company financially sponsored the Australian Dieticians Association’s recent annual conference?

Clearly the answer to all these questions is a resounding NO and the reason is clear for all to see!  So why do we believe all the so called medical and scientific research papers thrown about at MLM presentations that their products are backed by science?

One particular company had a medical advisory board governing and releasing the studies being conducted on their products.  Interestingly enough they failed to state that all of the medical professionals on the advisory board were independent distributors of the same company, receiving commissions through the successful down lines that they had.

RECENTLY ADDED: Just so you know, I leave the heavy lifting when it comes to scientific examination relating to nutrition wholly and solely on Examine.com. Examine.com is an independent organisation that investigates the science behind supplementation and nutrition. They are not affiliated in any way with any supplement company, pharmaceutical company, food manufacturer and especially any network marketing company. Therefore their research isn’t tainted by the organisation that paid for it.  Founded in early 2011, they have one goal – to be the unbiased source for supplements and nutrition.

Summary:

So there you have it, my honest opinion of how MLM’s operate, through my 25 years of having been involved in them.

The Good: Multi level Marketing is a proven and sound business model.  It is Not illegal.

The Bad: MLM relies on, “Word of mouth” advertising to shift their product.  Unfortunately everyone singing the praises of the product or service are on the payroll.  All independent distributors with a vested financial interest in the outcome of any potential sale.

The Downright Ugly:  Some MLM’s are secretive.  They’re less than honest and misrepresent who they are initially in order to either get in front of you or get you in front of them.  They make unrealistic promises of a large passive and residual income which very rarely come to fruition.  They claim to use only the best ingredients.  If you put genetically modified soy protein as a quality ingredient, then you’re absolutely right and lastly they use tainted and poor researched science usually produced by scientists with vested interests in the outcome of any study to substantiate their claims.

Pat Rae

ABOUT: Pat Rae is a personal trainer, lifestyle coach, massage therapist, motivational speaker, author and presenter.  He is the owner of a boutique PT studio in Brisbane  and an online health and wellness program both of which have been established to help people live healthier, happier and more energetic life through exercise, eating whole real foods and stressing less.  See more at http://www.prpt.com.au & http://www.patrae.com