MLMs: Desperation Breeds Dark Deeds

MLMs: Desperation Breeds Dark Deeds February 27, 2020

Hi and welcome back! Last time we met up, I showed you some really bad public-relations news for multi-level marketing schemes (MLMs). Today, let me show you how the people in charge of these thinly-disguised financial cults are responding to all this bad news–and why it’s important.

a chinese pyramid
(kevsunblush, CC, Wikipedia.) “Tomb of the General” in Ji’an, Jilin, China. (Way northeast part of China.)

(See the end of the post for MLM terminology, if you need it.)

A Script for Every Occasion.

If you ever tangle with MLM participants, or huns, you’ll soon hear one of their memorized scripts for every occasion. (For this reason, sometimes people refer to huns as hunbots.)

Huns also deploy a great many diagrams. Here’s a popular one they disseminate to deflect accusations of being a pyramid scheme:

a hun misunderstands what a pyramid scheme is
A beloved and venerable diagram.

Does this diagram remind you an awful lot of the willful ignorance behind fundagelical statements like We all believe in nonsense, so why why WHY won’t you believe the same nonsense that I believe? (Example.) If so, it should. The same motivations and sentiments drive both MLM participants and toxic Christians.

In this case, huns using this sort of diagram try to make the case that just because their business has a very pyramid-shaped structure, that doesn’t make it a pyramid scheme. Why, just lookie at every business! There’s just one person at the top, and each level down gets progressively larger! Therefore, these accusations simply don’t hold water. This MLM is legit!

But it’s not the appearance of their management charts that makes a pyramid scheme.

Rather, it’s how the business is structured that makes it so.

Quick Note About Pyramid Schemes.

First, let me explain what a pyramid scheme actually is.

A pyramid scheme revolves around a false promise of vast profits. People join the scheme by paying money to their recruiters. In turn, those people recruit new people under themselves, who then pay them to join the scheme. The people who sign up these new recruits take a little bit of the money from each new person signing up, all the way up the line. Now, if someone recruits enough new people, they’ll make a ton of money. The more people they recruit, the more money they make. But if they fail to recruit enough people, they will only lose money in the scheme.

The money always flows up the pyramid, never down it. And the people at the bottom of the pyramid get it in the shorts as they support every level above them.

This is why MLM products tend to be so expensive. Most of their products’ retail cost gets eaten up in commissions to upline all the way to the top.

Turning MLM Frowns Upside Down.

So let’s alter that diagram above a bit to reflect what’s really happening here:

how pyramid schemes really work
Notice the direction of the money flow. (Source: r/antiMLM)

Those frowns at the bottom of the pyramid on the right will only turn upside-down if those folks recruit a few levels of new victims under them. If they can manage that–and it wasn’t easy even before MLMs became public-relations nightmares–then they’ll become one of the less-than-1%-ish of participants who don’t come out of the experience with a negative cashflow. Meanwhile, the lowest few levels of the pyramid will always be frowny faces.

That’s why pyramid schemes are bad. It’s not the general shape of their management structure that condemns it. Rather, it’s where the money comes from (the frowny faces) and where it goes (UP UP UP!) that makes it so bad.

A pyramid scheme is designed from the start to fail the vast majority of its participants while enriching only a few.

Now for MLMs.

Multi-level marketing companies utilize their various products and services to deflect accusations of being pyramid schemes.

Oh no, hun, warble their participants: Pyramid schemes are illeeeeeeeeeeeeeeeegul! They don’t have a product! But look, I have a product to sell! So my MLM is legit!

They’re about one-third correct here, too. Impressive!

Yes, an MLM offers some sort of product or service for sale while a pyramid scheme doesn’t.

However, in every single MLM I’ve ever seen, these products and services are largely unsellable and undesirable. Often, they’re overpriced and sub-par in quality. They exist only to allow the MLM to evade government shutdown for a little while longer.

No market demand exists for an MLM’s products. People can find much better quality elsewhere for far less money–and without getting pressured or shamed into buying by their babysitter from second grade.

Thus, about the only people purchasing an MLM’s products are the salespeople themselves. And they must: MLMs usually require huns to purchase a set amount of products on a regular basis to maintain their eligibility for sales commissions.

In an MLM, the money flow comes almost entirely from its own participants–not from outside retail customers. MLM huns are the customers here.

Open and Closed Systems.

So let’s alter our diagram a tad more, shall we? (And pray I do not alter it further?)

the real money flow in an MLM
Money flows into a real business from outside. In an MLM, the money largely circulates only within the pyramid, from downlines to uplines.

Exactly like their fraternal twin the outright pyramid scheme, an MLM is designed from the start to impoverish almost every single participant signing up for it, all in order to make its top levels fabulously wealthy.

In MLMs, a few get rich while the rest face bankruptcy and emotional devastation.

Cosmic Irony.

I am firmly convinced that MLMs are simply barely-legal pyramid schemes that use “but but but MUH PRODUCTS!” as a plausibly-deniable cover to forestall inevitable government attention, intervention, and shutdown.

And that’s truly ironic, because according to the FTC, a completely-illegal product-less pyramid scheme actually stands a better chance of bringing a profit to its participants than a product-based MLM does:

In contrast, the loss rate for recent no-product pyramid schemes ranges from 87.5% to 93.3% (averaging about 90% – depending on whether or not re-investment is assumed by those profiting from each completed cycle), which is far less than product-based pyramid schemes – with about a 99.9% loss rate. So a person would have about 100 times the chance of profiting in a classic no-product pyramid scheme as in a recruiting MLM.

Incidentally, it doesn’t matter what the MLM calls itself–network marketing, person-to-person networking, referral marketing, whatever. Many of these schemes are now desperately trying to rebrand, just like Christian churches are. And all those rebranding attempts don’t matter.

If a business displays the red flags of a pyramid scheme, recruits have next to no chance of success no matter what that business calls itself. And I’ve never encountered an MLM that didn’t wave all the red flags.

Why MLMs Require Recruitment.

Even if a hun begins her time with an MLM thinking she’ll make a living at it without recruitment, she quickly discovers that this is absolutely impossible.

A while ago, Mary Kay (a venerable cosmetics MLM) was apparently a lot less malevolent. I read a sad story along those lines from a gal whose mother sold it at the time–this would have been some years ago. At the time, she wrote, Mary Kay paid decently well for product sales, and they limited hun sign-ups to prevent over-saturation of any given markets. Then one day they decided to reward huns based on recruitment instead. Overnight, huns who were making decent money through product sales discovered that Mary Kay had slashed their incomes.

After that change, Mary Kay hunbots couldn’t get ahead or make money without extensive recruitment. Here’s their commission scheme to show you what I mean. But they’re not special that way. MLMs are all like this, to a greater or lesser extent. To earn the big bucks, all huns must recruit a high number of active participants. Notice, as well, that individual product sales don’t particularly matter in these schemes–but wholesale product orders matter quite a lot. That’s why MLMs don’t GAFF what happens to these products after the hunbots buy them.

And everything I’ve described so far explains why huns will generally always structure their pitches as an attempt to recruit–instead of trying to sell products. They want recruits who’ll regularly pay money into the scheme, not occasional pity-purchases from people who feel coerced into doing it every few months.

Ultimately, huns are not selling products; rather, they’re selling opportunities.

And false ones at that.

For Real, MLM Recruitment = MLM LIFE.

MLMs like Mary Kay and Amway depend on recruitment exactly like Christian leaders have always depended on powers of coercion, and for the same exact reasons.

Without lots of recruits signing up constantly, an MLM dies–and it dies very quickly. Recruits are almost the only people buying these products–in other words, the only people providing the money flowing into the pyramid.

Once recruits stop buying their MLM’s products, nobody in the general public picks up the slack to keep money flowing in to the pyramid. That’s why MLMs don’t sell their products at retail in shops–there’s no way they could charge what they do for these lackluster products and hope to compete against legitimate products. Only people who feel compelled to buy this stuff would ever do so.

(This is why huns who quit an MLM usually immediately stop buying the very products they claimed mere days before to be oh-so-life-changing.)

We saw this in real-time last year, when supplement MLM AdvoCare abruptly changed from a typical MLM upline/downline commission model to a more retail-commission structure. Their pyramid all but collapsed almost overnight. Their huns saw their incomes slashed to almost nothing because suddenly they weren’t making money on their downline’s purchases! So they left for other MLMs.

So. Recruits = life to an MLM.

No recruits = swift death.

Why This Stuff Matters.

I’ve told you all this so now I can show you why today’s story is such a big screaming BTFO deal.

It’s about how MLMs are responding to Americans’ growing rejection of their abusive predations.

Shockingly, they’re just moving shop to abusively prey on people somewhere else!

MLMs In China.

“This industry is absolute chaos for China.”

You Yunfan (aka Xiao Fei), a former Chinese Amway distributor

China forbade direct sales of any kind in 1998. (Of course, MLMs operated there illegally anyway.)

The Chinese government loosened those restrictions somewhat in 2005, allowing MLMs to sell their products at retail without that ickie MLM downline/upline structure.

Basically, they’ve got to operate like any other product sold at retail, and to pay their salespeople the same way too.

Of course, there’s no profit for MLMs in operating like that.

So plenty of MLMs try hard to skirt Chinese law. And why not? I mean, just look at China! It’s huge! Also, it’s racked with economic insecurity, with often-limited upward mobility. And the Chinese lack Americans’ decades of experience getting burned by MLMs. They’re not as familiar with the business model or its pitfalls. As for those silly laws, history’s shown MLM owners that Chinese officials can be bribed.

As one Chinese law professor put it in 2018,

“The majority of these direct-selling companies are right on the edge. If they were to completely follow the law, there would be no market at all.”

Soooo… they don’t.

Herbalife Got Caught (Again). In China.

Back in November, a couple of Herbalife managers got accused of bribing Chinese officials.

The complaint is not against Herbalife itself, only against Yanliang Li (aka Jerry Li) and Hongwei Yang (aka Mary Yang). Li headed Herbalife’s Chinese unit, and Yang led that unit’s external affairs department. According to the complaint filed against these two in November by the US government, they lavishly bribed Chinese officials from 2007 to 2017.

The Department of Justice charged Li and Yang for “conspiring to violate the Foreign Corrupt Practices Act by orchestrating the bribes and circumventing Herbalife’s accounting controls,” according to Reuters. The charges say Li and Yang spent a small fortune on bribes to gain sellers’ licenses, to suppress bad media coverage, and to discourage Chinese authorities from investigating the company’s actions.

Oh, and they also charged Li with perjury for lying to the SEC about bribery and with destroying evidence. The SEC charged him with some civil-law violations as well. Yep, he’s in a whooooole lot of trouble.

I mean, the US had already sued Herbalife in 2017 for using that multi-level structure in China. Herbalife paid USD$20M to settle those charges. Then literally six weeks later, two of their managers got hit with these new charges. Yikes.

(Weirdly, however, Li and Yang have fled to China. In fact, they’ve pretty much vanished. The story about them drops completely after the announcement of the charges. I wonder how Herbalife’s dealing with their disappearance? They sure held some important-sounding roles in a part of the world that sounds very important to Herbalife’s future.)

Piling Into the Pool.

MLMs try so hard to operate as actual MLMs in China because doing so brings a guaranteed fortune to those at the uppermost levels of these pyramids.

Herbalife’s Chinese sales made up almost 20% of the company’s net sales in 2016. Amway did similarly well there. In fact, now China constitutes Amway’s biggest market, accounting for some 30% of their product sales.

Last year, USANA, a supplement MLM, pretended to be offering their products through regular retail sales through shops in China. They made about $1Bn/year in revenue from China while they lasted! They didn’t do it the legal way either, it seems; I’m sure even they realized that their products were so sub-par that they’d never be able to sell them at retail–not without significantly lowering their prices or improving their products’ quality.

I’m sure Nu Skin (which makes magical toothpaste) and Avon (another venerable makeup MLM) also made a mint before getting charged under the Foreign Corrupt Practices Act. Nu Skin settled their case in 2016 by admitting to supporting a Chinese official’s favored charity as a bribe, while Avon admitted in 2014 to spending USD$8M in bribes to Chinese officials.

The amount of money to be made in China is staggering–and, it turns out, irresistible to MLM owners.

Crackdown.

However, as the Chinese government struggles to contain the lawbreaking that MLMs bring to their country, MLMs in turn respond to those crackdowns by getting more and more aggressive in defending their golden-egg-laying goose.

Just in general, at least before their current political and health troubles China began getting serious about organized crime in general. Last year, one news site reported that they’d arrested some 79,000 people in an effort to contain organized crime.

And MLMs operating illegally in China, it turn out, often cozy up with organized criminals to gain and keep the recruits they need to survive. Back in 2017, Tianjin (northeast China) police launched a huge crackdown on MLMs operating illegally in the area after MLM gangs killed two young men. The gangs had recruited bunches of people to go out and recruit other people, and they imprisoned those hapless recruiters in horrifying conditions. One young man recruited to this gang was drowned. The other died of heatstroke. The gang is blamed for both deaths. In 2018, members of a similar MLM gang area beat a 23-year-old student recruit to death when he refused to continue recruiting others for them.

I’ve heard of anti-MLM crackdowns resulting in hundreds of arrests–but I don’t think that threat really dissuades many MLM owners.

China is simply too potentially lucrative a market for these MLM owners to give up this fight easily. 

Why This Story Is So Important.

“In the United States you could write your congressman [to complain about lawbreaking],” Dickinson says with a chuckle. “I laugh, but that can actually be a very effective technique for local problems. In China, the local official you’re writing to is probably running the scheme.”

Attorney Steve Dickinson

MLMs’ sales are plummeting States-side. Many MLMs are downsizing and slashing costs wherever possible–and cringing at looming lawsuits that promise to chip away at their ability to recruit the marks they need to keep the top levels of the pyramid rich. Every single day, it seems, some MLM suffers a new body blow from somewhere.

So MLMs are eyeing China because America has largely stopped being their land of opportunity. And it turns out China might let them reach further and grasp more than even America ever did.

Where have we heard this exact same story before?

Oh yes!

Fundagelicalism!

I’ve pointed out the many similarities between MLMs and Christianity before–and nowhere do I see those similarities painted in a more striking way than in how their leaders maneuver around legal restrictions and in how both groups grow and stay alive.

Click to embiggen.

The Principles of Power.

Now that Americans aren’t as amenable to their threats and pie-in-the-sky promises, fundagelical missionaries eye other parts of the world as their salvation. Ever since I was a Christian myself, MUH CHINESE AN’ AFRICAN REVIVALS has been part of fundagelical folklore.

I don’t think those stories are true–that there’s really all that many people converting to Christianity in these other parts of the world–at least, not to whatever flavor fundagelicals think is the only-true-and-valid one. It was probably even less true back in the 1980s and 1990s. But these Christians sure cling hard to the hope of a nice hot beef injection from countries that aren’t even halfway amenable to their “good news” of eternal torture for noncompliance.

(I find this bit of folklore fascinating. We’ll come back to it sometime soon.)

Instead of finding a message that really is good news, one that resonates with people in their own home country, American Christians seek to keep their toxic messages exactly the same but export their hatred and exclusionary impulses to other cultures–and then change those cultures to be their mini-mes.

The God of the Shrinking Pockets of Authoritarianism.

This situation reminds me of the god of the gaps, where Christians fit their god’s divine activity into smaller and smaller gaps in human knowledge as we learn more and more about our universe. In this case, they must fit him into smaller and smaller pockets of people falling into the mindset of the authoritarian follower.

As we see in America, MLMs simply take advantage of weaknesses in various countries’ laws wherever they can. And we’ve seen that exact behavior before in religion.

There is only one way to win unfair games like these, and that is to refuse to play.

NEXT UP: Many Christians like to Jesus-ify everything they touch. When they indulge themselves on a casual game that outright celebrates the breaking of at least one of the Ten Commandments, the results are downright hilarious. I’ll show you what I mean next time. See you soon!


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MLM terminology: A “hun” is an MLM participant, usually female (the term applies to any gender, but sometimes people use “bro-hun” for a male MLM participant). The nickname comes from their icky habit of calling everyone by false endearments, notably the misspelled “hun.” An “upline” is the person who signed up the hun, plus the person who signed up THAT person and so on up the pyramid. Meanwhile, a “downline” consists of people the hun signs up under herself, plus all the people those people sign up under themselves. (Back to the post!)

About Captain Cassidy
Captain Cassidy grew up fervently Catholic, converted to the SBC in her teens, and became a Pentecostal shortly afterward. She even volunteered in church (choir, Sunday School) and married an aspiring preacher! But then--record scratch!--she brought everything to a screeching halt when she deconverted in her mid-20s. That was 25 years ago. Now a comfortable None, she blogs on Roll to Disbelieve about psychology, pop culture, politics, relationships, cats, gaming, and more--and where they all intersect with religion. And she still can't carry a note in a bucket. You can read more about the author here.
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