If these guys show up in your neighborhood, you are either “in” or “out,” family or target, friend or foe. Suspicion rules the day; everyone has an “angle”; greed supplants innocence. The “neighborhood” is turned into a marketplace, and may never recover from the blow.
After that package, consultants can start choosing styles and sizes for their next orders, but they never get to choose the patterns they’re delivered. This means they can wind up with a box of clothes that is less “chic young mom” and more Pee Wee’s Playhouse. There are 400 new prints apparently designed every day, and LuLaRoe says most patterns are limited to around 5,000 pieces each. When a consultant opens a box, they hope to find a few “unicorns”—the styles everyone wants—among armfuls of duds, like the infamous Dorito pattern.
Both recommend internal use of oils liberally, with doTERRA even having a Slim and Sassy blend that they recommend taking internally numerous time per day, for a long period of time, in order to aid weight loss. There are protocols on the internet recommending internal use of grapefruit oils by YL reps in order to lose weight.
The question for would-be marketeers is… what is “X,” and how can it be predicted to maximize profits? The fact that “X” is hard to pin down does not mean that it does not exist, and every Widget built beyond “X” will end up producing a problem for the organization. The market only wants “X” Widgets at $100. What are you going to do with your extra inventory of Widgets beyond “X” that no one wants, and the sales people you hired to sell them?
One of the main issue with people who are against Network Marketing is that there is a potential for abuse by unscrupulous businesses that take advantage of them, pocketing their money and returning very little in the way of dividends to the investor. One of the key areas of abuse with Network Marketing is what is known as the ‘Pyramid Schemes,’ so it would be right at the outset to explain what Network Marketing is and the difference between legitimate Network Marketing companies and Pyramid Schemes.
Jump up ↑ News, A. B. C. (December 16, 2017). “Former NXIVM member says she was invited into a secret sorority, then branded”. http://abcnews.go.com/US/nxivm-member-invited-secret-sorority-branded/story?id=51617201. Retrieved February 10, 2018.
Sarah Stern, a stay-at-home mom in southern Florida, signed up with LuLaRoe in March 2016 after receiving a glowing review from a friend. “She told me that they have a cult following, the clothes sell themselves, and it’s under 10,000 people now, so you want to get in while it’s on the ground floor,” she says. Stern joined her friend’s LuLaRoe Facebook page and saw women fighting in the comments to buy beautiful leggings and dresses. She showed her husband, a VP of sales for a consumer-products company, the profit margins, and he told her to go for it.
Then, each year, doTERRA charges an annual fee ($25) to be a rep, but they send you a bottle of peppermint oil. Again, I don’t mean to be too harsh, but remember my concerns about their peppermint oil? I’m just not sure how much it’s worth.
Network Marketing distributes goods and services through distributors, which may include hundreds, thousands and even hundreds of thousands of distributions networks. Distributors may buy products from the company for pennies on the dollar, and then sell the products, or they may simply sell the goods and/or services for the company and receive a commission on the sales.
Jump up ↑ Ohlheiser, Abby (September 24, 2014). “FDA warns three companies against marketing their products as Ebola treatments or cures”. Washington Post. https://www.washingtonpost.com/news/to-your-health/wp/2014/09/24/fda-warns-three-companies-against-marketing-their-products-as-ebola-treatments-or-cures/. Retrieved September 26, 2014.
Network marketing seems like a breeze on the surface. Many people jump in, thinking they just have to pull in a few people and then sit back and watch the money roll in. Those people do not last very long. Take some time and learn these tips and tricks for your new business.
“I realized if they’re making the money that they say they’re making all over their Facebook pages and how it’s life changing, why can’t it change my life?” Kayla assumed she could just buy a couple of hundred dollars’ worth of leggings to get started, but she found out that she was required to buy a startup inventory package, which costs between $4,900 and $6,000. “Initial inventory packages are designed to provide sufficient inventory to help retailers succeed,” says a LuLaRoe spokesperson. “If a retailer can’t afford it, a retailer should not buy it.”
The Pyramid-Scheme-Alert (PSA) organization offers consumer information on MLMs, news of legal cases, analytical tools, insightful articles, and an opportunity to affect new laws and social change by membership and contribution. You can do your own evaluation of any MLM program or suspected pyramid scheme.
And so the MLM relationship “bull” tramples through the relationship “china closet,” blindly ruining fragile and valuable things. Some never pull out of this, figuring the coldness they experience in their emotional lives is due to some other cause than their MLM participation.
Given the above, the ‘business opportunity’ promised by MLMs can often look like a gift from heaven to mums. We’re told that, with a tiny investment (compared with starting your own business from scratch) you can join an established business that promises a comfortable, easy income – and even great wealth.
The great thing about Network Marketing is that it usually involves a small initial investment and can return high dividends on that investment. Usually, the original investment is only a few hundred dollars. This initial investment will allow you to purchase a product sample kit, and begin to sell the products to friends, family, and others. The Multi-Level component of Network Marketing comes into play, in that most Network Marketing opportunities also ask their representatives to recruit other sales representatives. The new recruits are considered the representative’s downline, and they will usually generate income directly from their sales as well as from those whom they have recruited.
Herbalife was able to show its revenues were based more on the sale of its products than through recruitment, and it offered numerous protections, such as a money-back guarantee, so members would not be stuck with products they could not sell. According to Herbalife, 80% of its members do not recruit other members.
To try and understand what LuLaRoe success looks like, I studied Nicole’s Facebook Live stream. What was she doing so right? Nicole and another consultant pulled out 71 pairs of leggings in an hour. They deemed almost every one “pretty,” “beautiful,” or “cute.” The most egregiously ugly leggings—like one pair covered in paintball splats with flowers overlaid on top—were “fun” and “different.” In an MLM, saleswomanship is key, no matter what the wares you’re selling look like.
In the MLM business model, the commission derived from the MLM’s pyramid-shaped structure (i.e. from the sales of one’s recruits) is the most profitable revenue stream. This revenue stream, however, is also the least statistically probable source of remuneration to a salesperson. Conversely, the revenue stream from direct-sales of ones own personal sales is the least profitable. This revenue stream, however, is also statistically the most likely source of remuneration to salespeople. For the overwhelming majority of participants, however, neither one of these two revenue streams will be profitable after operating expenses are deducted.
Despite their popularity, this type of company doesn’t exactly have the best rep. Though pyramid schemes are illegal in Canada, the perception that all MLM companies have pyramid-like qualities is a lasting one, aided in part by rumours of sketchy business practices and bad press about the industry. For example, LuLaRoe, which reportedly requires new consultants to purchase $5,000 worth of inventory when they join, was hit with a $1 billion class action lawsuit last October that says, according to the Chicago Tribune, “the [California] firm encouraged women who wanted to sell its leggings, skirts and other clothing to take out loans, run up credit cards and even sell their breast milk, then left some in financial ruin with unsold goods… As many as 80,000 people paid thousands up front for inventory.”
Imagine a neat new product called a Widget that will sell for $100 (a fixed price, to keep it simple). Now, while everyone could use a Widget, not everyone will. Some will be afraid of anything new. Some will be loyal to existing brands. Some will want to buy an inferior product for less money. Some will want a more expensive product for prestige, regardless of quality. The reasons go on and on, and the fact is that only “X” Widgets will sell at $100.
The Federal Trade Commission warns “Not all multilevel marketing plans are legitimate. Some are pyramid schemes. It’s best not to get involved in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products.”
The upper echelons of LuLaRoe’s consultant community have a reputation for being vicious to their downline. “It’s like the policy police,” Ashley says. “‘We’re going to find you, stalk you, tell on you. How dare you guys say a single word bad. We’re going to shame you.’”
In a classic and severe case of crank magnetism, MLMs are notorious for specializing in products of dubious value (supplements, essential oils, laundry balls) and making pseudoscientific, questionable or outright false claims.
Starting in fall 2016, customers started reporting that LuLaRoe’s “buttery soft” leggings were falling apart. That figure may be low because LuLaRoe products used to be so hard to return. For a long time, angry customers couldn’t send back faulty products directly to LuLaRoe: They had to return them to the consultant they purchased them from. Customers are instructed to hand-wash leggings inside out and air-dry them, but that hasn’t stopped the company from getting sued by angry consultants alleging that the leggings are poor quality. Some LuLaRoe retailers have even taken to fat-shaming customers, telling them if the leggings rip, it’s their fault.
But one woman’s trash may be another woman’s treasure. New consultants are reporting getting boxes full of old merchandise that appears to be from merchants who went out of business—the ugly stuff others couldn’t sell. “While LuLaRoe may resell some inventory returned in original packaging and in new condition to its employees in its company store,” LuLaRoe CMO Lyon says, “LuLaRoe prefers that product that is returned in original packaging and in new condition be used for donations or giveaways only.” Consultants dispute that claim, posting pictures of “new” merchandise with old patterns and tags that have been marked up by other consultants.
There are more than a few MLM “executives” like this who will pop up tomorrow in the MLM du jour. MLM exploitation can be very profitable and the jail sentences light. Let the MLM “dream” buyer beware.
“I did pretty well for myself,” says Stern, who split sales with her business partner. The work was part-time, and she pulled in anywhere from $5,000 to $10,000 a month in revenue. Every month, the head of her consultant group would post a leaderboard for the top inventory buyers and sellers, some of whom were bringing in up to $60,000 a month. Stern noticed that the amount of inventory bought correlated with higher income, so after attending one of LuLaRoe’s touring conferences, she was inspired to bulk up her inventory. She and her business partner went on a buying spree, posting pictures of all the unopened boxes on her Facebook page, which began to swell with excited customers.
When it comes to selling product, MLM sales reps are probably no more aggressive or obnoxious than ordinary salespeople. Since most are not salespeople by nature, and it is characteristic that MLMs attract few people with any experience selling this particular product or service, they usually sell through pre-fab “parties” or home “demos.” Thus, sales pressure is exerted by situation, if at all.
Jump up ↑ Vowell, Nicole (September 25, 2014). “2 Utah companies respond to FDA warning over health claims”. Deseret News. http://www.deseretnews.com/article/865611752/2-Utah-companies-respond-to-FDA-warning-over-health-claims.html?pg=all. Retrieved 26 October 2014.
For most MLMs, the product is really a mere diversion from the real profit-making dynamic. To anyone familiar with MLMs, the previous discussion (which focused so much on the fact that MLMs are “doomed by design” to reach market saturation and thus put the people who are legitimately trying to sell the product into a difficult situation) may seem to miss the point. The product or service may well be good, and it might oversaturate at some point, but let’s get serious. The product is not the incentive to join an MLM. Otherwise people might have shown an interest in selling this particular product or service before in the real world. The product is the excuse to attempt to legitimate the real money-making engine. It’s “the cover.”
^ Jump up to: a b c d O’Regan, Stephen (July 16, 2015). “Multi-Level Marketing: China Isn’t Buying It”. China Briefing. Dezan Shira & Associates. Archived from the original on December 8, 2015. Retrieved November 26, 2015.
“Retailers can generate a sense of excitement among consumers because the garments they purchase are unique to them,” says a LuLaRoe spokesperson. “Many retailers report that they use the unexpected nature of the shipment to build excitement among existing and new consumers for their new inventory. This also fosters a sense of cooperation among retailers as retailers will often refer consumers to other retailers to help consumers find the patterns that they seek.”
Thankfully, getting out is easier than it used to be—sort of. Thankfully, getting out is easier than it used to be—sort of. LuLaRoe has started providing free shipping so that consultants who want to leave can return their inventory and get back what they paid, as long as those items are in perfect condition and in their original packaging. This sounds reasonable—except that retailers generally have to unbox, hang, and photograph each item in order to have a shot at selling it, meaning a lot of their unsold inventory isn’t eligible for a refund.
It was not until August 23, 2005 that the State Council promulgated rules that dealt specifically with direct sale operation- Administration of Direct Sales (entered into effect on 1 December 2005) and the Regulations for the Prohibition of chuanxiao (entered into effect on 1 November 2005). When direct selling is allowed, it will only be permitted under the most stringent requirements, in order to ensure the operations are not pyramid schemes, MLM, or fly-by-night operations.
Jump up ↑ O’Donnell, Jayne (February 10, 2011). “Multilevel marketing or ‘pyramid?’ Sales people find it hard to earn much”. USA Today. https://usatoday30.usatoday.com/money/industries/retail/2011-02-07-multilevelmarketing03_CV_N.htm. Retrieved April 6, 2018.
While issues of morality and ethics can be tricky to discuss, materialism and greed are universally condemned by every major religion, and even by most of the irreligious. This does not mean people are not materialistic or greedy; in fact, the common caution to not overdo it is strong evidence that we are.
This is the story of rural disenfranchisement and the MLMs that offer desperate American women a chance at clawing their way out. This isn’t a story about leggings, however. It’s not even a story about LuLaRoe. This is the story of rural and suburban disenfranchisement and the MLMs that offer desperate American women a chance at clawing their way out. They’ve become part of the fabric of suburban America, as cherished and inevitable as barbecues and the county fair. Regional newspapers are rife with announcements for fundraisers for children with cancer and elementary-school fetes that promote LuLaRoe pop-up shops. Not buying a pair of leggings can be read as being unsupportive of your friends—or not chipping in for a local kid’s chemotherapy. It’s a genius manipulation of rural and suburban American societal norms.
Apparently, it is difficult for gung-ho MLMers to see how they look from the outside. They can watch lifelong friendships unravel, churches and civic groups poisoned, the avoidance of friends and family, etc., and never see that MLM was the cause.
Look up CEO’s and other company leaders. Keep the same things in mind as when you investigated companies. Is the company leadership reputable and law-abiding? If company leaders have been accused of carrying out scams or have had legal trouble, you may want to avoid this company.
The choice is pretty clear: why would I work my butt off every month selling widgets to make $1,000, when I can make the same money by recruiting ten other people to sell, and then do nothing? And when the distributors under me see me kicking back and relaxing, what motivation is there for them to do all the work and make a fifth of what I make?
Although each MLM company dictates its own specific “compensation plan” for the payout of any earnings to their respective participants, the common feature which is found across all MLMs is that the compensation plans theoretically pay out to participants only from the two potential revenue streams. The first stream of compensation can be paid out from commissions of sales made by the participants directly to their own retail customers. The second stream of compensation can be paid out from commissions based on the sales made by other distributors below the participant who had recruited those other participants into the MLM; in the organizational hierarchy of MLMs, these participants are referred to as one’s “down line” distributors.
Of these second-wave MLMs masquerading as women’s empowerment, LuLaRoe is queen. More than 80,000 women have paid around $5,000 for several boxes of low-cost clothing and worked as much as 80-hour weeks to outfit hundreds of thousands of suburban women in multicolored polyester. But according to a report that studied the business models of 350 MLMs, published on the Federal Trade Commission’s website, 99% of people who join multilevel-marketing companies lose money. Depending on how you look at it, it’s either a brilliant business model or a predatory practice—or a little bit of both.
Independent distributors develop their organizations by either building an active consumer network, who buy direct from the company, or by recruiting a downline of independent distributors who also build a consumer network base, thereby expanding the overall organization.