The Cult Psychology Behind MLMs

The tactics they use to bait and trap enthusiastic young mothers and hopeful freelancers…

A (MLM) friend I had not heard from in years, pop uped in my LinkedIn last week all chipper and cheery "Been Forver, How ya Bee, World has gone crazy". I reponded I was fine, still working on Markethive, asked her how the husband was. "She resonded with a new pitch into her latest deal.

I knew it was coming, seems there is just a ceratin type person that does MLM, and I have come to the conclusion MLM attracts sociopaths and operates like a cult dragging people behind them for years (think Onpassive)

Since they were developed in the 1950’s, multi-level marketing schemes have been a controversial, hot-button topic. Anybody with a Facebook or Instagram account has probably felt the effects of MLMs — whether you’ve been pitched a product yourself or watched someone else fall down the rabbit hole.

What exactly is an MLM and how do they work?

MLMs, or multi-level marketing schemes, are businesses — and I use that term loosely — that sell their products through distributors rather than retail or online stores. Popular examples include Mary Kay Cosmetics, Herbalife, Amway, LulaRoe, doTERRA, Scentsy, and Avon — just to name a few.

In most cases, no special training or sales experience is needed to become a distributor. As long as you can pay the initial “investment” fee, MLMs are more than willing to have you.

The real trouble begins once you become a distributor. Not only do you usually have to pay an initial fee to join, but you’ve also got to buy a “starter kit” of products to sell. Depending on the MLM you join, this can run you anywhere from $50 to $5,000.

The idea, of course, is that once you sell all the inventory you’ve bought from the company, you’ll end up making more than you originally spent. Unfortunately, even if you are able to sell all your inventory (which is a challenge unto itself), you still only make a percentage of what you sell — the MLM gets a cut and every distributor in your “upline” does too. Uplines and downlines work like this: you get recruited by somebody who was recruited by somebody who was recruited by somebody — and this goes all the way to the top. Most of the time, distributors don’t make any money by selling products, but by recruiting someone else to join the MLM. The more people you have in your downline, the more potential (and passive) income you get.

There is one major problem with MLMs: you don’t actually make any money. A website, MagnifyMoney.com, surveyed 1,049 multi-level marketing scheme participants — from a variety of MLMs — and found that most people were making less than 70 cents an hour (before deducting business costs) and 60% of participants said they had made less than $500 in the past five years.

For about $100 of annual profit, the fact that anybody would stay in an MLM for five minutes let alone five years seems ridiculous.

To understand how MLMs are able to drag their profitless participants along for years, we need to examine MLMs — not as businesses — but as cults. Multi-level marketing schemes might not be religious organizations, but they’re certainly forcing their participants to drink the kool-aid.

Rick Ross, the Executive Director of the Ross Institute for the Study of Destructive Cults, Controversial Groups, and Movements, highlighted several cult warning signs to watch out for. When applied to MLMs, many of these warning signs ring true.

1. Absolute authoritarianism without meaningful accountability

In some ways, multi-level marketing schemes are a brilliant business model — but only for the people at the top of the company. Whenever someone enters an MLM, they buy a “starter kit” — which could potentially be hundreds or thousands of dollars worth of inventory. The person who bought the starter kit thinks they’re making an investment, but the company is just making a sale.

It doesn’t really matter what the distributor does with that inventory once they have it — what matters is that the company has already made money, and any commission the distributor makes from that inventory is just icing on the cake.

The problem this system creates is a lack of accountability on the MLM’s side. People enter into MLMs with the mindset that they’re going to get rich — or, at the least, make a decent amount of side-income. As long as they think there’s a pile of cash at the end of the rainbow, people will go into debt while trying to make money in an MLM.

Not only is this financially and emotionally stressful for the people inside MLMs, but it also places a strain on their loved ones too.

In an online complaint board, one woman, dubbed Valerie, detailed the horrifying experience she faced when her husband became an Amway distributor:

When I realized my husband would never be able to bring himself to do the things they asked in order to “build the business”, I asked, and then begged that he stop spending the money on books and tapes, seminars and major rallies.

He just kept going on with it, and the longer it went the more I realized that the primary reason we could not get any real help from our upline was that they were already making plenty of money from us off of their share of the tapes, books, seminars, and rallies. — Valerie, complaintsboard.com

Amway, like any other MLM, does not care about their distributors. Distributors don’t care about other distributors. People, like Valerie and her husband, go broke or fall into debt while chasing the unrealistic success dangled by MLMs. Ultimately, this doesn’t affect an MLM — not when they have hundreds or thousands of other participants that will keep throwing their money into the company.

When asked about the psychological or financial hardship that some participants face, one multi-level marketing scheme, Lula Roe, responded:

“Retail is not for everyone. Retailers own their own business and make their own decisions…The success of any business depends on its leader’s own respective and independent business goals, and the strategies they employ to achieve those goals.”

While there may be some truth in this statement, Lula Roe’s lack of accountability for their employees is almost disturbing.

When these MLMs hold all the cards but refuse to take responsibility for any damage their business model causes, it creates a dangerous psychological and financial situation for their distributors.

2. No tolerance for questions or critical inquiry

Sooner or later, the participants, or their concerned loved ones, begin to question the authority of the MLM. They begin to realize that they’re spending money, not making it — and they want to know why.

When Valerie questioned the other distributors of Amway, her criticisms were ignored, and they continued to manipulate her husband:

Finally I asked our oh-so-caring sponsors to talk to him and get him to drop the business since he was obviously not going to work it. Instead, they encouraged him to continue having contact with them behind my back, he got a credit card that I did not know about and put $6,000 on it while pulling the bills out of the mail so that I never saw them.

This was because I was working a second job to try and pay off the other two credit cards, 80+% of which were charged up with Amway crap. I was giving him $400 a month that he was supposed to be directly applying to charge cards. Instead, he was making the minimum payments and spending the cash on more motivational crap. They told him he was doing the right thing because once he became successful it would all be made up to me, in spades. — Valerie, complaintsboard.com

Most companies, when facing backlash from their employees, would try to address the claims. MLMs, however, teach their employees to shame anybody who says a bad word about the company.

Douglas M. Brooks, an attorney who represents victims of pyramid schemes, describes what happens when a distributor questions the MLM’s authority:

…you’re trained to avoid people who question whether this is a viable business or not. Which is exactly the same technique that cults use — they try to isolate you from people who question your belief system. I’ve been contacted by a number of people who deal with cult survivors, and some of their clients are former MLM people. — Douglas Brooks, qz.com, “MLMs like Avon and LulaRoe are sending people into debt and psychological crisis”

Not only do MLMs take no accountability for their actions, but they’ve designed their system in a way that blames the distributors for any loss they experience, and shames them for asking questions.

3. No meaningful financial disclosure

Some of the top MLMs take in millions of dollars. Lula Roe, for instance, went from zero to $2 billion in less than ten years. That would be incredible — except that most of that money is coming from their distributors, not actual customers.

Becoming a Lula Roe retailer is not cheap. Buying a startup kit from Lula Roe starts at $4,900 and that’s not including any other business costs — like inventory storage, business cards or extra hangers. Some entrepreneurial websites estimate that it takes up to $15,000 of investment into Lula Roe before you begin to see a profit.

The point is, even though Lula Roe and other MLMs disclose the amount of money they pull in, they don’t necessarily point out that this money isn’t from selling products, but from recruiting distributors. They fool participants into thinking they’re “starting their own business”, but the distributor is actually the customer.

4. Unreasonable fear about the outside world

Okay, so MLMs aren’t locking people up in bunkers and telling them the world is ended. However, they are, in their own way, promoting fear about the world outside of MLMs and isolating their distributors.

The target audience for MLMs is usually mothers. Stay-at-home moms looking to generate a little side-income are drawn by the possibility of getting rich while working flexible hours. They’re also often attracted to the sense of belonging and community that an MLM provides.

If all of your closest friends sell doTERRA essential oils (and constantly boast about their success), you’d probably want to sell essential oils too — if only to fit in.

Unfortunately, once someone is in an MLM, they may begin to realize just how hard it is to sell products or recruit others. Since you’re not able to own a store or even sell a unique product, your customer base is limited to family, friends, and people you meet on the street. MLMs encourage their members to sell this way, too — sometimes by providing scripted Facebook or Instagram posts.

When you’re trying to pitch a product to everyone you know, people get upset. Even if they don’t chew you out for it, they’ll probably stop hanging out with you. This is an understandable reaction, but it also forces participants to fall back on their “MLM family” for support — leading them further into the world of MLM until that’s all they know.

When these participants do want to leave their MLM, they find it’s a lot more difficult than just quitting a job — their MLM has become their family and closest confidants.

5. There is no legitimate reason to leave

Despite losing hundreds or thousands of dollars, distributors struggle to “get out” for two main reasons:

The promise of potential wealth. Oftentimes, MLMs will advertise special prizes or rewards for their retailers, while also toting their top 1% of successful distributors for all to see. Who wouldn’t be enticed by the possibility of a new car or thousands of dollars? Especially when all you need to do is just stick it out just a little bit longer, invest a little more money, work a little harder…
As mentioned before, participants have been isolated from their peers, and have often become ingrained in their MLM “community”. Not only would the other members shame them for leaving, but they’d be losing their friends too.

Carolyn, a former director for Mary Kay, shared about her experience of leaving Mary Kay in an article on PinkTruth:

I was heartbroken to walk away. I loved Mary Kay and all I thought it had done for my family. All of my Mary Kay friends started to cut ties with me. I learned through the grapevine that “I made myself look like a failure when I returned my inventory”. Nothing I had done in 10 years of commitment, growth, overcoming obstacles, dedication to the people in my unit, dedication to Mary Kay’s dream … nothing meant anything to the people who were supposed to be my friends after I quit. — Carolyn, Pinktruth.com, “Mary Kay is Set Up So You Can’t Succeed”

For these reasons, many participants stay in MLMs far too long — maybe long enough to rack up debt.

6. Former members often relate the same stories of abuse

Those who manage to make it out of MLMs rarely have good things to say. The internet is full of former MLM members warning others about the deception of these companies.

One former retailer for Mary Kay, dubbed as ‘Sad in Pink’, wrote about the lies she was fed by Mary Kay:

MLM is without risk. In MK, we are told that the company will buy back your inventory at 90% of your cost.

TRUTH: The company finds many ways to reduce the amount you get back by taking out the cost of awards, prizes, car expenses (if unpaid), chargebacks if any of your team members leave before they mail your check. They don’t refund any of your out-of-pocket costs for training, supplies, postage, gas, etc. and those add up fast. Plus, you face debt if you came in with a big inventory and cannot move it. I personally have several friends who moved up to directorship and are now in DEEP debt. They were not lazy and they made every effort to move up. But it does not work! — ‘Sad in Pink’, Pinktruth.com, “The Truth About the Mary Kay Lies”

Often, it’s only when someone leaves an MLM that they begin to realize just how much they were being influenced or deceived — much like an actual cult.

7. Followers feel they can never be “good enough”

Besides financial devastation, MLMs also dabble in psychological abuse (if you haven’t already picked up on that). It’s obvious that most participants don’t make money — yet MLMs only advertise the success of rare distributors who do profit.

This tactic makes most retailers feel like failures — surely if they could just work hard enough, they’d get rich, right? That’s the attitude that MLMs, and other distributors, try to promote.

As time goes on and participants only lose money, their self-esteem diminishes and they feel at fault for their failures. Anytime they attempt to blame the MLM’s system, the blame is only shifted back to them by other distributors who are unwilling to accept criticism about the company. This, coupled with financial devastation and conflict with loved ones, makes for a nasty cocktail of psychological crisis.

Multi-level marketing schemes may try and masquerade as legitimate, profitable organizations, but their business practices resemble cults more than actual companies.

This article curated from https://pricelindy.medium.com/the-cult-psychology-behind-mlms-f9426e8601e7

Written by Lindy Lindy

Can you think of any MLMs that abused you before you finally quit?

David https://markethive.com/david-ogden

THE RABBIT HOLE OF MULTI-LEVEL MARKETING MLM

THE RABBIT HOLE OF MULTI-LEVEL MARKETING (MLM)

The Multi-Level Marketing Industry has been around for decades starting out with home parties or Party Plan and predominantly seen by women as a way to supplement the family income. MLM companies never advertised on mainstream media, so relied on word of mouth and solicited recruitment of anyone inexperienced or otherwise, and that was all well and good until the hype of fulfilling dreams of getting rich beyond your wildest dreams, firing your boss, becoming your own boss all because of the unsustainable and complicated compensation plans created by the company to entice anyone that would listen.

Over time the MLM industry has evolved online and this is when scams escalated and the promise of untold wealth for doing nothing really became a mindset. Some companies have products albeit a few making outrageous claims about the benefits, but many don't have a product or service or at the very least they portray a facade of digital products that could normally be accessed online for free. The latter has been dubbed a money game showcasing their gimmicky comp plans since the internet era. Fundamentally, if an MLM company pushes recruiting and is only interested in building a team to fill up a matrix in the compensation plan, not focusing on acquiring customers to buy their product, this is considered a pyramid scheme and very much a red flag.

There are programs that have failed, only to pop up later with a new name but similar model sucking in unsuspecting and usually desperate people looking to make an income online, or even worse believe the promise of getting rich quick. There are a number of individuals that keep launching new companies, all with matrix or binary comp plans then eventually closing them, then move on to the next, then another, and people losing money hand over fist with no recourse.

Common Sense. Do The Math

MLMs work by geometric expansion, where you get ten to sponsor ten, to sponsor ten, and so on. This is usually shown as an expanding matrix (looks very much like a "pyramid"!) with corresponding kick-backs at various levels.

The problem here is one of common sense. At a mere three levels deep this would be 1,000 people. At six levels deep, that would be 1 million people believing and expecting to make the amount of money promised to fulfill their dreams of becoming a millionaire. This, of course, must go on ad infinitum. This is proven to be unsustainable, there just wouldn’t be enough people in the world, let alone interested prospects, not to mention the attrition or churn rate of recruits.

I have spoken to individuals who know its limitations and flaws and they just say, “That’s ok, at least I can make some money while it lasts.” What about the poor people that come in after you?

The ethical question is, Are MLMs a morally acceptable way to make money?

There are a few MLM companies that have been around for years that are legitimate as they concentrate on selling the products, some have even done away with their suspect compensation plan to stay in good stead with the Federal Trades Commission. (FTC) Illegal pyramid schemes do have a product, but critics say that many MLMs have a business model that focuses on recruiting “downline” and getting new distributors to buy the product, rather than on actual sales to consumers, making them akin to pyramid schemes.

When you take a look at the FTC, and what they have to say about MLM companies, you need to offer retail products in order to stay in compliance with the law. This can be confusing for some however what it means is a company must have retail products that can be purchased by customers only without them having to become a distributor and buy into the opportunity offered through the comp plan to get those products.

Multi-Level Marketing Is The “Brand”

Robert L. FitzPatrick is an expert in examining and revealing deception and fraud in Ponzi schemes, pyramid schemes, and bogus home-based businesses opined,

“MLMs do not have brands in the same way that conventional companies do. Some MLMs have almost no "customers" at all other than their own “distributors” and most of them last less than a year. Arguably, MLM can’t be understood by business analysts because it more closely resembles a cultic religion than a business.

MLM’s “brand” is not based on products or on company culture, customer loyalty, or on new technology or social or political values. The brands of all MLM companies are one and the same, "multi-level marketing" itself, the contradictory business model, involving recruiting your own competitors and “being your own customer.” Each and all require “endless chain” recruiting and they always produce the same outcome: the majority of all “commissions” wind up in the hands of the top 1% of recruiters, kind of like a pyramid scheme always does.”

Polarization Runs Deep

While this is the most difficult point to make, it is perhaps the most important. Anyone who has any experience with an MLM has strong feelings, either for or against, and this is the problem. Polarization runs deep.

There are a host of issues brought forth regarding multi-level marketing companies, often from former distributors and the disgruntled community is growing. If you search YouTube, you can find countless videos outlining the numerous problems with various MLM companies.

How MLMs Defend Themselves

There have been many arguments raised by MLMers.

“How can it be a pyramid scheme if it’s legal?”
Through some crafty loopholes. The fact that there is an actual product to sell allows them to operate and give the appearance of legitimacy. If you need to fill your matrix up to be eligible for commissions, it’s a pyramid scheme.

“You just haven’t found a good MLM yet.”
Wrong. A good MLM is an oxymoron. Multi-level Marketing is the brand. No matter what products they have, if the distributors are forced to recruit, then most are doomed to failure. The biggest problem with MLM’s is that most distributors don’t make a profit. In fact, a majority end up losing money. According to the FTC, an astounding 99% of recruited sellers lose money. From the FTC report: “MLM as a business model is the epitome of an “unfair or deceptive acts or practice”.

“But how is this any different from any other major corporation where the CEO makes the most money?”
Because the people below the CEO at legit companies get paid salaries and have actual benefits. They don’t depend on endless chains of recruiting new members and asking for money upfront.

Comp Plans Detailed

Jeff Babener, Babener & Associates/MLMLegal.com published a guide explaining the major types of plans. The two outlined below became popular since the advent of computer technology.

The Matrix Plan

This plan looks like a grid in which a distributor is limited to a certain number of recruits at each level. For example, in a 3-by-5 matrix, each level down to five can have only three downline distributors.

This type of plan is sometimes considered to be more gimmicky than others. Why? Because due to the width limitations, new recruits may find themselves placed underneath upline distributors who did not directly recruit them. In a three-wide matrix, for instance, the fourth distributor you personally sponsor would be placed under one of the first three distributors you personally sponsored (your first-level distributors).

Matrix plans have been subjected to attacks by regulatory agencies because they sometimes look like "a game." By and large, they have not had a successful record in the industry, and they foster nonproducers, which makes the upline distributors resentful. Nevertheless, several major companies operate matrix plans.

Binary Plan

The binary plan is the newest on the scene. In a binary plan, a distributor is allowed to occupy one or more "business centers," each limited to two downline legs. Compensation is paid on group volume of the downline legs rather than a percentage of sales of multiple levels of distributors. In other words, payment is volume-driven rather than level driven. Sales volume must be balanced in the two legs to be eligible for commissions, which are paid at designated points when target levels of group sales are achieved.

The distributor may occupy multiple positions and may re-enter or loop below the other two leg matrices in which he or she has been active. There is no depth limit on payment but each matrix has a finite amount that can be paid out, thus necessitating involvement in multiple two-leg matrices.

The binary is the most controversial of plans. The binary had its unfortunate origins in the early 1990s in fraudulent gold coin programs, and its use later for other questionable products did not help. Those subsequent products were generally high-ticket one-time purchases such as consumer service or travel memberships, travel certificates, or overpriced prepaid phone cards. By the end of the 1990s, and after many legal challenges, the binary was not in great favor, and only companies like USANA, that had applied the concept to consumables, seemed to be around.

Critics charged that the implementation of binary plans brought on legal and business problems. Companies and distributors tended to promote the plan rather than the product, creating accusations of a "money game." Often plans had a one-time sale requirement which created a something-for-nothing atmosphere and appearance of payment for headhunting recruitment.

The multiple business center approach was often presented as a "purchase of a business center," an "investment," or a "front-load" of product. The ability to stack personal business centers also created the possibility of front-loading. The required balancing of sales volume between legs meant that hard work might yield no payoff and income would be forfeited because personal production did not count if balanced sales volume did not occur.

Finally, the multiple re-entry or looping created a "game-like" atmosphere in which an individual could end up in the downline of someone he or she had sponsored. For the distributor looking long term at a distributorship that might be sold, this "looping" also made it virtually impossible to place a value on a distributorship because no continuous downline genealogy could exist.

The Legitimacy Of Multi-Level Marketing

An issue in determining the legitimacy of a multilevel marketing company is whether it sells its products primarily to customers or to its distributors who must recruit new members to buy their products. In other words, does it emphasize getting products or services into the hands of consumers, or does it emphasize making money by finding new recruits? If it falls into the latter category, run away, fast. In the end, it’s the product, not the compensation plan that drives success.

Most people that are lured into these companies have little money to invest and want to believe the hype about utopian promises, get rich quick schemes, and how they can achieve great success. How they can fire their boss and be their own boss. Essentially, you are not your own boss. You have no control over the company, its products, people you recruit, or comp plan.

Multi-level marketing companies are not new. However, with the rise of social media, more people are becoming fed up with their tactics. In fact, there is an anti-MLM subreddit devoted to calling out MLM practices and product quality. If you are considering buying a product from or signing up with an MLM opportunity, do your research first.

Legitimate Company Investments Out Of Reach For Most? Not Any More.

The idea of investing in a legitimate company at a grassroots or shareholder level was out of the question. Only capital investors or entrepreneurs with millions of dollars were invited or could get involved. Hence the saying “the rich get richer and the poor get poorer”, until now.

Markethive has been created for the rank and file to achieve success on every level. Starting out with the ability to promote your business with all the inbound marketing tools including blogging platforms, email services, CMS, etc, which you would normally have to pay for is free to use at Markethive. Then there is the collaborative social media platform of like-minded individuals which of course is free. It’s free but you get paid to use it!

Huh? How? Blockchain Technology and Markethive’s crypto ecosystem has made this a reality for everyone to attain sovereignty and the freedom to create an income. It’s also the answer to an inequitable marketing industry.

But the icing on the cake is the ability to become a shareholder in Markethive via the Entrepreneur One Loyalty Program for $100 per month. This involves not only your cumulative share of an ILP (Incentivized Loan Program) but a number of cottage businesses that are like your franchises where the earning potential on these genuine products is huge.

The first one being launched at the end of this month is the Banner Impressions Exchange. (BIX) Markethive does all the work, drives the traffic and you sell your share of impressions for the price you set. You keep all the profits from the impressions you sell, for one small flat monthly fee of $100. Now that’s an offer never seen before and allows regular folks like you and me to realize financial success in a real company, not driven by greed or imperialistic status.

Marketers and businesses pay 10 to 20 times more than $100 per month just for the inbound marketing tools mentioned above that you get for free in Markethive!

Real Business. Real Services. Making Dreams a Reality

This is not MLM, this is a real business and social market platform with next-generation technology and provides services that are proven and products with substantiated and provable facts. These are products that are being used all over the internet for the purpose of creating exposure to all businesses and content. This medium is increasing exponentially as more companies choose to advertise online. It’s unfortunate that MLM victims are so accustomed to getting ripped off they find it difficult to determine a genuine company.

The Visionary and Founder of Markethive, Thomas Prendergast explains in this video the conditioned mindset of the many that keep them trapped in the merry go round of living week to week, paycheck to paycheck. He also elaborates on the BIX that will be open for all Entrepreneur One upgrades to trade,

What do the rich buy? A millionaire mindset vs the poverty mindset

Breaking News

The Entrepreneur One Loyalty Program for $100 per month is limited to 500 with the rollout of the first of many franchises (BIX) expected to launch on May 1st, 2020. After that date, if there are any E1s left they will be available for the purchase of $1,500 per month. Until then, we are calling on people to beta test the exchange.

The Entrepreneur Two, Three, Four, etc, have been taken off the table to focus on the Apprentice and Journeyman subscriptions. More on that soon.

If you’re still thinking about upgrading to E1 to take advantage of the money machines Markethive has in store for you as well as becoming a shareholder, you only have 8 days left at the time of writing this. Don’t be a “shoulda, woulda, coulda”, that can be a costly exercise. You really can be your own boss with the control required to succeed in Markethive making it your primary source of income.

Click this link to upgrade before May 1st. https://markethive.com/upgrademe

Deb Williams
A Crypto/Blockchain enthusiast and a strong advocate for technology, progress, and freedom of speech. I embrace "change" with a passion and my purpose in life is to help people understand, accept, and move forward with enthusiasm to achieve their goals.

David https://markethive.com/david-ogden