[Vnbiz] What Is Multi-Level Marketing?

[Tran Dinh Hoanh]

Dear CACC,

Romi asked me a question on multi-level marketing ("MLM").  I thought
I should share the answer with everyone here.

There is a MLM section in wikipedia, but it is not very helpful since
it is hard to understand.  So let me try to give a simple answer.

Multi-level marketing is also called network marketing or Pyramid
scheme.  MLM people try not to use the term "Pyramid" because this
term was the original term, which has carried a lot of bad reputation
over the year.  In the 1980's MLM folks came up with two new terms:
Multi-level marketing and network marketing to replace the old term
Pyramid.

(The Wikipedia section actually says that Pyramid is illegal and MLM
is legal.  Well, there is no such legal distinction that I know of.
MLM and pyramid are not legal terms and they don't connote legal
differences.  They are the same thing as far as most people in the US
are concerned.  But as I mentioned above, MLM people try to stay away
from the term "Pyramid.").

Say, Company X sells some products and recruits you as its sales
agent. You get pay a percentage of your sales (say, 20%).

You recruit 5 other sales agents for the Company.  These agents are
your "first downline."  You get paid, say, 5 percent of their sales.

Each of your 5 first-downline agents in turn recruits 5 other agents.
You now have 25 "second downline agents."  You get pay, say, 5 percent
of these second downline sales too.

Your 25  second-downline agents in turn recruits 5 each, which makes a
total of 125.  You now have a third downline of 125 agents.  You get
5% of your third downline sales.

Your 125 third-downline agents recruit 5 each, so you have a fourth
downline of 625 agents.  You get 5 percent of their sales.

Your 625 fourth-downline agents recruit 5 each, so you have a
fifth-downline of 3125 agents.  You get 5 percent of their sales.

Most companies stop at around five levels as in this example.  (They
can't go down forever, because there would be no money to pay).

If you draw a sketch of the above system on a piece of paper, you will
have a Pyramid, with you at the top and your downlines underneath.

And you can imagine the kind of huge money you will make if you are
able to build a pyramid like that.  Doing almost nothing and receiving
huge pay check every week.

That is why MLM people are extremely aggressive in recruiting people.
And that is why frauds are extremely common in MLM.  People to say
anything just to be able to recruit someone into the network.

That doesn't mean that MLM is all bad.  There are some decent MLM
companies like Amway, Avon, etc...   But they are the extreme
minority.  Probably 90 percent of MLM companies involve huge frauds to
the public and die within a year or two years.  Lots and lots of naive
people join these networks just to get burned.

The reasons for fraud is simple.  If you have thousands of people out
on the street trying to recruit everyone insight, hoping that they
will make huge and easy money in a very short time, you can imagine
the amount og lying and deception is uncontrollable.  Even in the US
with this superb legal system, thousand of people get burned each year
with MLM.

My recommendation for Vietnam as a country is that:  Although we can
argue correctly that some MLM companies are good and decent, by and
large MLM abuses are so abundant and horrendous.  For a weak legal
system like Vietnam, it is much better for the country to prohibit MLM
for now.

BTW, I have seen on video and on Internet guys claiming to make tons
of money from MLM, but I haven't had the honor to know any of them
personally. Personally, I only know people who lose money on MLM or
make average money on MLM.

Most Pyramid doesn't grow as in theory.  Most of them die out after
one or two levels, and you have to work yourself to death constantly
to recruit more people to keep your network alive.  And you may end up
annoy everyone around you, because you tend to try to recruit everyone
in sight, from your family members to friends to anyone you meet on
the street.

However, whenever Vietnam allows MLM, if you come in early and if you
can aggressively build your network, probably you will make some big
money (at least for a while).  Whether you and your downlines will
misrepresent things and make others lose their shirt, that is your
business and your conscience.

Hope this helps, Romi.  Have a great day, sis.

Hoanh

-- 
Tran Dinh Hoanh, LLB, JD
Attorney of Law
Washington DC