MLM Vs Pyramid Schemes
MLM Vs Pyramid Scheme has always been a confusing topic for most investors and internet marketers, it’s very important to know the differences.MLM Vs Pyramid Schemes are two different concept, hence i decided to create this article to give you the complete differences and similarities between the two Networking Programs.
Years Back, it has been considered that most businesses engage in a tough fight, when it comes to marketing. Independent contractors are required to sell their company’s products and services through various ways that need direct communication to the customers. They can either create advertisements and share them on the streets, provide a door to door service, and many other techniques. With today’s new marketing strategies, businesses are growing rapidly through recruitment — a method called multi-level marketing (MLM).
If you’re working for an MLM company, you’re required to recruit more people into the business. You can generate more income as you recruit more people. This business opportunity is enticing and appealing to individuals who are planning to join. For frauds and scams, it is the perfect time to strike hence before you enter into the MLM Network you need to be very careful, Pyramid Schemes might have a lookalike Programs, So let’s get started with MLM VS Pyramid Schemes.
What is a Pyramid Scheme?
Wikipedia defines a pyramid scheme as a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products.
Now let me break it down in a way that even a 5 year old child can understand: A pyramid scheme is a fraudulent and illegal means of making money. the system based of pyramid schemes has to do with recruiting(referring/referrals) an ever-increasing number of “investors.” The initial promoters recruit investors, who in turn recruit more investors, and so on. The scheme is called a “pyramid” because at each level, the number of investors increases. The small group of initial promotors at the top require a large base of later investors to support the scheme by providing profits to the earlier investors.
Now you need to understand that pyramid schemes always fail, while multi-level marketing companies sometimes survive.
Examples of Popular Pyramid Schemes
- MMM: МММ was a Russian company that perpetrated one of the world’s largest Ponzi schemes of all time, in the 1990s. By different estimates from 5 to 10 million people lost their savings
- Donation Hub: Donation Hub is a Ponzi scheme which allows peer to peer donation. Donation Hub members decide how much they are willing to donate to other members and do so on their on time.
- Ultimate Cycle: In Ultimate Cycler, members will donate money to members, and then a person will confirm your donation.
- Twinkas: TwinKAS is a system of peer to peer payment. It works in the form of donations from one member to another. According to the information on the TwinKAS website, the platform was created for helping people
- BurnLounge: Founded as an MLM company in 2004, BurnLounge was an online music store. Customers were encouraged to purchase a subscription, then sell subscriptions and music through their own online sites. BurnLounge referred to this model as “concentric retail.
- Some other Pyramid schemes include: Loom Nigeria Money, Box Value Trading Company Ltd, Now-Now Alert, Flip Cash Investment. ETC.
there are so many pyramid schemes of which most of them are no more(Crashed) because they were no more investors.
Pyramid schemes may or may not involve the sale of products or distributorships. The trend is to involve sales of products or distributorships in an attempt to show legitimacy. This is done solely to sidestep the regulatory agencies, as most state laws prohibit marketing practices where the potential for profit stems primarily from recruiting other investors and not from the sale of products. The bottom line, however, is that in all pyramid schemes, the selling of a product itself is much less important than the recruiting of new investors.
Now let’s see that of MLM networks.
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What is MLM?
Multi-level marketing (MLM) is a method or strategy of selling products directly to consumers without intermediary retail stores. Products are sold through a network of distributors or salespersons set up to resemble a pyramid: each distributor recruits and trains additional distributors and will earn commissions on their sales, as well as on the sales he or she makes. Because of their pyramidal structure, multi-level marketing companies can sometimes be pyramid schemes.
In otherwords, there are legitimate MLM Networks and Scam MLM Networks, Yea right.
A legitimate multi-level marketing company emphasizes reliable products or services. A pyramid scheme uses products or services to disguise its quest for collecting money from the investors on the bottom levels to pay other investors further up the pyramid.
In a typical pyramid scheme, new investors must pay a fee for the right to sell the products or services as well as for the right to recruit others into the pyramid for rewards unrelated to product sales or services. Very often the products or services the victim must buy are unsalable, and the pyramid’s promoters refuse to repurchase them. On the other hand, legitimate multi-level marketing companies will buy back unsold merchandise, although often at a discount from the original price.
Success in multi-level marketing is based on two factors: product and service quality, and the hard work involved in being able to sell the products or services. Recruitment of new investors is secondary.
Why Do Pyramid Schemes Always Fail? And Why Do Legitimate Multi-Level Companies Sometimes Survive?
Pyramid schemes are doomed to fail because their success depends on the ability to recruit more and more investors. Since there are only a limited number of people in a given community, all pyramid schemes will ultimately collapse. The only people who make money are those few who are on the top of the pyramid.
Legitimate multi-level marketing companies, on the other hand, can be around for a long time. Although the recruiting of additional investors is an essential part of the marketing practice, since legitimate multi-level marketing companies involve solid products or services, participants in these companies are not subject to huge losses.
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Why Do People Invest In Pyramid Schemes?
If all pyramid schemes fail, why would anyone invest in them? There are three basic categories of people who invest in pyramid schemes: those who participate out of greed; those who are misled into thinking that they are joining an “investment club” or a “gift program”; and those who believe that the products or services are legitimate.
The people who participate in pyramid schemes out of greed often know that they are illegal. They nevertheless participate, hoping that the scams will last long enough for them to make a profit. However, the end result of a pyramid scheme is inevitable. At best, a few people, usually the promotors, walk away with a lot of money, leaving the bulk of the investors to lose all of the money they put into the scheme. In fact, the only way anyone could make money from pyramid schemes, is if other people are defrauded into giving money upon the promise that they in turn will be repaid
Pyramid promoters often target closely knit groups such as religious or social organizations, sports teams, and college students to increase pressure to participate. They give some pyramid schemes attractive names such as “investment clubs” or “gift programs.” These clubs or programs are usually presented to these investors with assurances that they are perfectly legal, approved by the Internal Revenue Service or a Certified Public Accountant. Some even expressly state that they are not a pyramid scheme.
Participants of these clubs or programs are required to characterize their investments as “unconditional gifts” by signing waivers. The truth of the matter, however, is that by making these “gifts,” everyone expects those further down on the pyramid to do the same. The intention is not to make an unconditional gift. Consequently, not only are these people involved in illegal pyramid schemes, they may also be violating tax laws.
Those investors who actually believe that the products or services which the promoters sold to them are legitimate, inevitably realize that they have been scammed. It is only when these products and services are unsaleable, and the promoters refuse to repurchase them, that they finally become aware that they have participated in an illegal pyramid scheme.
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How to differentiate between a mlm vs pyramid schemes
Learn more about the company, by finding and studying the company’s track record. Do an internet search with the name of the company and words like review, scam, or complaint. Look through several pages of search results. You also may want to look for articles about the company in newspapers, magazines, or online. Find out:
- how long the company has been in business
- whether it has a positive reputation for customer satisfaction
- what the buzz is about the company and its product on blogs and websites
- whether the company has been sued for deceptive business practices
- Check with your state Attorney General for complaints about any company you’re considering, although a lack of complaints doesn’t guarantee that a company is legitimate.
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Top 10 MLM Companies Ranked By Revenue (2023)
Other Types of Legit MLM Companies Include:
- GNLD or NEOLIFE.
- Forever Living Products.
- Alliance in Motion Global.
- Organo Gold.
the bottom line between MLM Vs Pyramid Schemes is that a pyramid scheme is a fraudulent schemes, disguised as an MLM strategy. In a nutshell: a pyramid scheme and a lawful MLM program simple difference is that there is no real product that is sold in a pyramid scheme. Participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.