Insights into nutritional products sold via MLM ("multi-level marketing") or network marketing companies
e are asked -- with surprising frequency -- to compare products that we make with similar products in the multi-level marketing industry -- (for the last twenty years, "network marketing" has been the term in greater circulation, because it performs the service of making the multi-level marketing industry sound less like a collective assortment of competing pyramid schemes).
In addition, we are solicited by MLM companies both on the sourcing side of the distribution equation (i.e. the company wants to buy something we make) and on the sales side (i.e. one of their distributors has it in his or her mind that we will buy and resell their product(s), perhaps even sign up and become one of their downline distributors). Usually these unprovoked solicitations are executed with some degree of stealth and we end up having to expend valuable staff time to uncover the essence of the proposal.
We would like to minimize this.
This essay is not a wholesale disparagement of the MLM industry. In a free market economy they have just as much right to sell their wares to the public as anybody else. There are, however, certain myths that could, in the public interest, use expunging. They certainly have confused a good many people we have encountered, and so they should first be taken to task before proceeding:
MLM Products Are
A Competitive Alternative To
Conventional Retail Marketing
Embedded in the marketing plans of countless MLM companies is the proposition that MLM products ("our products!") are competitive --- that there is so much built-in profit to be scooped up from the manufacturer to the wholesaler through the brokers and other assorted middlemen to the retail chain to the individual retail store -- not to mention direct outflows that the manufacturer must make for advertising and other promotional costs -- that MLM is nothing more than the intelligent reallocation of all that monstrous profit to YOU -- the MLM distributor!
It's all nonsense.
Admittedly, MLM has an advantage over conventional retailing in that any product with a story to tell, especially when the particulars are not widely known, can be better pitched by a distributor to a retail customer, one-on-one. After all, there is only so much you can say in the "romance copy" of a product's "principal display panel."
But that's where the advantage ends.
The commission structures of the more successful MLM companies put them at a huge disadvantage to other forms of retailing. Example: at Alpha Omega Labs it is not uncommon for us to purchase a product from another manufacturer in quantity, paying the very same price that a large MLM company would pay, private-labelling it, and then marking it up just 50%. In other words, the product cost us $10 and we are retailing that product for just $15. That very same product will retail in the MLM pipeline for $70 to $100. It simply has to --- MLM companies cannot survive on small markups.
When we have been approached by MLM companies in the past to purchase something that WE manufacture (about 50% of everything we sell is manufactured in-house), we are invaluably told upfront, "Now realize that your price has to be competitive enough for us to add our customary 5 to 10 times markup!"
What drives MLM is not the product or its price.
What drives MLM is the "business opportunity" --- thus making the product a means to an end and not the end in itself.
MLM products are not a competitive alternative to conventional retail marketing for one very simple reason:
They don't have to be.
Let's look at another example --- in terms of hour-for-hour entertainment value, are gaming devices at any of the thousands of casinos and other gambling establishments in North America competitive with even the most expensive Nintendo or Game Boy products that entertain youngsters? Of course not.
Some might not think this is a fair comparison, but the fact is, both MLM marketing programs and gambling establishments share an appeal for those who believe in "Something for nothing."
The gambler who sits before a "one-armed bandit," believing he has a reasonable chance of being the next big winner, is running off the very same motivation that drives an MLM distributor to work a downline in the hopes of soon retiring off the labor of those beneath him. Both are motivated by the dream of huge returns for comparatively small efforts expended. And both are working in the hope that these rare exceptions, and not the normal play of Universal or Natural Laws -- will apply to them. And this is what defines MLM --- it is a corporate-sponsored form of a lottery . . . (Okay, maybe that's the best comparison . . . Lotteries have a higher "percentage payout" then most MLM companies -- "percentage payout" defined as the total given out in winnings (commissions) divided by gross sales.)
Since when do lotteries have to be competitively priced?
Answer: They don't.
My MLM Company has
proprietary products not
Going well beyond simple trademarks into patents, secret ingredients, secret formulas, etc. -- we have YET to see a single product in the MLM community for which there is not a similar product available elsewhere for less -- MUCH LESS -- that does not, for all intents and purposes, do the exact same thing.
Early in my career (going back to the mid-1970's) I used to make the same frivolous arguments ---- and that was ... well ... you know, a few years before the guilt complex set in.
Among those who are on the cutting edge of the alternative health care or nutraceutical market are most often those who are on the cutting edge of significant research expense.
If you discovered an ingredient or other proprietary health product and you wanted to recoup your investment by maximizing the distribution possibilities would you: (1) Sell exclusively through an MLM company, or (2) Sell to both direct sales and conventional retailing channels -- thus maximizing sales potential? Everyone knows the answer to that question. The "closed architecture" model for the distribution of proprietary products doesn't work --- or at the least can cause substantial loss of market share. (Can you spell "Apple Computer"?)
Whether it's "Sea Silver," or transfer factor, or specialized colloidal minerals, or "egg immune factors" --- you name it --- there are multiple sources of supply.
Excepting the fair use of trademarks, which provide distinction between the product of one maker versus those of his competitors, beware vendors who will tell you, "You can only get this from us."
A company may well own a trademark, but rarely do they own the technology that produces a given product's underlying functionality -- and if they did, they certainly wouldn't restrict themselves to the MLM market.
The MLM Industry is highly
regulated so they are usually
truthful on product claims
How about, "The MLM industry is somewhat regulated, so they should be motivated to be truthful about product claims?"
All one has to do (and this is if you live in the U.S., where most MLM companies are hatched) is take a tour in the archives of the U.S. Federal Trade Commission web site (www.ftc.gov) and check out the operations they are going after to dispel this myth. Although there are a number of law-abiding MLM and other direct sales companies, anyone who knows the industry well (and I used to be an insider), knows that MLM is VERY over-represented among those companies that the federal and state attorney generals are having to strong-arm into compliance, if not indicting, attempting to indict, suing, attempting to sue, etc.
Even those on the inside at the various state Consumer Protection divisions will tell you that most MLM companies are hard to regulate or bring into compliance because they do not advertise their outrageous or false claims -- but instead, let them propagate informally, via word of mouth, throughout their network. In addition, there are too many companies to regulate versus those assigned to enforcement.
As for self-policing, this is almost non-existent in the MLM industry, since industry "watch groups," such as MLM Watchdog or MLM Watch exist as media for the publications' principals to shill their own latest plans. (Another example of misdirection is MLM Fraud, an organization that has nothing to do with reforming the industry.)
Given its propensity for legal entanglements, few are surprised that the industry has, just within the last twenty years, given rise to attorneys specializing in defending MLM companies.
(Similar points on this issue are made in Vandruff's piece: What's Wrong With Multi-Level Marketing?)
Shorn of all myth, our position on MLM becomes clear: