Pyramid schemes and MLMs - the differences explained
IS multi-level marketing the latest incarnation of the infamous pyramid scheme?
It is a question TAFE Queensland East Coast leading vocational business teacher Andrew Robertson said could be answered by looking at the history of marketing.
"My point of view is that it goes back to the States, where there were Yankee peddlers in the 1860s who would sell you a two-bob medicine that would save you from anything and everything and they would peddle their wares on the roadside," he said. "This evolved into grandaddies like Avon and Tupperware, which became selling phenomenons in the '40s all the way through to the '90s.
"The basic idea is to recruit sales agents, who in turn recruit another sales agent to sell, sell, sell."
Mr Robertson said he would never forget an experience at a Gold Coast hotel, when he was working as a porter in his youth, where he came across Amway representatives.
The American company uses a multi-level marketing model to sell a variety of products, primarily in the health, beauty, and home care markets.
"I started talking to a few of them (representatives) and they started trying to flog the whole world to me, so I was quickly back-pedalling because these guys were fanatical," he said.
"They are the epitome of what this more aggressive form of selling is."
However, Mr Robertson said MLMs were not akin to illegal pyramid schemes.
"People became very greedy and that's where pyramid systems sprung up as a quick and easy way to make money and often no goods or services were exchanged in those schemes," he said.
Network marketing, or MLMs, aren't about taking advantage of your friends and relatives, although sharing the products or services and the opportunity with people you know is still the basic foundation of the business. It also isn't a get-rich-quick scheme, but some people do make large amounts of money very quickly.
An ACCC spokesperson said pyramid schemes involved new participants providing a financial or other benefit to other existing participants in the scheme.
"Pyramid schemes may also offer products or services, but making money out of recruitment is their main aim, and often the only way for a member to recover any money is to convince other people to join up," the spokesperson said.
"In contrast, people in legitimate multi-level marketing schemes earn money by selling genuine products to consumers, not from the recruiting process."