My friend recently posted a photo of her and her daughter wearing matching leggings. I love seeing this friend’s Facebook updates – she delights in being a parent to her daughter, Lexi. The leggings were by LuLaRoe and I’d been noticing several of my friends posting about the brand, especially photos of the leggings. I quickly realized that LuLaRoe was a multi-level marketing (MLM) company.
Multi-Level Marketing or Pyramid Scheme?
The Better Business Bureau defines multi-level marketing as retail programs that use independent salespeople or distributors to sell consumer products. Money is earned primarily by selling the company’s products. However, salespeople also make money recruiting other people to sell for them and earning a small percentage of profits. A pyramid scheme promises to help salespeople “earn” fast, easy money by recruiting others to sell products. The focus is on recruitment not product sales.
On the Level, a website about MLM companies, reviewed LuLaRoe and concluded that the company is “probably a pyramid scheme” not a MLM company. Either way, these companies require individuals to purchase inventory and recruit friends and family to sell “under” them. According to the Federal Trade Commission, making money by selling a company’s products to the public may mean it’s a legitimate MLM company. Making money by recruiting others to sell on your behalf means it’s a probably a pyramid scheme.
Young Living Essential Oils products are especially popular in my area of northeast Pennsylvania. While I couldn’t find a dependable review, the company seems to rely on both product sales and recruitment. I have been especially surprised by the claims made by Young Living salespeople, including a NY-licensed psychologist who promotes the use of essential oils in his psychotherapy practice. I stumbled upon this 2014 letter from the FDA warning Young Living Essential Oils to stop making unsupported health claims on their website.
In his short book on personal money management, Why Didn’t They Teach Me This in School? Cary Siegel advises readers to “avoid multi-level marketing (MLM) programs like the plague.” Why? Siegel says that recruiting friends and family to sell products is a waste of money, a waste of time, and may cost you friendships.
Multi-Level Marketing in the Past
SS: I really like that differentiation between MLM and pyramid schemes. I remember going to Tupperware or Pampered Chef parties when I was a kid and LOVING the gadgets and food. However, as an adult, I feel like I can’t get away from them. Lia Sophia, Stella and Dot, Younique, Rodin & Fields and 31 Bags are just a few that I encounter DAILY. Have there always been companies with similar structures, and I simply wasn’t exposed? Has social media allowed them to expand and saturate my daily life? I would be intrigued to see a visual break down of how money flows through those “businesses.”
PF: Yes, I also found the differentiation helpful. I would have just called LuLaRoe a pyramid scheme but wanted to understand if this was something new. Happy to know you have fond memories of going to those parties. Though the products cost more, I really liked them. I probably complained about going but ultimately, the parties were an opportunity to hang out with friends. And, I should admit that for a brief time, I was a consultant for a multi-level marketing skincare company called Aloe Charm.
SS: Really? What led you in? Did you actually make money? What made you get out?
PF: I was looking for a different job or for an additional job – I don’t remember which. Another consultant, looking to recruit, placed an ad in the local newspaper and I responded. I figured I had nothing to lose so I bought the kit and starting calling family and friends to host parties. The products were good but I don’t recall making very much money so I just sort of drifted out of it after a year or two. I also hated asking people to host parties.
Multi-Level Marketing Today
SS: I have developed a distaste for direct marketing. A few years ago, I was open to participating in the selling parties. Unfortunately, I have had only negative experiences. I’ll avoid pointing fingers at any specific company or product and keep my thoughts vague. I’ve purchased from a handful of these companies. Ultimately, I found that the product is often overpriced and not worth the effort. I understand that being a “consultant “or ‘hosting a party” (I am totally up on the lingo) will deliver significant reductions in price. I commend anyone who truly believes in the product or business endeavor they’re trying to sell. However, it may be at the expense of the friends and family you are inviting to join in on the fun. But when the sale of your product becomes more important than relationships with those around you, I get weary.
Social Media & Multi-Level Marketing
PF: What exactly does it mean to host a selling party in the age of social media? I was surprised by the number of invitations I was receiving, via Facebook, to “attend” parties, most of which were hosted online. Can’t I just go to the website and order products directly? Is it “social selling” if we’re “meeting” online? Guess I’m showing my age.
The Risks of Multi-Level Marketing
SS: Years ago, the wife of my new supervisor bullied me into purchasing a product I couldn’t afford. When I told her my partner had recently lost his job, she responded by setting up a party in my name. Recently, a friend told me that she received four unsolicited phone calls in one day from an unknown representative. Apparently, my friend’s mother provided contact information for three friends who might be interested in the representative’s product. In addition, several friends have asked me to host parties. Now, my standard response is, while I support you, I have no interest in using the loyalty of my friends and family to pay for your business. And, honestly, if you have a good product, you really shouldn’t need to market it so aggressively.
SS: Finally, this thought: my Old Navy leggings seem to be just as soft as those from Lularoe, and I used coupons for a final price of $3.49.