Too Good to Be True? Experts Advise Caution With Multi-Level Marketing Claims
Late last month, social networking app TikTok made headlines for something seemingly mundane — updating its community guidelines.
Specifically, the app enacted a ban on multi-level marketing companies. Its new guidelines urge users to refrain from sharing content that “depicts or promotes Ponzi, multi-level marketing or pyramid schemes” — an attempt, TikTok says, to ensure people don’t “take advantage of the trust of users and bring about financial or personal harm.”
The ban comes at a critical time. Broad swaths of the public are, simply put, more susceptible to such deception now, as the number of American unemployment claims continues to climb by the hundreds of thousands due to the coronavirus crisis. Women are bearing the brunt of it — a recent report from the Bureau of Labor Statistics reveals that women lost roughly 1 million more jobs than men did between February and December 2020
This has created a dire situation for families around the nation — a September 2020 analysis by Pew Research Center revealed that one in four Americans have struggled to pay bills amid the pandemic, and a third have used savings or retirement funds to fill financial gaps. And multi-level marketing companies, or MLMs — recognizable by their tiered infrastructures featuring brand-specific terminology for various levels, where one’s income is largely dependent upon bringing in more sellers under you — often offer promises of financial stability (and then some) to those who sign on.
But a 2018 study by AARP found that 73 percent of people who get involved with MLMs and the like make no money at all — or worse, end up losing money, due in part to the investment such businesses often require upfront in the purchase of training materials or products to sell. These often aren’t piddly, double-digit investments, either. Though two-thirds reported spending below $1,000 to get involved, a quarter said they plunked down between $1,000 and $4,999.
That damage can be lasting, and often extends beyond the documented financial risks. There’s an entire section on message board community Reddit where users share stories of how they or family members or friends were roped in, fracturing relationships as a result. Major publications like the Washington Post have examined the personal toll on female friendships in particular.
Still, MLMs are big business. According to the Direct Sellers Association, a trade association for MLMs and similar companies, the industry made $35.2 billion in retail sales in 2019 to over 36.9 million customers through a network of about 900,000 full-time and 5.9 million part-time sellers.
For years, the Federal Trade Commission has been closely monitoring MLMs and similarly structured companies. So have organizations like Truth in Advertising, which also functions as a watchdog by, among other things, filing complaints with the FTC and other oversight committees, and tracking class-action lawsuits made against MLMs.
It’s an especially pressing matter for women, says Shana Mueller, director of communications for Truth in Advertising — and not just because they are presently losing jobs at rates that outclip their male counterparts. Before the pandemic, some 60 percent of American MLM sellers were women, according to the AARP study. In 2020, that number climbed to 75 percent worldwide, the Dutch MLM research organization Business For Home found.
Truth Obscured in Confusion
Recruitment is a huge part of selling for an MLM, regardless of gender. But women — especially stay-at-home mothers, which the vast majority of moms now are thanks to the pandemic — are prime targets for MLM sales pitches.
These companies and their employees frequently emphasize the entrepreneurial elements of involvement, using pseudo-empowering “girlboss” terminology in the process — tapping into an economic independence and a career path women are increasingly seeking. They also emphasize the chance to make significant income while working flexible hours, an enticing offer to a demographic that bears the brunt of unpaid home labor and caregiving responsibilities, whether otherwise employed or not. Women are also bigger users of most every social media platform, making them easier to reach.
And now, as women’s finances and careers are disproportionately hurt by Covid-19, they’re more vulnerable than ever to recruitment pitches that paint a picture of building an empire from home in their spare time, making money while reclaiming control of their professional lives.
The tactic of going after women sellers becomes even more problematic when you cast your eyes to the C-suites of these companies. “If you look at the CEOs and leaders, you don’t see a lot of women,” Mueller says. In fact, the Business For Home study found that, globally, just 5 percent of CEOs at MLMs were women.
But the bigger, broader problem is the precarious relationship these companies appear to have with the truth. “It’s an industry that seems to have a history — and a problem, a real problem — with making deceptive claims,” Mueller says. And since the coronavirus crisis began, “we’ve definitely seen that behavior ramp up,” she continues. In fact, the FTC sent out 10 warning letters to companies about false claims in April, and another six in June.
Many of the false claims mentioned in those notices centered on assertions about a product’s supposed ability to treat or prevent Covid-19. But bogus income promises were an oft-cited concern, too. “People are directly impacted [by the pandemic] in terms of losing their jobs or getting furloughed, and are looking for extra income,” Mueller says. And these firms sell people on selling for them by presenting it as a way to make “easy money from home.”
The recipients of the warning letters aren’t unknowns — you may have even seen Facebook or Instagram friends extolling the virtues of them to followers. They include dietary supplement maker Juice Plus; essential oils company doTerra; and cosmetics company Arbonne.
Most MLMs deny wrongdoing or misrepresenting themselves to customers or recruits. When contacted by The Story Exchange, a spokesperson from Arbonne said that “consultants are trained on the guidelines, rules and standards set by our business ethics and sustainability team, and the vast majority manage their businesses in accordance with these expectations.” She added that the company website has a channel where consultants and members of the public can report violations of those standards. Juice Plus or doTerra did not respond to our requests for comment.
Offering the possibility of earning extra spending cash is one thing; the tale one may hear of the woman who makes six figures selling makeup from home is another. And the latter is, at best, the exception to the MLM rule. Only half of one percent of participants in the AARP study reported a six-figure take-home. And of the quarter of participants who reported making any money at all, 53 percent made less than $5,000 during the entire time they worked for an MLM.
“Income disclosure statements tend to be really problematic,” Mueller also notes. Indeed, the reality of what one will likely make is cloaked in confusing language, with income statistics presented in the form of charts that show average earnings in each tier of the company. But “with an MLM, ‘average’ is not the same as ‘typical’ — people gloss over this mathematical fact.”
Proceeding With Caution (and Questions)
TikTok’s new guidelines mark a turning point for MLMs — particularly regarding how they conduct their business, as social media has become a critical recruitment and advertising tool.
It’s not the only social networking app to address the matter, though it is the first to enact an outright ban. Facebook — and by extension, Instagram — has guidelines in place that address false income and health claims frequently made by such companies. But those policies apply only to advertising “space” purchased on Facebook, rather than free, user-generated content.
There is also a notable groundswell of skepticism of, if not outright condemnation for, MLMs and other such companies from the broader populace — sentiments that have grown stronger as time goes on. Some companies are now shying away from the MLM label as it’s increasingly tarnished, opting to call themselves “social media marketing” or “network marketing” companies (despite maintaining the same, recruitment-reliant business models).
Mueller, meanwhile, states that Truth in Advertising is not an anti-MLM organization. “We don’t take a position like that,” she explains. And “there are some benefits,” she adds, in particular the team-building environments and opportunities for social interaction they can provide, among other intangible boons. “But if you’re going in because you’re expecting to make a big income, that’s near-impossible.”
So what should someone do if presented an invitation that intrigues them? Their homework, Mueller advises. Ask for income disclosure statements from whoever is trying to recruit you, she says. Many probably won’t provide such information, but “you can still ask for it.” And to work around confusing or misleading terminology, she suggests directly inquiring as to “what people at my level typically make.”
If that fails, fire up a search engine, Mueller says. “The data is out there, which shows that most people who do get involved in MLMs … will not make significant income.”