Why Americans Can’t Resist Multilevel Marketing Schemes

Jill Drehmer claims to have cracked the code to financial freedom. The year was 2015, the place an upstate New York grocery store, where the 36-year-old mom of two discovered that federal assistance no longer covered her kids’ favorite cereal. A revelation ensued: “I thought, ‘There’s got to be a better way to make some extra income — something.’” As fate would have it, Drehmer found that something in LuLaRoe, a multilevel marketing company that today is riddled with controversy.

The California-based brand peddles women’s clothing to a loyal fan base. Its pièce de résistance are buttery soft leggings covered in quirky prints (everything from butterflies to monster trucks). In theory, this all sounds painfully innocuous, right? After all, we’re talking about pants purchased from someone’s aunt via Facebook. Rumors swirled that LuLaRoe had a shady side, but only recently did its seams very publicly unfurl.

Last year, Amazon Prime Video unveiled LuLaRich, a can’t-look-away docuseries that exposed the company’s deceptive marketing tactics and illegal pyramid scheme practices (oops!). Months before the show’s release, LuLaRoe settled a lawsuit with Washington state for $4.75 million. Why? It was fronting as an MLM but blatantly violating the Federal Trade Commission’s consumer protection guidelines and Anti-Pyramid Promotional Scheme Act. The brand was selling a get-rich-quick narrative, but in actuality, the overwhelming majority of its “independent fashion retailers” made little to nothing — or even lost money.

For the record, LuLaRoe isn’t alone in battling bad press or litigation. Quite the contrary; the list of controversial MLMs is lengthy, including Amway, Herbalife, Primerica and more. But alas, people still want to jump on the bandwagon. Drehmer is one of some 7.3 million people hoping to get a taste of the American dream, according to Direct Selling Association data.

So what’s the appeal? Why do so many people continue to join MLMs, even in the wake of such immense backlash?

For the unfamiliar, MLMs use a direct-selling business model that relies heavily on word of mouth (or, in today’s age, social media). Unsalaried distributors sell products and services to friends, family and strangers while also recruiting others to work under them. In turn, they get a cut of their recruits’ income, thus directing more and more cash to the top of the food chain.

The legal lines between MLMs and pyramid schemes are dangerously blurry, if not altogether obscured. Although the FTC is tasked with investigating potentially illegitimate MLMs, these organizations remain largely unregulated unless there’s a viable reason to take a closer look (say, a boatload of formal complaints).

“The government can’t and hasn’t looked at every enterprise that exists,” says Hamline University economist and MLM expert Stacie Bosley. In other words, “you shouldn’t presume all MLM companies are legal, because that’s probably not true.” Ultimately, it’s at the consumer’s discretion to decide whether a brand is legit. Some red flags that an MLM just might be an illegal pyramid scheme? The company prioritizes recruitment over actual sales, requires an upfront investment and doesn’t buy back unsold inventory.

Self-discretion is a big ask in the case of MLMs, especially because this business model is woven into the fabric of our nation’s culture. After all, household names continue their reign in homes across America. To point, Avon and Mary Kay still have a stronghold on our makeup bags, while Tupperware remains a staple in our kitchens.

Those are just the big-name brands. Thousands of companies have cropped up since the MLM model was established in the late 1800s, and they span all categories, including beauty, wellness, financial services, home appliances — even electricity. And they bring in the big bucks, too: a record $42.7 billion in 2021, per the Direct Selling Association.

Cue Drehmer and her new reality. A dutiful LuLaRoe retailer since 2016, she says the company has changed her life. Now debt-free, she’s reached peak financial freedom, including buying a new home, complete with an in-ground pool, separate bedrooms for her boys and a fully stocked boutique that she runs like a storefront business. Sounds a lot like the American dream, right?

The sad truth is that Drehmer is one of few to achieve such success. An astounding 99% of independent distributors lose money, according to FTC research. And yet, that abysmal stat doesn’t seem to scare people off. “Not everyone who comes into contact with these schemes sees themselves in that 99%,” notes Jane Marie, cohost of The Dream podcast, which investigated MLMs as part of its popular first season.

But why? “We seek information that supports our existing beliefs,” Bosley asserts. In this case, that 1% confirms that success is indeed possible — even if the objective data suggests otherwise. We cling to that idea of being the exception, not the rule, with the hope of a fervent gambler.

The economic influence of MLMs is blinding. Equally appealing, however, is the allure of a tight-knit community. Add in wine nights, star-studded conventions and “free” cruises, and you have a seriously sweet-sounding social life.

Take it from Jessica Hickson, a former top-ranking rep with health and wellness company It Works. “Once you’re in, you’re showered with love, encouragement and people lifting you up, making you want to be surrounded only by those people,” she explains. (Sort of like a sorority, but with the possibility of a paycheck.)

Better yet, MLMs proclaim to be an escape from the 9-to-5 grind, an opportunity to amass wealth on a part-time schedule. We’ve all seen the sales pitch: Be your own boss! Set your own schedule! Work from anywhere! The appeal is seductive — and it works.

It’s so influential that it doesn’t even really matter what products they’re marketing, says Amanda Montell, author of Cultish: The Language of Fanaticism. “They’re selling this community, this promise,” specifically targeting people locked out of the “dignified labor market” who are unable to bring home a paycheck the traditional way, she explains.

That’s why so many MLM sellers are stay-at-home parents, college students and the like. “We’re talking about women who want to feel empowered, who want to feel like they’re interacting with other adults while contributing to the household financially,” Montell notes. “MLMs make such larger-than-life, transcendent promises about what this opportunity will afford their recruits that it feels even scammier, even cultier.”

The term “brainwashing” might seem extreme, but it’s pretty apt. “It’s very confusing to watch a loved one in an MLM, because sometimes they act normal and other times they act like a stranger,” notes Steve Hassan, PhD, one of the nation’s foremost cult experts. What many people don’t realize, he adds, is that this behavior is deeply psychological. For that reason, he’s dubbed MLMs “commercial cults.”

“Brainwashing is better understood as a dissociative disorder,” he says. “Meaning there’s an identity disturbance where you have the group identity versus your identity. The group programs you to suppress your own conscience, your own critical thinking, your own interests and values, and creates a pseudo-identity in the image of the leader of the group.”

The anti-MLM movement is gaining traction online, with thousands rallying on Facebook, TikTok, Reddit and other platforms to try to deconstruct the business model — or at the very least chastise its existence. Hickson is among them. The goal of her popular YouTube channel is to “save all the current #BossBabes from heartbreak, betrayal and shadiness.”

“There’s been a steady trend toward MLMs marketing themselves as a mode of female empowerment,” Marie explains. “What they’re really peddling is self-esteem and personal achievement. You have to pay for rah-rah sessions, conferences and motivational seminars and spend more and more time parroting that on your social media. In a lot of the training materials I’ve seen, these companies recommend you spend as much time posting about your #GirlBoss goals as you do posting about the actual products.”

At the movement’s core is an undying dedication to exposing MLM exploitation, both fiscal and emotional. Although the business model may sound straight-up utopian to some, Montell says these brands are strategically “weaponizing language” — in other words, telling people exactly what they want to hear. And they adapt to the zeitgeist. “In COVID times, MLMs pivoted to using more new-age mystical language, talk of holistic beauty and divine alignment,” she adds.

That applies to recruitment tactics, too. A former Arbonne rep who prefers to remain anonymous called it quits amid the pandemic. Her reasoning? “They started using the pandemic to bring in new people,” she notes. “They were like, ‘People are losing their jobs; they need this.’” But hidden behind that message was the idea that the more people you bring in, the bigger your team, the bigger the profit in your pocket.

It’s easy to write off MLMs as cut-and-dry deception, especially in this age of the ultimate scammer (see: Anna Delvey, Elizabeth Holmes, Adam Neumann). But it’s not that simple. Money aside, proponents also praise the sense of community and the personal freedom.

Take Timothy Brown, AKA “the Avon Man,” who got involved at age 15 and never left. “My father was an Avon representative, so that sparked my interest,” says the optometrist by day, direct seller by night. “I asked my dad to sell for him so I could earn some money to buy a car and pay for the insurance.” Today, Brown reps Avon in memory of his father, who passed away in 2009. “I’m blessed to continue the tradition,” he explains. “I feel like Dad is living and still selling through me.”

Or there’s 20-something Valeryn Tabares, whose husband joined Avon to escape the daily grind. He got the idea from his parents, who had been reps for 25 years. After welcoming their first child, she too quit her day job to become his business partner and get more family time. The pair bought their house and first family car “solely off an Avon salary,” but she’s more passionate about what it’s done for their relationship: “They say that business can separate you, but I feel like it brought us closer.”

What Tabares describes is, by definition, the American dream. It’s what everyone in MLMs is ultimately seeking: their own version of success, whether that’s securing a swanky pink Mary Kay Cadillac or being able to afford your kids’ favorite cereal. As for the risk of failing? For many, they’re willing to gamble with their lives. After all, the greater the risk, the greater the reward, right?

Objectively, of course, the odds of getting rich aren’t in our favor — but in some perverse way, that’s actually part of the MLM appeal. “We have this exceptionalism mentality in this country, whether we’re seeking spiritual enlightenment, TikTok fame or success as an Amway seller,” Montell concludes. “We think, ‘I know that it doesn’t happen to most people, but I’m confident it will happen for me.’”

The saddest part of MLMs is that it turns otherwise normal people into fanatics—they can ruin all friendships because they demand the friend do business with them—it turns a positive relationship into a “user” one.

So true. At times I am startled by which of my friends have fallen to it. Suddenly an old friend of many years goes at it and when confronted directly about it just responds according to a script obviously provided by the MLM for just that scenario. It's like Invasion of the Body Snatchers.

When I was in college I was approached by someone trying to recruit me into Amway. Of course, he didn’t mention the name “Amway” at all (that should tell you all you need to know - name is too toxic, so they have to hide it). He simply kept referring to his “business.” For whatever reason, temporary insanity or maybe morbid curiosity, I let him talk me into attending some kind of regional meeting they were having a week or so later. When I got there, I met up with him and he was so hyped up he was spinning like a top. Kept telling me about this awesome guest speaker they had there that night, and how lucky I was to be there that night to hear him.

Well, after sitting down in the hotel ballroom with hundreds of other equally manic attendees, the show began. I had never heard of this guy in my life, yet the Amway zombies were nearly fainting in his presence. Regardless, I awaited the stupendously insightful wisdom I was promised he was about to bestow upon us. He put on quite a show, with tons of unnatural enthusiasm and hyperactive jibber-jabber, but it quickly became apparent that while this guy was spewing words like a verbal machine gun, he wasn’t actually saying anything at all. There was precisely zero substance to anything he said. It was all emotional manipulation designed to whip the audience into a frenzy, and it worked very, very well. In response to this chatty empty suit, the audience members were positively enraptured. This wasn’t any kind of business meeting, it was nothing less than a full-blown cult.

After it was over, I told the guy who invited me exactly what I thought of the whole thing and left. The last I recall is seeing him speechless, looking stunned that someone couldn’t see the obvious brilliance of this “business opportunity”, as I walked away.

Years ago I bought the $100 starter kit or whatever it was from Amway. It really is/was good stuff. But of course the guy wasn’t truthful to get me to his first meeting. He covered it by saying “Well, if I was completely truthful you wouldn’t have come - would you? And missed out on these great products!”

My wife and I refused to lie to our friends about the Amway sales pitch we were going to have at our house when we invited them.

Nobody came! The couple that got me into it were nice folks, and he ended up doing well with it. Not my style though.

Just to be clear, multi-level marketing is when you buy inventory from the person above you in the pyramid, and then you have to resell that inventory through sales parties and recruiting new people below you who get their inventory from you.

So theoretically, the same items could be bought and sold dozens of times before finally being actually used?

In the old days, yes, but as inventory. The manufacturers didn't have to warehouse the inventory, they sold it to the top level person, who then resold it down, and so on until someone sold it to a consumer. The commission got smaller and smaller until the person at the bottom was making very little money and was stuck with the product.

Today, it's called "direct sales," because the salesperson doesn't physically touch the product.

-PJ

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.