Pyramid Pressure
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It starts with a seemingly innocent compliment about nice shoes or a lovely bag. But the flattering remark can just provide an opening for a sales pitch.
“A couple approached us at [the Short Pump] Target,” recalls Lori Reibach. “The husband used a line to my partner and said, ‘Nice shoes! Do you run in those shoes?’” While the couple seemingly wanted to have a friendly chat, it didn’t stay that way. “They would drop lines like, ‘Yeah, we are retiring soon, my mentor helped me get there.’”
After a while, Reibach and her partner started to get uncomfortable. “I left feeling like they were MLM [multilevel marketing] people, so I looked the husband up on Instagram. Sure enough, I was right. We told our friends about it, and they were approached by the same guy over a year ago.”
Known more commonly by its acronym or, at its worst, as a pyramid scheme, a multilevel marketing strategy “allows independent sales representatives to recruit other sales representatives and to draw commissions from the sales of those recruits,” according to the Federal Trade Commission. Multilevel marketers often distribute products or services through a network of participants. Typically, the company does not directly recruit new participants but instead relies on its independent business owners to recruit additional participants, who, in turn, also recruit new distributors. This creates multiple levels of participants organized in “downlines” that, when graphically represented, can look like a pyramid.
A participant’s “downline” is the network of their recruits, and recruits of those recruits and so on. A participant’s “upline” is the person who recruited them, and the person who recruited their recruiter. In Reibach’s story, that couple was likely trying to recruit her and her partner to their “downline” of participants. Attempts to reach Target for comment were unsuccessful.
There is a legal distinction between an MLM and a pyramid scheme. The FTC states that a valid MLM will pay you based on your sales to retail customers without having to recruit new distributors.
An MLM is considered legitimate if it offers a tangible product and service involved such as cosmetics. Distributors make money through retail sales without undue pressure to recruit new participants.
Pyramid schemes, according to the FTC, rely on continuous recruitment of new distributors.
For example, the FTC in 2023 banned the company Blessings In No Time from multilevel marketing due to a finding that they scammed consumers out of tens of millions of dollars. The company offered no tangible product while tasking distributors with constantly recruiting new members, promising returns as high as 800%. Most participants lost money, with some paying as much as $50,000 to join.
In the first three months of 2024, the FTC received 4,469 reports of fraud in the metro Richmond area, 87 of which, or about 2%, were categorized as business and job opportunities.
A search on Reddit returns multiple posts from the Richmond area similar to Reibach’s experience. Hundreds of online messages on the Richmond-area subforum r/rva demonstrate the volume of occurrences locally. In one post, a user complains of an MLM couple “trolling people at En Su Boca.” Another warns of “someone looking for people at the Carytown Kroger.”
According to Katie Gilstrap, associate professor of marketing at Virginia Commonwealth University, “MLMs take a psychological, as well as financial, toll on distributors.”
For all the talk of retiring at 30 or being able to earn serious money, only about 1% of MLM participants walk away without sustaining a financial loss, according to the Consumer Awareness Institute. Most people who join MLMs lose money, according to an FTC study that analyzed the business models of 350 MLM companies.
Despite these statistics, distributors are pressured to rack up debt to attend conferences and training or pay for marketing materials and other expenses related to involvement, all to reach the levels of success their mentor or upline had claimed when they were recruited. Most MLM participants make less than 70 cents per hour in sales before business expenses, according to The Washington Post.
For context, Gilstrap cites Steve Hassan, a cult and mind-control expert, Gilstrap says. “He addressed how MLMs use manipulation and blame to ensure any failures to earn large sums of cash through the business model are placed on distributors for their lack of competence or hard work,” she says.
Gilstrap points out that, for an MLM to be a legal business and not a pyramid scheme, “it must adhere to the 70% rule, that at least 70% of all goods sold must be purchased by nondistributors. That means consumers outside the company need to be buying the majority of a company’s products — rather than downstream in the distributor network or with the distributors themselves stocking up on inventory.”
Content retrieved from: https://richmondmagazine.com/news/news/multilevel-marketing-schemes/.
