Explained: pyramid schemes and multi-level marketing


Photo retrieved from Jezebel.com

Kayleigh Marshall, General Assignment Reporter

Pyramid schemes and multi-level marketing (MLM) draws people into their programs with promises of fast money and little work, and college students are especially targeted and susceptible to these schemes.  

“Pyramid schemes and multi-level marketing are sometimes, but not always, the same thing, though they seem similar,” said Assistant Professor of marketing Dr. Kenneth Graham. “[Multi-level marketing] gives people a chance to get started in their own business using an already established system…legitimate MLM companies focus on the marketing and sale of quality products. The primary goal of a pyramid scheme is to scam people out of their money.”  

According to the Attorney General of New York Letitia JamesMulti-level marketing is a method of selling products directly to consumers without intermediary stores. Products are sold through a network of distributors or salespersons set up to resemble a pyramid: each distributor recruiters and trains additional distributors and will earn commissions on their sales, as well as on the sales he or she makes. Because of their pyramidal structure, multi-level marketing companies can sometimes by pyramid schemes.”  

Graham said that legitimate examples of multi-level marketing are Mary Kay and Advocare. 

“Often, pyramid-type schemes are disguised as MLM programs, so you have to be careful,” said Graham. “If the primary emphasis is on recruiting more distributors and not on selling product, then it is probably a bad deal.”  

Attorney General James also added on her website that pyramid schemes are invested by “those who participate out of greed, those who are misled into thinking that they are joining an investment club or a gift program,’ and those who believe that the products or services are legitimate.”  

Graham also gave her advice to college students when it comes to pyramid schemes and MLM programs. “Consumers of all ages and backgrounds are susceptible to pyramid schemes and MLM programs,” said Graham. “My best advice is to always investigate the opportunity thoroughly before investing any time or money. The lure of easy money is tempting, unfortunately for many people, it’s the scammer on the other end getting the easy money.”  

 According to Legal Dictionary, pyramid schemes place an emphasis on recruiting, there are often no genuine products or services, there are complex commission structures, and an offer of easy income. If you are to engage in MLM programs they claim it is smart to avoid schemes with these characteristics in order to ensure your safety on the MLM program platform. 

James’ website says, “Pyramid schemes are doomed to fail because their success depends on the ability to recruit more and more investors. Since there are only a limited number of people in a given community, all pyramid schemes will ultimately collapse. Legitimate multi-level marketing companies, on the other hand, can be around for a long time.”