Why MLM business opportunities do not work anymore

What's the concept behind MLM?

MLM refers to Multi Level Marketing. It is essentially a form of business involving several stratas of people who market or sell a product. Also, it is very similar to franchising, where the franchisor receives royalty for every sale made. However in a MLM prototype, the royalties can be distributed across several layers of people carrying out the sales.

Top reasons why MLM is intrinsically faulty

Selling "dreams" vs. selling products

MLM is not very different from the pyramid structure of marketing, where you have ten people "˜selling' an idea to ten others. These ten then try and catch the fancy of ten more and so on. The process is infinite and the growth of fresh recruits is exponential. So where's the problem you ask? The issue lies in the fundamental truth of not trying to sell the product per se, but getting more and more people to buy into your idea. This not just creates false hopes but also is doomed to saturate the market in no time. In the next section, we elaborate why and how saturation will occur.

Impending market saturation

The very fact that the growth of the MLM chain is exponential is reason enough to evidence the fact that saturation is going to happen, come what may. Take the example of ten people who are trying to sell to another ten and so on. Three levels down and you have 103 times the people trying to "˜sell' your concept to ten more. That's 1000 people in just three levels. Another few levels down and you'll have 100000 people! That's way more supply than any city or town could possibly have the demand for. Imagine if the product is a cosmetic line. If you have 1000 or even 100000 people trying to sell you the same brand, would you consider? Not really!

Dynamics of market demand and supply

There's a reason why economists exist. They understand the nuances of the demand supply chain and the fact that it's dynamic and transient all at the same time. The reason being changing demographics that determine the need for a product, behavioral patterns, societal status etc. all of which play a big role in creating demand for any line of products. Consider this. There are people who will almost always purchase substandard products simply because they suffer from the low price tunnel syndrome! Then there are others who will purchase only high priced stuff even if it means low quality or something trivial and unnecessary. So, businesses which have even the best of products will typically have a tough time finding their ground on where the product will sell and what's the optimal time. So imagine an MLM mode of marketing where demand is still the same but supply is expanding exponentially. Shocking isn't it? And what's scarier is that all of it is happening without anyone's notice.

False hopes

Most recruits in an MLM marketing scheme will need to purchase a certain percentage of inventory every month, irrespective of whether they sell it or not. This can eat into a substantial amount of the revenue earned through sales. Then there are those who make not make a sale but will still need to keep purchasing new stock. However legal recognized MLMs will have a prerequisite that a recruit will need to sell off atleast 70% of previous stock before purchasing new inventory. This prevents undue hoarding.

Relationships gone sour

MLMs have not surprisingly been the cause of the disruption of many relationships. Be it friends or family, the people you have "sold" your idea to, may get lured into the scheme. If later on, they do not succeed for some reason, they may end up losing a lot of money along with their faith in you. Many friends and families have suffered broken ties because of the sheer falsity of MLMs.

The bottomliners are the losers

The ones at the bottom of the pyramid chain or MLMs are typically the ones to lose out. The reason being all their royalty earned through any sales made, will be shared among those higher up in the chain. This is the proverbial example of "being at the receiving end" of things.

MLMs are intrinsically flawed because rather than selling products, they sell false hopes to people. Businesses are built and grown on trust, confidence and goodwill. If these fundamental characteristics are lacking, no business will ever succeed in the long term. That's why MLMs are outdated, done to death and do not work anymore.