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Why Network Marketing Programs “Pyramid Schemes” Must Be Avoided

Few can deny the lure of a fast buck, especially in an economy as crippling as the economy we have today. Now more than ever people are seeking ways to earn extra income from jobs they never before had to consider and from suspicious businesses that promise quick cash with very little effort.  In this article, I will explain why each of us must take care to do our research and make sure that we don’t  walk right into financial ruin by participating in network marketing programs, also known as “multi-level marketing” (MLM).

Network marketing isn’t a new concept. The foundation of this type of marketing is rooted in the idea of people coming together (networking) and pooling their resources to achieve predetermined goals, which is not a bad idea at all. In fact, the primary goal of every nonprofit organization is to attract and pool the resources of new donors. And the goal of our organization, United for Action (UFA), is to attract and pool the resources of new members. However, an organization’s objective and its purpose is what truly reveals its motives.

From the outset, pyramid schemes are network marketing programs that are illegal. Unlike most businesses offering products and services to consumers, participants in pyramid schemes must pay to join and they profit mainly from payments made by subsequent participants. Most pyramid schemes offer compensation in the form of services, but the true intention is to get participants to convince others, as many as they can, to sign up and also participate in the program creating a hierarchy of compensation. In other words, the more people you get to enter the program, the more money the eldest members of the program earn. And the money doesn’t come from consumers getting valued products or services, but mainly from people who agree to pay to join the scheme. The most attractive aspects of pyramid schemes are the promises of independent business ownership and an unlimited earning potential. But frustrated and disappointed participants soon discover that they’ve wasted valuable time and money in a dead-end program.

Anyone can become victims of pyramid schemes, and seemingly, the latest pyramid schemes have morphed into online businesses offering opportunities to work from home. But what makes us more susceptible to such schemes is our lack of financial literacy and education. Not enough of us know what to do with money, how to make money work for us, and where exactly to invest money. Personally, I had a colleague who quit her job at a Fortune 500 to devote her time and money to a pyramid scheme. Eventually, her “independent business”, as she would call it, disintegrated. Fortunately, she was rehired by her previous employer, but only as a consultant. Her experience proves that anyone can fall prey to these highly-enticing schemes, especially when the “network marketing program” is confidently presented by very convincing and very impressive salespersons who are veterans in the company. Next, I will briefly describe some very important differences between network marketing pyramid schemes and affiliate marketing.

Network Marketing vs. Affiliate Marketing

Now let’s be clear, marketing is not a devious term and not all network marketing opportunities are illegitimate.  And in a society where few of us can escape million-dollar advertisements on television, in the media, and elsewhere, it would be difficult not to see the obvious benefits of marketing and attracting new consumers on an ongoing basis. But again, focusing on the purpose of a business and how it operates is key. For example, like network marketing, affiliate marketing is performance based. Participates are rewarded for each customer or visitor brought on by the affiliate marketing. But the differences between network and affiliate marketing are clear. First, there is usually no admission charge for becoming an affiliate. In fact, participating in an affiliate programs usually involve getting rewarded by a business for referring someone to the business. Have you ever been rewarded by a business for telling a friend about a new product or service that you absolutely love? And because of your referral, your friend decided to patronize the business and use the services also? Well, you’ve just participated in affiliate marketing! Your referral is one of the marketing strategies the business uses to attract new business. Such marketing is often harmless and merely takes a “word-of-mouth” to work. Please be advised, that pretty much any networking venture that you partake will take resources in the form of time and maybe even money and other resources. The key to being successful at any type of marketing takes much study time, preparation and practice to master it fully. Remember, to do your research before doing any type of marketing for any type of company. Learn about the founders, their mission and if they are an organization that truly stands for what you believe in.