The Moral and Ethical Argument Against Multi-Level Marketing

MLM-3Multi-level marketing (MLM) is a form of direct selling in which independent agents “build and manage their own sales force by recruiting and training other independent agents.”1 Also known as Network Marketing, “commission is earned on the agent’s own sales revenue, as well as on the sales revenue of the sales-force recruited by the agent and his or her recruits, called downline.”2 MLM is like owning a retail business and being entitled to a percentage of the sales of someone else’s retail business. Although MLM is legal, it is unethical: You earn commissions from the sales of agents in your downline who are risking a financial loss.

A business venture always involves risk. If a person starts their own business, they take a financial risk by investing their own money and/or borrowing money from the bank. The bank may require the owner’s home (or other assets) as collateral if the business goes bankrupt. When you start your own business, you risk losing your savings and wealth. Even in a company with limited liability, the shareholders can lose their initial investment if the company goes bust. If the shareholders receive dividends, they do so by risking a financial loss.

With MLM, you take a financial risk: You have to buy sample product, so that you can promote it and sell it. You also have to pay membership fees, training fees, travel costs, and other expenses. However, no one in MLM becomes successful by selling product to customers for their personal consumption. As Robert L. Fitzpatrick points out, “The business is primarily a scheme to continuously enroll distributors and little product is ever retailed to consumers who are not also enrolled as distributors.”3 To achieve financial success in MLM, you must sign up as many distributors as possible. The individuals you sign up will purchase the product for their own consumption, try to sell it to other people, and sign up distributors who will do the same. With MLM, you make money not only from the people you signed up, but also from the people they signed up, and you make that money without risking a financial loss.

Consequently, MLM is not a legitimate business—it is a money-making scheme. Independent agents make money from other people’s financial investment and labour. In a normal business enterprise, the owner has a legal and moral right to the profits. The workers are paid for their labour, and the owner makes a profit by risking a financial loss. (The workers may not be paid fairly, but they risk no money of their own in the company.) In a normal business, if you want a share of the profits, you have to take a financial risk.

The moral and ethical problem with MLM is you get a share of the profits without taking any additional financial risk. You receive a financial reward, while someone else takes the risk. With MLM, the independent agents in your downline take the financial risk for their own inventory. They also do the work of promoting and selling the product, while people above them receive a commission on their sales. This makes MLM a form of legalized theft. To receive a royalty on a product that you invented is fair and just. To receive a commission on a product that someone else bought and sold (for no other reason than signing them up as a distributor) is morally and ethically wrong.

Notes

  1. Business Dictionary, s.v. “Network Marketing,” accessed September 5, 2015, http://www.businessdictionary.com/definition/network-marketing.html
  2. Ibid.
  3. Robert L. FitzPatrick, “The 10 Big Lies of Multi-Level Marketing,” accessed September 5, 2015, http://www.falseprofits.com/MLM%20Lies.html
Advertisements

7 thoughts on “The Moral and Ethical Argument Against Multi-Level Marketing

  1. Hi Christopher, very good article on MLM’s you summed it up quite nicely. Your right in saying that most MLM’s make you buy a product or service and are recruitment based. Your article is a little dry but I feel you are accurate in your assessment.
    I feel you left out one critical aspect of MLM’s that make them vulnerable to failure. Most MLM’s fail there participants in the training an support department and that’s why they have such a high failure rate. Training and support seem to be nothing more than an afterthought, actually they are not even a thought for some. Providing adequate training and support for their members is a huge investment for MLM operators. Many of the MLM’s I review seem to be more preoccupied with generating income while incurring minimal operating costs.
    Great post, you can guest write for me any time, cheers Mike.

    Liked by 1 person

  2. MLM is Not Proper Business this is Wrong Selling by the Agent and loss of time and Money to Normal Peoples.
    I Support to this Articles

    Liked by 1 person

  3. Pingback: Are MLMs real businesses? An honest review | MLM Cigarz

  4. MLM is not a legitimate business because as a supposed business owner, an MLM distributor makes a profit off people in his or her downline without buying the product that those individuals sell or without risking any additional financial loss.

    While your employer pays you a wage, commission, or salary, (and risks a financial loss by employing you) an MLM business owner does not suffer any additional financial loss if the people in his or her downline do not succeed.

    MLM is a money-making scheme to reap a financial reward without taking any financial risk beyond the product you purchase for your own distribution.

    Thus, MLM is immoral, unethical, and it should be illegal.

    Like

  5. I’m not a fan of MLM, but I’m not opposed to it. Your article seems to address common practices more than the model. Hypothetically, there don’t have to be subscriptions and enrollment fees. It could be simply about promoting a product and building a downline.

    Also, everyone is in business. I work a day job as an analyst for a bank paid a wage, but I’m still in the business of consultation. I sell myself and my deliverables. That business agreement can end anytime my client (employer) chooses to. Typically that happens if my client isn’t getting enough value from my service anymore or I’m no longer able to service my client and I end that business with them.

    MLM is a business, but may not be a good one because of the kinds of opportunities available, but because of the structure. Granted the structure usually calls for higher prices or bigger margin products to do the payout (I.e. Insurance), but again, that has nothing to do with MLM in general and everything to do with that company’s specific opportunity.

    I took a risk getting my education, investing in developing my skills and took time to build my acumen no different than a business owner or MLMer. We all earn basses on the value we bring. I take a risk by not being able to keep my business arrangement or not delivering my value.

    Here is a hypothetical scenario:
    Imagine you like hot pockets, you get paid an incentive by referring people to buy hot pockets. (Assuming it were trackable) You could build an MLM structure around this with no ethical or moral dilemma. This scenario wouldn’t be that profitable because of low margins on hot pockets relative to their potential market, but again, that has nothing to do with MLM, it is all about the opportunity of which I have yet to see many that compelling.

    Like

  6. This reminds me of a sales pitch for Amway which I recently overheard. Sounds like their business model might fit the qualifications of what you’ve focused on, yes? In any case, I appreciate your article as it’s right up my alley (in terms of my studies). –Paul

    Liked by 2 people

Share your thoughts

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s