The company’s that everyone knows are MLM trash (HerbaLife, JuicePlus, ect). When I was looking for a job I naively joined a seminar discussing CutCo Knives. Come to find out these dud muffin companies have been around since my mom was growing up, and are somehow still operational? Wouldn’t the BBB or whatever business bureau operates in the US (FTC?) have these scams shut down by now? I understand that new ones are popping up all the time but im referring to the ones that have been around forever now.
In: Economics
Explanation 1 is that the typical story for why a pyramid scheme must collapse (because you eventually run out of people to buy in) *technically* only holds for a single point in time. There is, as they say, “a new sucker born every minute,” so if your pyramid scheme is sufficiently restrained, you can keep it running indefinitely by recruiting young people. Essentially none of the “Amway ladies” working today were even alive when the company was first founded.
Explanation 2 is that multi-level-marketing is not a pure pyramid scheme. In principle, it can be a valid way to recruit salespeople and give them skin in the game. If you don’t bring too many people into the business and give them a quality product to sell, then it’s possible to make enough money from sales that everyone in the business is happy.
None of this is to say that Amway or CutCo are upstanding corporations. However, both explanations suggest that a certain amount of patience/restraint on their part can keep them from too-quickly gobbling up all the potential participants/customers and subsequently collapsing.
Editing for an addendum: CutCo actually identifies as a “single-level marketing” firm, which means that all salespeople are directly recruited by the company rather than by former recruits. This presumably helps them restrain the size of the business by keeping control of how many new salespeople enter at any given time. They also claim, as of 2011, to not even require recruits to buy inventory up front. Those two factors together would make them into an ordinary knife company with a heavy emphasis on door-to-door sales.
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