I felt necessitated to post this article on modernized, classic marketing scams by the fact that three of my friends have each attempted to recruit me within the pass month to promote one of three completely different, yet equally "ground-breaking", health supplements.
My hope is for this article to serve as a straight-forward and relevant "heads-up" for ambitious, young, and aspiring business people in Hawaii.
As information continues to flow more freely across the globe, novel business models are formulated to adapt. In turn, it is often difficult for a consumer or young entrepreneur to distinguish between legitimate business models and unsustainable ones amidst the 21st century's myriad of adaptive business models.
The classic pyramid scheme may very well be the most well-known and looked-out-for marketing scam. But despite its notoriety, pyramid schemes continue to exploit young entrepreneur today due to clever disguises and references to pop-culture or technological trends.
How does a modern pyramid scheme work?
- Money earned and gaining promotion within the scheme comes primarily from recruiting new people to the scheme (resell of product is secondary)
- Those new people are conscripted to recruit more people into the scheme, and these new people must recruit more people, etc., and so on
- The pyramid (illegitimate multi-level marketing) scheme will ultimately, inevitably collapse, due to mathematic infeasibility of profits (not enough people in world to meet recruiting requirements after a certain number of levels) or economic improbability (even after 3 or 4 levels, only the members on top of the pyramid will most likely profit)
As an undergraduate, I admit to being at least intrigued by some of the pitches pyramid con-artists presented me, which led to me to understand how vulnerable, starving college students could be sucked in.
Here are some red flags that I picked up of the classic pyramid (illegal multi-level marketing) schemes as adapted to today's society:
Beware of unsustainable business plans:
- Some sort of buy-in or "investment" is required to get started
- The incentive for recruitment is greater than the incentive for sales
- "Investors" receive benefits later from "investments" made by others.
- You earn or are promised to earn more compensation than the revenue you bring in
Other red flags:
- Younger business people are the primary demographic
- The target is encouraged to sell to and recruit friends and family
- You will be promoting a "revolutionary" product or service that you haven't hard of
- The use of celebrities or corporate identities that you haven't before seen associated with the product or service
There are a number of actions you can take to prevent being exploited:
First, study the company’s track record; ask questions when you are unclear about restrictions, duties, or compensation; and learn about the product. Asking your recruiter how much money he makes and how often does he work is often a great start.
You already know that this model is different than the majority of successful businesses; ask yourself: WHY? And be sure to talk to a friend before getting involved and take your time with any decisions or investments.
Googling "Is X company a scam?" is NOT sufficient research since the internet review sites and forums are flooded with paid marketers posing as unbiased consumers. On the other hand, the Better Business Bureau (www.bbb.org) is a great resource for information on scams and how to prevent being exploited.
Keep in mind that some multi-level marketing businesses are legitimate, such as "Primerica Financial Services", (which received an “A+” in the BBB’s 2009 report). Use this checklist to distinguish between a legitimate MLM business and a pyramid scam: http://www.consumerfraudreporting.org/pyramidschemes_checklist.htm
[caption id="attachment_912" align="aligncenter" width="300" caption="A legitimate multi-level-marketing company. Recieved an "A+" on the BBB's 2009 annual ethics report."][/caption]
A basic rule of thumb is to ensure that your recruiter has a vested interest in your success and that no more than three levels are above you.
Finally, consider the reason why you were approached. Unless you are not an all-star salesperson with 15 years of experience, ask yourself why your recruiter isn't looking for that guy. Why is recruiting you so important? Does this business match your talents, skills, or interest? If not, don't do it!
Possible scams in Hawaii:
Acai Health Supplements - http://lowcarbdiets.about.com/b/2009/05/24/beware-of-acai-supplement-scams.htm
Blastoff Network - http://www.ripoffreport.com/Internet-Marketing-Companies/BLASTOFF-NETWORK/blastoff-network-blastoff-jus-42fbf.htm
Black Diamond Builder (MonaVie)- http://www.lazymanandmoney.com/monavie-scam-was-my-wife-recruited-sell-snake-oil/ - http://en.wikipedia.org/wiki/MonaVie
Pre-paid legal services, inc. - http://www.expertlaw.com/library/consumer/prepaid_legal.html