Multi-Level Marketing
Categories: Marketing
Ever hear of a pyramid scheme? This is the legal version.
Think: Avon, Tupperware, Herbalife. These companies don’t sell directly to customers. Instead, the company sells its products to representatives, who then sell to individuals. That situation provides the "multi-level" part. If you want to buy something, you don't go directly to the company. There are several levels of salesmen between you and the manufacturer.
When your friends host a candle party, or an adult toy party, or a gathering to sell protein shakes, they are involved in multi-level marketing. They start by selling to customers. Then, to make real money, they advance to the point where they're bringing in their own salespeople under them. Then, if all goes well, those folks bring in a new group of salespeople to work under them.
Levels upon levels...with fewer people at each stop on the way up the structure. Shaped almost like, uh...a pyramid.
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Finance: What are ponzi and pyramid sche...0 Views
Finance Allah Shmoop What are Ponzi and pyramid schemes Think
about those old movies you know the ones with the
scam artist The con men work in their mark The
grift the con the flim flam the hustle the bamboozle
While we're here to let you in on a little
inside dope we've got two scams you'll need Teo you
know lies up to the Ponzi scheme and a pyramid
scheme First let's talk Ponzi schemes And to start there
was actually a guy named Pansy Charles Ponzi He was
a con man during the nineteen twenties You know the
time of flappers and speakeasies and folks doing the Lindy
hop on top of flagpoles People were making money on
Wall Street hand over fist and in Florida land deals
And for a while with Mr Charles Ponzi you know
who had a very particulary investment structure But he didn't
actually invent the hustle Different con artists had used it
And authors including Charles Dickens had described the scheme for
at least seventy years before Ponzi gave his name to
the setup Well a Ponzi scheme works like this The
fraudster attracts investors by offering up big guaranteed return on
their investment For instance the actual Ponzi promised fifty percent
profit in forty five days and one hundred percent return
in ninety days He claimed that he was using some
kind of postage arbitrage to reap these returns In actuality
he just used new money coming in to pay off
old investors Well Ponzi got initial investors to give him
some money He used that money to help find new
investors and those new investors then gave the fraudster their
money And then he used the new influx of cash
to pay off the initial investors and kept going And
it all went well for a while But eventually it
stopped It became impossible to find new investors quickly enough
to pay off the old ones and make him go
away Eventually the whole thing blew up Well the most
famous Ponzi scheme in history isn't actually the one perpetuated
by Charles Ponzi It was run by this fine gentleman
named Bernie Made off he ran a multi billion dollar
Ponzi investment scheme disguised as a successful money management business
He was a respected figure on Wall Street for decades
and use this high profile respectability to rope in nearly
five thousand clients Well victims have made off included actor
Kevin Bacon and Nobel Prize winner Elie Weisel and pitching
great Sandy Koufax Well the scam would work like any
Ponzi scheme Kevin Bacon deposits a million dollars Madoff takes
a cut for himself then uses that money to pay
off other investors That only works as long as there
are new investors coming along to get involved Eventually though
Ponzi schemes run out of new blood and Madoff scam
eventually blew up in two thousand eight when the financial
crisis spooked Investors who asked for their money back and
well made off just ran out of money to pay
off the clients And ultimately while sixty five billion dollars
went up in smoke okay onto a pyramid scheme A
pyramid scheme involves your three bedroom two and a half
bath Victorian style pyramid being listed on Zillow and well
this guy's your realtor You called our bluff It's actually
named after the shape of a pyramid The Egyptians are
in no way involved And yes you geometry nerds Out
there we realised this image is a triangle and not
a pyramid Three D rendering is expensive around here from
up there with us The idea is the same So
you started the top with one person He gets money
from each of the people he recruits They finds two
people They pay him money for the right to recruit
other people into this pyramid scheme They also get money
for recruiting people So each of them finds two people
Same deal These new recruits pay money upward and so
on It keeps going and going just like Fonzie scheme
Well the pyramid goes as long as there are new
people to come onboard until it stops But eventually a
number of people available for recruiting runs out The people
on the bottom can't find anyone new stupid enough to
contribute money to this thing The people on the high
levels make money and disappear but well the people on
the bottom we have the largest group They're out of
luck and pretty much out of money The problem with
pyramid schemes While some legitimate companies have very similar structures
they're called multi layered marketing companies or MLM So you
probably heard of him Avon Party Light Herbalife Yeah those
guys You know your friends who sell candles or makeup
or nutritional Shake those air All ml EMS one level
recruits people on other levels with money moving upwards to
the top and it's all legal The difference Well theoretically
riel products are eventually getting sold to really customers A
classic illegal pyramid scheme just has money moving up and
not much value sent out or moving down But just
as in some of those old movies it's not always
easy to tell the good guys from the bad The
Bernie Madoffs of the world can look like legitimate Wall
Street players but turn out to be Ponzi scammers And
the new Invisible Lipstick product you're so excited about selling
can turn out to be a you know pyramid scheme
You have to be careful because well it really all 00:04:47.628 --> [endTime] can blow up in your face Hey