For more than a week, I have been enjoying the discussion ignited by Virginia Sole-Smith’s article on the pink pyramid scheme, Mary Kay Cosmetics. Naturally, Mary Kay Inc. has come forth with some flimsy excuses that do nothing to help them save face. These excuses included things along the lines of “most women don’t want to make money in Mary Kay!” and “we buy back the products if they want to quit!”.

Sadly, these excuses don’t even scratch the surface regarding the problems with multi-level marketing. The gigantic problem is that MLM is a system designed for failure. A tiny fraction of 1% of distributors make a respectable living, but only do so because the 99% below them are losing money in the scheme.

So why do people keep joining MLMs? Dr. Jon Taylor has researched multi-level marketing extensively, and has published his findings in an e-book called The Case (For and) Against Multi-Level Marketing. (Free download here.) He sums up the appeal of multi-level marketing into four points:

1. The “easy money” appeal of MLM is often couched in terms such as “time freedom” (to do what you want), perpetual or “residual income” (like author’s royalties or annuities), and   “unlimited income possibilities,” with the success of recruits limited only by their efforts.
2. MLMs are often sold as a viable alternative to an unfavorable job market and as a better route to retirement than traditional plans.
3.  MLM programs typically sell “pills, potions, and lotions” or other products that are consumable, that have unique appeal, and that can be claimed to deliver benefits not available elsewhere.
4. One sees a strong sense of belonging, or an “us versus them” cultish mentality.

Yes, it’s all about the money and belonging. Particularly in difficult economic times, people are turned on by the opportunity to make money. The initial investment in MLMs is usually low, so the shills are selling a “low risk” investment.

What they don’t tell potential recruits is that they have greater than a 99% chance of losing money in these schemes. Who would join if they knew this truth?