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Buyer Beware: Direct Sales (Multi-Level Marketing)

This is the third post in a series called Buyer Beware on business models I generally don't support. Make sure to check for updates to see more on this topic. Read about One-for-Ones here. Read about Covert Missionary Operations here.
direct sales pyramid scheme critique

Admittedly, I've got a bone to pick with the direct sales people. I *tried* to sell Avon for a couple years in college and all I got was company debt (talk about owing your soul to the company store!) and a bunch of subpar makeup.

If you haven't experienced direct sales (similar models include home parties, trunk shows, and various iterations of "independent consultants"), you're one of the lucky few. You'll know when one of your friends has started selling makeup, clothing, jewelry, shoes, tupperware - you name it - through this model, because suddenly 90% of interactions convert into sales pitches.

HERE'S THE REALITY BEHIND THAT SALES PITCH:


1. Your friend learns about a "fun way to make money" in a nontraditional way. This is really appealing to students, moms, people who for whatever reason can't work traditional jobs, or people who are trying to balance lots of things and could use some additional income.

2. She meets with a brand consultant, typically someone higher up in the pyramid who lays out the program's benefits and helps her purchase starter kits, set up an account, and order catalogs and supplies. There is normally some investment at this stage, or at least the suggestion that having sample product will make her a better salesperson. Your friend purchases a starter kit and has already lost money.

3. Your friend's starter kit and catalogs arrive. She has been told that her best customers are her friends and colleagues. She gets to work telling everyone she knows that she's selling this great product that changes the world/is nontoxic/is uber cute/etc.

4. At first, her friends are like, "Cool. I'll buy something. Let's support so-and-so." Your friend reaches her minimum monthly order (not all companies have this guideline, but Avon did. If you didn't meet it, you had to pay a fee each month).

5. The next month rolls around and your friend is faced with the task of reminding all her friends that she sells an awesome product. They just wanted to go out for coffee. Everyone feels sad.

6. Your friend is having trouble making additional sales, so she reaches out for advice from her direct sales network and they all say that you just have to be persistent, so she posts incessantly to social media, throws "parties" to tell her friends about the new catalog, and orders more sample product.

7. All of her friends unfriend her on facebook. Nobody buys anything. Your friend dies a miserable death at the hands of the direct sales model. The world is ablaze. We are doomed.

I really hate direct sales. If the above object lesson didn't do it for you, let me summarize:

THE DIRECT SALES MODEL IS A LEGAL PYRAMID SCHEME.


The people on top make all the money and your only chance at middle tier success relies on you being sort of sleazy toward your friends and neighbors, except in rare circumstances where you may fill a need. Even then:

Forget coming out ahead — just breaking even can be tough. In his 2010 study of 12 multilevel marketing companies, FitzPatrick says, he found that the bottom 99% of salespeople did not earn a net profit — at all. The reason? Expenses. (Market Watch)

If you're just in it for the discounts, know what you're getting yourself into. To avoid fees or lower tier status, you will continually be told that your success hinges on turning your deeply meaningful social network into a sea of regular customers. That's not fair to you and it's not fair to them.

Add to that the reality that most people who get taken advantage of by these sorts of jobs are already poor, unable to find conventional or regular work, or desperate to make a little extra money. Not to mention the gendered dynamics: direct sales models are almost exclusively pitched to women, who still make just 77 cents on the dollar compared to men. Encouraging women to pursue a direct sales career that is almost inevitably doomed to fail does nothing to promote pay equality.

A clarifying point: Within contexts of affluence, like sororities, neighborhood organizations, or church groups, I'm sure direct sales can work quite well. But because direct sales is often marketed to people who don't have the advantage of collective affluence, a lot of the people involved don't have a real chance of success.

BUT WHAT IF THE COMPANY IS FAIR TRADE? 


My argument still stands.

Consider this: you spend hours a week as a direct sales consultant advertising for a company that may never even pay you for the work you've done, because it completely rests on your shoulders to make the sale and get the commission. Even if the company has good intentions, this simply isn't fair. Add to that the tough sell of higher priced products and you may find yourself in a bind pretty quickly.

In most cases, in fact, the fair trade direct sales model makes me even angrier than conventional models, because it uses all this marketing on the front end to talk about offering fair wages to its artisans but it quietly ignores the fact that the consultant may make close to nothing. People in Cambodia or Uganda or Guatemala don't matter more than you. We're equal. Let's make that clear in our sales strategies.

TL;DR: The direct sales approach is a legal pyramid scheme that has exploitation built into its framework and is ultimately not compatible with fair trade.

(If you sell through a Direct Sales company, please know that I don't hate you. To the contrary, I don't want you to be taken advantage of the way I was in college. I intentionally didn't call out particular fair trade brands, because this isn't a brand problem, it's a structural problem.)

Additional Reading: 


Update 11/8/16: Don't take my word for it! Check out this John Oliver clip on Multi-Level Marketing



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Read Parts One and Two.

Coming up in this series:


- Exploitative Advertising Practices
- Great Mission, Terrible Products

15 comments

  1. I love this post and your humor, too! I sold Mary Kay cosmetics for a little while and realized everything you mentioned. When you see MK described in ads as "America's Best-Selling Brand," it's not because they are tracking customer sales. It's "best-selling" because the consultants are forced to buy thousands of dollars worth of products, and that's what is calculated as sales.

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  2. Seems a nice place :)
    BLOG M&MFASHIONBITES : http://mmfashionbites.blogspot.gr/
    Maria V.

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  3. Hi Leah,
    I've always loved reading your posts, but I have to tell you I think you're being more than a little harsh here. I can sympathize with you on your bad experience with Avon, but that's no reason to lump all direct sales companies together. There are vast differences in direct sales and it'll probably come as no surprise that I have to defend Noonday Collection. This statement was so out of line, and I would even say it's just plain mean and uninformed: "So please don't ask me why I'm not featuring any number of "fair trade" companies that work primarily through direct sales and home parties. It's not fair trade at all."

    Noonday Collection is a member of the Fair Trade Federation, so for you to put fair trade in quote marks is a little insulting. Have you done any research into what you're saying here? I can't speak for all direct sales companies who work with artisan groups, but I've been an ambassador and an advisor for Noonday Collection for almost 4 years and I can testify to their ethics and business model. I've spent time with artisan partners in South Africa, Guatemala, and Rwanda (and heading to Uganda this summer), and I personally know the owners of the company and consider them good friends. I can testify without a shadow of a doubt that this business model WORKS and is enjoyable and benefits EVERYONE involved! You paint direct sales people with a broad brushstroke as pushy, friend-less, manipulative, and miserable. My experience has been the exact opposite. Direct sales can be done well, with sincerity and love. My friends aren't terrified of me. I don't even have to ask them to host, they LOVE to have trunk shows and invite all of their friends over! I think women in my age group and stage of life actually love to shop this way: at home with their friends instead of at a mall or online! Noonday emphasizes trunk shows as places where women can connect, both to others in her community and to artisans around the world. I've sold fair trade, artisan-made goods through several different methods: non-profits, retail online, and direct sales, and there is no doubt that direct sales is the MOST effective way that I've found to advocate for artisans and introduce large groups of people to fair trade.

    I politely ask you to not talk down about ALL direct sales companies and especially not those of us who actually love what we do and believe in the company we work for.

    in love,
    Shannon
    http://shannonriesenfeld.noondaycollection.com
    http://thefairtradefashionistas.com

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    1. Thanks for your response. I know that there are anomalies and contexts where direct sales works better, but as a model, I still find it ultimately harmful. My assertion that fair trade direct sales companies aren't fair has nothing to do with whether they're certified under ethical certifications or part of ethical communities, and everything to do with how the model hurts the sellers themselves.

      Within contexts of affluence, like sororities, neighborhood organizations, or church groups, I'm sure direct sales can work quite well. But because direct sales is often marketed to people who don't have the advantage of collective affluence, a lot of the people involved don't have a real chance of success.

      I spoke with a friend whose wife works in Corporate for a direct sales company and he said that some Latino immigrant communities do ok for themselves because they form trade unions and canvass whole communities. That's an innovative idea, I think, and one that protects them from some of the fallout.

      As I stated at the end of my post, I care about people. That's the ONLY reason I can't support a direct sales model. I didn't call out names of any fair trade, organic, or small scale companies because, while I'd like people to consider my critique, I don't think it's helpful to call out the brands involved, because it's not an individual brand problem, it's a structural problem. I've never seen a direct sales model thrive in the long term in any circles I've brushed up against and I continue to believe that there's something ultimately dangerous about friendships that have an undertone of commerce or personal gain. That's not to say that YOUR friendships feel that way, but it remains a very real danger within the model.

      I knew going into this series that some people would bristle at these posts, but I think it's better to be transparent about it than to quietly avoid mentioning certain brands. I respect you and the work that you do and hope that we can continue to have fruitful discussion.

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  4. Hey friend,
    To be fair, you did call out Noonday Collection specifically in your labels. I appreciate your heart in trying to protect people from being taken advantage of. It sounds like your experience in direct sales hurt you deeply and you don't want others to fall prey. My worry is that this kind of post that generalizes all direct sales, and specially says that fair trade companies are "not fair trade at all" and "capitalism at it's naughtiest" is only hurting, not helping anyone. Your heart may be for the people you think are losing money by not being able to sustain this kind of business, but MY heart is for the artisans that create all of our accessories and who are counting on our business to feed their families. When you spread ill will about my business, it only hurts these people that I love by making customers feel negatively about our business model, and therefore would never purchase our products, attend a trunk show, or sign up to be an ambassador.

    Your readers probably LOVE fair trade, or at least are interested in learning more about it. And maybe they'd even like to support it more by selling products made by artisans! For most people, it's completely unrealistic financially to establish their own LLC, website, branding, relationships with artisan groups, travel overseas, and invest a lot of money in inventory. However, by signing up for to be an independent ambassador with a company like Noonday, it makes operating your own fair trade business a reality! Yes, you may have to buy some samples and catalogs, etc., but you don't have to invest thousands of dollars in inventory, build a business from the ground up, worry about packing and shipping, etc. It's much more manageable and such a great option for hundreds of women who wouldn't be able to do something like this otherwise!

    I just want you to realize the impact of your words and the negative effect they can have on people. Your post title is "buyer be wary" which implies that customers themselves should steer clear. Direct sales may not have been a good option for you personally, but that doesn't mean it's "harmful".

    Lots of love to you. And if you're ever in Annapolis, come to one of my trunk shows to try on artisan-made accessories! I promise I won't recruit you! ;)

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    1. There is ample evidence to support my claim that direct sales generally isn't profitable for lower and middle tier salespeople. I will remove the Noonday tag from my post; that was an oversight (I totally forgot I put it there) and I didn't mean to be Janus-faced there.

      I DO realize that my words impact people and that my ACTIONS impact people, too. And that structural decisions make a difference in the longterm. You are entitled to your decisions. I believe, as you do, that direct sales companies' products and branding can be good, useful, even beneficial - but the model is still a problem. It will never not be a problem. Now, if it were a coop, that would be another story.

      Above all, I believe in transparency, accountability, and pursuing models that work well for everyone for the long haul. Direct sales and one for ones don't do that. Does that mean that I would advocate that we boycott individual brands? No; but it does mean that, if given the choice between an option that uses a direct sales model and one that doesn't with roughly the equivalent product and the same heart for fair trade, I'll choose the one that doesn't use direct sales.

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    2. I've looked into this topic a bit in the past, and Raven & Lily and Ten Thousand Villages both sell jewelry from the some of the same artisan groups used by Noonday, but without the direct sales aspect. Personally, I think Noonday appeals to a certain demographic of Christian women, and those outside that circle (including me) find some of Noonday's practices questionable. The adoption focus specifically troubles me.

      Also, within all direct sales models, there's the issue of market saturation. If you recruit all of your friends and family to sell your product, then who is going to buy them? And most women do not replenish their makeup or jewelry monthly.

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  5. I've always had a bad taste in my mouth about direct sales and pyramid schemes. Some people (including me) would initially think LuLaRoe falls into this category- but I would disagree. I don't post about lularoe on my personal Facebook (there have been a few exceptions when I shared giveaway opportunities because I always like giveaways personally and I like to share.) I never bring it up at social events unless I am asked. My Facebook friends have not unfriended me, and I am not in debt. It's the same as opening a clothing boutique and buying clothes whole sale and selling them retail, except I don't have a brick and mortar store. I know some of the clothes are outsourced for production so I wouldn't go so far to claim that it is a perfect company- but it is giving me the opportunity to support my family while being home (one of the appeals you suggested) and my husband can finish his degree without daycare debt or childcare limited schedules.

    I love the community- I do not have to enlist anyone under me to be successful. I love the positive culture and how the young company is working to improve as it grows. (Yesterday they announced a new policy that any of our inventory that is damaged in transit is now to be donated rather than returned to them as it previously was.) little steps, and I'm happy to be a part of it- and push for the things that matter to me (I'm excited to become a voice!)

    And for the record- there are a MILLION places that sell equally adorable clothes, I am totally fine with anyone who would opt out of purchasing LuLaRoe- but if they would like to- that's awesome too.

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    1. Thanks for your insight, Jess! I know that some of these programs can work out as intended and I appreciate your insight. I'm interested in knowing how it goes over time. That model is interesting, not unlike selling vintage clothes on etsy. Eventually that proved very hard to maintain for me at the part time level and I felt it was best to say goodbye. I wish you the best and hope you know I wasn't talking about you when I mentioned incessant facebook posting. I have unfriended a few acquaintances who literally didn't post about anything else.

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  6. I'm anxious to see how it turns out as well and how the company grows/changes over time. It's still really new and I'm still nervous, but I'm hopeful and motivated! Once school is out for the summer and my client circle is more solidified, I'd like to contact home office and inquire about what they are doing to improve the ethical production of their clothing, and/or what safe guards if any they already have in place. Don't be surprised if I turn to you for advice on how to broach the subject! I want to support my family but I *also* want to have a voice!

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  7. I think this is a fantastic piece. I understand some feathers were ruffled but we share a lot of the same fears and concerns. I've seen too many friends fall prey to MLM and end up losing money and confidence. I wish there was a way we could take this momentum and drive women have and turn it into profitable, sustainable (both in the eco sense and the financial sense of the word) and enjoyable businesses. Good for you for tackling a prickly subject!

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  8. I realize I'm late to the [at-home] party here, but I had to come back to this post after reading it a month ago. A friend of mine from high school is the newest addition to direct sales gang on my Facebook feed, hocking a Norwex, a thing I will likely never need. I dug into your archives to find this post so I could passive aggressively post it on my own newsfeed.

    Something I find really sinister about direct sales in any industry -- crap makeup (Mary Kay), jewelry (Stella & Dot), ethical fashion (Noonday) -- is how there's the exact same bottomline: get cash up front. A successful business knows cash flow is king -- not profit -- so they're selling their wares to ambassadors at wholesale cost and passing their risk to someone else. Whether you succeed or fail, they already have your money. Sure, maybe they're selling a community or empowering...someone...but I guarantee the strategy behind the model is to get the cash up front, move product, and use personal relationships to increase conversions. After all, it's marketing 101 that friend-to-friend recommendations are the #1 driver in sales. The direct sales model has it lock because their sales representatives are actually paying to work for them. They're the real customers, not the employees.

    It wouldn't bother me as much if all of these brands didn't sell the product straight-to-consumer on their website, or if there were a separate, exclusive line for ambassadors. I once found myself at a Stella & Dot party without cash (I thought I was going to a luncheon as my friend's date). There was a necklace I really liked, but I couldn't buy it, didn't remember the woman's name, and ended up Googling Stella & Dot to buy it off their website. I can't be the first person to do this. They got my money with a much higher margin.

    At the end of the day, brands and products get customer loyalty, not people. How many times have we glossed over a friend's GoFundMe post that says, "if all of my friends donated $10..." but readily donated money to the new Humans of New York fundraiser? MadeFAIR has been live for 8 months and three of my friends have made purchases -- four if you include the one who works for me and gets a substantial discount. So, unless an ambassador is well-versed in marketing and sales to strangers, their new business venture will be unsustainable.

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  9. Thank you for your response. Seriously, this helped confirm that it's not just me. And your point about cash flow is one I hadn't even considered, but it's totally on point. My friend sells Lula Roe (she commented above) and they shut down their online shopping option, which I think is a step in the right direction. If I want their product, I have to go through someone I know. With Noonday, it seems like a ton of people have social media accounts set up to promote the product and it makes it feel like their product is flooding the market. I think it creates confusion on the consumer side of things because there's essentially no difference between each seller.

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    1. I literally came here just to see what your thoughts were on Noonday since they employ the direct marketing model. Ha! I have the same discomfort with direct sales - almost every single friend who I have seen become a seller either does it because they truly like the product and want the discount OR they make faulty attempts at selling and eventually peter out and (I strongly suspect) lose money in the end - they never admit it, though. It's so sad to watch. I also really abhor how these businesses particularly prey on women and push a pretty corrupt definition of the phrase "empowerment of women". Sigh. Any business that makes you pay to be a part is not empowering you.

      However, I really do tend to like Noonday's styles/products and fair trade ethic quite a bit, and have bought at least two items directly from their site without ever having been marketed to directly (I think I found them through Jen Hatmaker originally). Do you think it's ok to buy directly from the website (to voice my vote that they simply leave behind the direct sales because their products need no particular direct marketing?) or is that still ultimately supporting a company that employs the MLM model that I so dislike? Would love to know your thoughts! I love putting my $ toward fair trade items, but I'm wondering if there's a company similar to Noonday in quality/ethics/care of employees that I could support instead?

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  10. I would love to hear specifically why you don't think direct sales is a good business plan for fair trade. Thanks!

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