Maybe this has happened to you: you suddenly receive a mysterious message from a former classmate who asks if you want to earn a 'passive income'. All you have to do is praise a very expensive weight loss supplement or Aloe Vera drink to heaven via social media and ask your friends to follow your example.
This marketing construction is called 'multi-level marketing' (MLM). For decades, MLM companies like Tupperware, Amway and Herbalife have been recruiting people with the promise of earning an extra income from home. It is estimated that 95 thousand Dutch people are currently employed in this sector; worldwide that number is 125 million. Partly thanks to the corona crisis, the popularity of MLM is increasing. A worrying trend.
The living room parties with which Tupperware caused a furore in the last century have been moved to the digital arena in 2021. With this, MLM companies attract a new target group: young people. Take the very young self-proclaimed Bossbabes from the company Valentus. In attractive Instagram Stories they sell slimming coffee and encourage their followers to become 'distributor' of this panacea just like them.
Becoming a distributor does not require any special skills or diplomas; however, you must invest in product packages that you can sell with a profit margin. Purchase price: about 130 euros for three packs of coffee. The high price and questionable quality make it a challenge to get rid of those products. That's why many distributors focus on a reportedly more lucrative source of income: recruitment.
When you recruit friends who also buy products, you earn commission. If they then recruit newcomers, you will earn even more. While MLM is presented as a "fair" chance to get rich, only a few at the top of this tiered system manage to get a full-time income from it. Research shows that between 74 and 99 percent earn nothing or even go into debt. Debts are easy to build up, because distributors regularly have to purchase expensive product packages.
Still, Bossbabes paint a dreamscape of expensive cars, tropical vacations, and a five figure income,all thanks to weight loss coffee. They proudly claim how they have "freed" themselves from their nine-to-five job or study and urge their followers to keep critical friends and family members at bay. After all, your real family is your MLM community.
A report by Radar about Valentus prompted the PvdA to put parliamentary questions to outgoing Minister Blok (Economic Affairs). What is the government doing about these deceptive practices by MLM companies? In short: nothing.
If there is a pyramid scheme, the Gaming Authority is authorised to act against it. In a pyramid scheme, participants are asked to deposit money and recruit new participants who also deposit money. Only those who get in on time can make money, so this 'game' is seen as a fraud. At MLM, however, there is a product opposite that deposit. A legal sales method, according to the Gaming Authority.
The system may be legal, but the consequences for those involved can be great. 'Lawful but awful', as criminologist Nikos Passas describes business practices that cause damage to society, but which the government does not or not sufficiently look after. No agency takes responsibility for controlling the ins and outs of MLM companies, and victims have nowhere to turn.
The multimillion-dollar turnover of MLM companies is therefore strongly driven by recruitment, just like with illegal pyramid schemes. Products often act as a smokescreen in this system. What needs to happen to stop this?
The most important step would be to designate a single responsible body to control and monitor these organisations. After all, MLM companies work 'differently' than ordinary employers and are now slipping through the loopholes of the law. In addition, the Gambling Act should be broadened so that companies with products can also be regarded as pyramid schemes when the emphasis is on recruitment.
However, prevention is better than cure and education is of great importance, for example through social media and schools. What can you recognize MLM by? What are the financial and social risks?
Finally, an appeal to young people who are considering also stocking up on packs of slimming coffee in the hope of getting rich: courage and entrepreneurship are qualities to be proud of. Use those qualities within a sector that is not only legal, but also really honest.
Claudia Gross is assistant professor at Nijmegen School of Management, Radboud University. Iris den Hartog is programme secretary at ZonMw.
copyright de Volkskrant 2021