FTC Consumer Alert
The Bottom Line About Multilevel Marketing Plans
June 2000
Multilevel or "network" marketing plans are a way of selling
goods or services through distributors. These plans typically promise
that if you sign up as a distributor, you'll receive commissions—for
your sales and those of the people you recruit to become distributors.
These recruits sometimes are referred to as your "downline."
Some multilevel marketing plans are legitimate. However, others are
illegal pyramid schemes. In pyramids, commissions are based on the number
of distributors recruited. Most of the product sales are made to these
distributors - not to consumers in general. The underlying goods and
services, which vary from vitamins to car leases, serve only to make
the schemes look legitimate.
Joining a pyramid is risky because the vast majority of participants
lose money to pay for the rewards of a lucky few. Most people end up
with nothing to show for their money except the expensive products or
marketing materials they're pressured to buy.
If you're thinking about joining what appears to be a legitimate multilevel
marketing plan, take time to learn about the plan. What's the company's
track record? What products does it sell? Does it sell products to the
public-at-large? Does it have the evidence to back up the claims it
makes about its product? Is the product competitively priced? Is it
likely to appeal to a large customer base? How much is the investment
to join the plan? Is there a minimum monthly sales commitment to earn
a commission? Will you be required to recruit new distributors to earn
your commission?
Be skeptical if a distributor tells you that for the price of a "start-up
kit" of inventory and sales literature - and sometimes a commitment
to sell a specific amount of the product or service each month - you'll
be on the road to riches. Often consumers spend a lot of money to "build
their business" by participating in training programs, buying sales
leads or purchasing the products themselves. Too often, these purchases
are all they ever see for their investments.
Your Responsibilities
If you decide to become a distributor, you are legally responsible
for the claims you make about the company, its product and the business
opportunities it offers. That applies even if you're repeating claims
you read in a company brochure or advertising flyer. The Federal Trade
Commission advises you to verify the research behind any claims about
a product's performance before repeating those claims to a potential
customer.
In addition, if you solicit new distributors, you are responsible for
the claims you make about a distributor's earnings potential. Be sure
to represent the opportunity honestly and avoid making unrealistic promises.
If those promises fall through, remember that you could be held liable.
Evaluating a Plan
The FTC suggests that you use common sense when evaluating a multilevel
marketing opportunity and consider these tips as you make your decision:
- Avoid any plan that includes commissions for recruiting additional
distributors. It may be an illegal pyramid.
- Beware of plans that ask
new distributors to purchase expensive products and marketing materials.
These plans may be pyramids in disguise.
- Be cautious of plans that
claim you will make money through continued growth of your downline,
that is, the number of distributors you recruit.
- Beware of plans that
claim to sell miracle products or promise enormous earnings. Ask the
promoter to substantiate claims.
- Beware of shills—"decoy" references
paid by a plan's promoter to lie about their earnings through the
plan.
- Don't pay or sign any contracts in an "opportunity meeting" or
any other pressure-filled situation. Insist on taking your time to
think over your decision. Talk it over with a family member, friend,
accountant or lawyer.
- Do your homework! Check with your local Better
Business Bureau and state Attorney General about any plan you're considering—especially when the claims about the product or your potential earnings
seem too good to be true.
- Remember that no matter how good a product
and how solid a multilevel marketing plan may be, you'll need to invest
sweat equity as well as dollars for your investment to pay off.
The
FTC works for the consumer to prevent fraudulent, deceptive and unfair
business practices in the marketplace and to provide information to
help consumers spot, stop, and avoid them. To file a complaint or
to get free information on consumer issues, visit ftc.gov or call
toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The
FTC enters Internet, telemarketing, identity theft, and other fraud-related
complaints into Consumer Sentinel, a secure online database available
to hundreds of civil and criminal law enforcement agencies in the
U.S. and abroad. |
