Last Saturday, The Weekender took a look at the relatively new spike of irresistible promises of financial freedom, in the form of Multi Level Marketing (MLM) and Pyramid Schemes, spreading locally. While variations of these “business models” are nothing new in any part of the world, it seems they remain hard to recognise, and a few have been spreading here primarily through social media, especially since the last quarter of 2018.
The fastest growing MLM programme by far has been Total Life Changes (TLC), an American company offering detox and weight loss products such as tea, appetite suppressants, and energy boosters.
Anyone, who knows what a pyramid scheme is, would immediately pick up on a few red flags when first hearing about TLC, and would then need to look closely at specific details to try to figure out how it, or any MLM company, is not flat-out considered a pyramid scheme.
In fact, the jury is still out on whether all, most, or just some MLM programmes are simply refined product-based pyramid schemes that have not also been made illegal due to the fact that they are notoriously tedious to track, research, classify and prosecute.
MLMs also know how to operate in grey areas such as the under-regulated supplements industry. The system makes it unlikely that those who lose out ever file complaints, and the industry has surprisingly strong lobbying power.
The way companies using this business model are able to take advantage of legal loopholes and inefficiencies, psychology (especially group psychology) and different socio-economic factors are actually… pretty brilliant.
The Weekender interviewed Rosina Romeo, who was the first on St. Maarten to join TLC, and this publication has also spoken to other participants and prospects on the basis of anonymity.
Romeo joined in June, and introduced the product to the public shortly afterwards via word of mouth and meetings at University of St. Martin, because she says she liked the product and wanted to let others in on the deal. There are now almost 80 local participants, and that number continues to grow.
Romeo has been putting in serious hours, is happy with the programme, and does not believe it to be a pyramid scheme. When asked about the pitfalls associated with MLM companies (and pyramid schemes), she offered explanations as to why TLC doesn’t have some of the pitfalls.
There are indeed a few differences here and there which lessen the impact of some of the typical pitfalls, however, some of those adjustments (such as selling and recruiting online instead of only on-island) only defer the problems of oversaturation and the “pyramid shape” needing exponential growth in order to not crumble from the bottom-up.
While the first participants in any new market will indeed see quick returns and steady growth, this cannot possibly remain the case for people further in the ‘downline’.
Besides oversaturation of the market, there are simply fewer and fewer people to recruit as time goes on. So while the online world seems almost limitless, and recruitment/sales can be divided between the island and the rest of the world, there are only so many levels possible before an impossible number would need to be reached.
In the graph, a branching factor of six is considered, meaning the numbers are looked at if every participant in an MLM or pyramid scheme recruits six people.
It shows that in just 11 steps, the number of people needed would exceed the entire US population, and it would exceed the entire world population in 13 steps. Now apply it to St. Maarten, and that becomes just over six levels needed to exhaust the population; 10 levels exhaust the entire Caribbean population by around 16 million.
But let’s say we don’t expect everyone to gather six recruits. Let’s make that three. A branching factor of three encompasses the St. Maarten population in 10 steps; and the Caribbean population in just over 16 steps. That includes entire populations, not limiting it by age or who might even be interested in buying into a programme.
Stormy Wellington, the person Romeo learned about the company from through social media, is charismatic and inspirational; she built a name for herself despite very hard circumstances, joined TLC years ago and was able to recruit 300 participants in the first year alone.
Like many MLM participants, including interviewees for this article, Romeo says she was sceptical at first, but was won over by the product after she tried it.
The fact that a product is involved in the first place is usually cited as a reason something is not a pyramid scheme. However, there are “product-based pyramid schemes” that amount to the same results. These results being that mathematically, the vast majority of participants must lose, in order for others to succeed. It’s a gamble, and chances depend not on work and luck, but on someone’s position in the hierarchy, and how much of a “new market” they have exposure to.
In cases that seem unclear, key factors to consider are whether or not there is an emphasis on recruitment into the programme, whether the product seems either low-value or overpriced compared to similar products on the market, and whether or not the company is able to give certain financial information.
Companies should be able to give estimates of how much distributors can expect to make, and not just vaguely say that “it depends on how much you put in.” MLMs typically de-emphasise the improbability of participants gaining significant income, while actively encouraging participants to believe that they can achieve large returns.
This encouragement is compounded by a strong emphasis in positive thinking that is echoed throughout the programme, and TLC is definitely not different in that regard. It encourages personal development and lots of daily inspiration, which is enjoyable and fulfilling – this being something heard from The Weekender’s different interviewees, as well as through other researchers.
This form of group psychology keeps people “on track” and simply minimises critical thinking, which is easily dismissed as negativity and/or jealousy. In fact, TLC makes blatantly over-the-top health claims, distributors use all sorts of false equivalencies in their pitches, and even when interviewees were asked about this, the typical response is often to say that maybe the person should have phrased it differently, but their intentions are always seen as genuine, no matter what. It is simply wrong to think negatively about the details, because it’s better to be positive.
Back to what financial information companies should be able to provide: they should be able to give a breakdown of revenue, specifically how much is made through recruitment, through sales of product within the programme, and sales of product to consumers who are not in the programme.
Unless you know this in advance, you’d never think to check – and none of the interviewees did. This information is not available online, or is extremely hard to find. Those familiar with the field have also tried to research the same thing and have come up empty handed. For obvious reasons, that information will not easily be made available by any MLM.
Romeo also explained that because there are five different ways to get paid, that makes the company different from other MLMs. While many reviewers have mentioned this, as a bottom line, anyone looking to make money needs to recruit others to their downline, and make sure that they are actively selling, and hopefully recruiting more still.
There are both active and passive ways of gaining money/value points, but the system is set up so that you need a downline to get anywhere. To maintain one of the first steps in your journey, being “binary qualified”, you need to maintain two active members in your downline. You also have to help your downline, which sounds benevolent, but that’s just part of the system.
She sees pyramid schemes as something where you are not able to move upwards, in line with the opinions of some other participants. However, your recruit might surpass you in status, which is true – that doesn’t exclude it from being the same as other MLMs, but it is a perk.
Also on the plus side for this company is that the start-up costs are not very high, compared to many other MLMs. The initial investment was easily earned back by Romeo and other interviewees. Real starter packs for those wanting to do business are of course higher, around $300, but it’s a choice.
There are minimum monthly purchases needed to stay an active distributor, for example $55, but the amount depends on your status within the hierarchy. This is one sign of pyramid schemes: The monthly fee is masked with a product that shouldn’t cost that much, and “recruitment” is still the name of the game.
However, Romeo said that participants are not pushed to stock up on product in any significant sense. It’s up to the distributor how much extra product they would like to have, so the risk of being stuck with way too much excess, is reduced.
This was a well-known pitfall of Herbalife, another MLM that has caused significant financial damage to participants who were pushed into high expenses and sometimes found themselves stuck with excessive amounts of unsellable product.
Romeo says that people like the product anyway, so it is easier to sell, and since participants are not pushed to stockpile, it’s less risky.
She also pointed out that she has had experience with another MLM, and likes this one better because she has seen returns, and likes that there is more guidance involved. A six-figure earner came to St. Maarten (and went to Curaçao as well) to introduce the company. That’s not common at all, Romeo said.
Some critics of MLMs say that this is a technique used to gain credibility and a better following, when a participant is able to meet people at higher levels and finds them accessible. However, it’s impossible to research whether this is the only motivation here.
Notably, other participants interviewed have also had bad luck with other MLMs, and this is also typical within the industry.
One more pitfall in the industry is that products tend to be overpriced, which is bad both for the consumer and for the person trying to sell the product. If you’re not sure whether a company is a product-based pyramid scheme, seriously overpriced products are one of the signs.
However, opinions on pricing are subjective. In the health and wellness industry, as with some other industries, it can be hard to judge what a price should exactly be, especially when products are promoted as healthy “proprietary blends” with lots of alleged health benefits.
In most reviews available, even people who often deal with the MLM industry say that TLC products are quite pricey. Consumers who use supplements and teas would probably agree.
Something easy to compare would be single-ingredient products. TLC sells emu oil, certified by the American Emu Association (AEA), at $29.95 for a 30ml bottle. The same single-ingredient product can be bought for $5.95 from other AEA certified companies.
With so much space for sales commissions needed for multiple people on the same product, 50% for the seller and then more for those above them, the price is inevitably high.
Besides details of the business structure, ethical and even legal issues surrounding the over-the-top medical claims made by distributors were also addressed, but are too long to elaborate in this article. Officially, everyone says that they are not making medical claims, but many distributors, online and on-island, blatantly do.
To Romeo’s credit, it’s not as if she invented the business model, and she has no control over how the company, or MLMs in general, operate. She joined and has encouraged others to, because she likes the company. She’s encouraged by her successes, and is taking it as proof that the same is possible for others. To her credit, while she also preferred to not “be negative” when asked about things like very questionable medical testimonies, she has not herself used obvious misinformation and highly emotional pleas or bad arguments to sell the product.
The industry in general remains opaque, convoluted, and clearly benefits from people being kept in the dark on their chances, as well as being encouraged to not question anything, under a veneer of positivity. TLC is no different there. Although TLC has some customisations which may lessen a few pitfalls of MLMs, MLMs remain closely related to product-based pyramid schemes – and before being able to make a proper decision, consumers need to have certain facts that are very hard to research.
