Many people still fall for new forms of network marketing, multi-level marketing (MLMs) and other organisations that, despite their products, strongly resemble pyramid schemes. However, Claudia Groß (Radboud University) and William Keep (College of New Jersey) discovered that scientific research is remarkably lenient in its assessment of this business model. This may be because much of the research in this area is funded by lobby organisations, the researchers write in a paper published today in the Journal of Marketing Management.
Network marketing is often associated with companies such as Herbalife and Tupperware. People are lured in with the promise that they can earn a lot of money with unique products or by taking a course. In practice, however, you can only earn good money by recruiting other members, and most participants end up losing money. Claudia Groß, a researcher at Radboud University, warns: "Through Instagram, TikTok and other social media, MLMs are increasingly reaching vulnerable young people with expensive courses and trade in dropshipping and cryptocurrencies. This can cost them thousands or even tens of thousands of euros."
Risks underestimated
For their research, Groß and Keep reviewed 33 legal publications on MLMs and 68 publications from highly ranked marketing journals. Based on this, they identified eight legal risks associated with MLMs that are often mentioned in the literature. For example, participants and organisations behind MLMs often lie about how much money you can actually earn, and in many ways they have the structure of pyramid schemes, because you spend money on products you cannot sell and on services that yield little return. You earn money mainly by recruiting others, but in doing so you recruit your own competitors, who are also unable to earn anything from sales. Furthermore, claims made about products sold by MLMs are often not legal, such as supplements that supposedly cure cancer, infertility or COVID-19.
According to the researchers, these negative aspects of MLMs are clearly evident in the legal publications they reviewed. However, the authors soon noticed that the tone was quite different in the marketing research. Groß explains: "Of the 68 publications we reviewed, a large majority were positive about the MLM industry. They do not mention the problems, but focus mainly on how much consumers could earn from it and the personal growth it brings them. Sometimes, outright misleading statements are even made that downplay the risks of MLMs."
A finger in the pie
As it turns out, the MLM industry has their fingers in the pie when it comes to marketing research. Groß: "In 40 of the 68 papers we examined, the authors had direct links to the MLM industry. In some cases, the research was funded by lobby organisations, in others, researchers had additional positions or fellowships with lobby organisations such as the Direct Selling Education Foundation. The exact nature of these fellowships is not always clear, but there was always a fairly direct link."
According to Groß, this creates the false impression that scientific research shows that there are few risks associated with MLMs. "You could compare it to the lobby of cigarette manufacturers, who for years used commissioned scientific research to downplay the risks of cigarettes. MLMs also have serious risks that are not currently being adequately addressed. This makes it easy for the industry to point to research, thereby wrongly suggesting that no new legislation is needed."
