History of MLM, MLM vs. Ponzi/Pyramid Scams

Here comes September! It's BER months na naman! Hataw hataw na people, WAPAK! Payaman! Malapit na ang PASKO, dapat mas maganda this year TAMA o TAMANG TAMA?

Kaya, let's go back to business, MLM business here in the Philippines. Lately I felt my blogs were a little bit "straying" off the topic, which is Network mMarketing. So let's start the month right, and no better way to start than to go BACK TO THE BASICS.

What really is Multi-Level Marketing or Network Marketing? Time to set the record straight.

Most of us already have an idea or understanding about MLM or Network Marketing...

"Pyramiding yan! Puro pera-pera lang eh! Peramiding nga."
"Networking ba kamo? SA UNA LANG YAN!"
"Ah, yan yung home-based business. Maganda yan kasi pwedeng part-time lang at pwede din namang full time! Kaya kinakareer ko na."
"MLM is the BEST BUSINESS EVER! Legal na legal yan!"
"Networking is just like selling, it's just another form of marketing where people move the products, and therefore earn profits, instead of traditional middlemen."
"Networking ba networking? Di ba yan yung recruit-recruit? tapos dadalhin sa semi-seminar? Kaya ayoko sumama-sama eh, punta na lang ako sa Target-Target."
"NETWORKING NA NAMAN? ALAM KO NA YAN! Kalokohan lang yan, Madami na nga taong nasira buhay dyan! Mapa politiko man o pastor. Tsk Tsk Tsk."
"No comment. Kumita ako dyan dati, kaso eto napaso..."

Mainit pala ang networking? Pero bakit sabi ng iba, hindi lang daw sila napaso, NASUNOG pa, tustado? Apoy pala?

Medyo mahirap pala etong topic na ito ah! Mabuti pa, i-retrace natin ang History ng MLM, para luminaw ang usaping ito. Actually, mas mabuti sigurong simulan ko na sa history ng Ponzi Scheme and Pyramiding para tiyak na luminis ang tubig na pinalilinaw natin.

The Ponzi Scheme

1910 police mugshot of Charles Ponzi.

"The name of this type of fraud is taken from the first truly infamous man to use the scheme: Charles K. Ponzi. In 1920, some years after arriving to the United States from Italy, Ponzi began his scheme. His claim was to be performing arbitrage with international postal reply coupons (IRC), used to purchase postage stamps.

Ponzi claimed that he would have money sent to agents abroad, such as in Italy, where they would purchase the coupons. Those would then be sent to the United States and redeemed for stamps of higher value. His claimed net profit after costs and expenses, and considering currency exchange rates, was over 400%.

However, after pulling in millions of dollars, it eventually became apparent that the investment plan was nothing but a fraud. It was uncovered that, in order to reach the level of investments that were made, 160 million coupons would have needed to be issued. In reality, only 27,000 had been. Soon afterward, Ponzi was arrested and indicted."

(Source: http://www.mijiki.com/what-is-a-ponzi-scheme.html)

Pyramiding Schemes

"As its name indicates, the pyramid scheme is structured like a pyramid. It starts with one person - the initial recruiter - who is on top, at the apex of the pyramid. This person recruits a second person, who is required to "invest" $100 which is paid to the initial recruiter. In order to make his or her money back, the new recruit must recruit more people under him or her, each of whom will also have to invest $100. If the recruit gets 10 more people to invest, this person will make $900 with just a $100 investment.

The 10 new people become recruiters and each one is in turn required to enlist an additional 10 people, resulting in a total of 100 more people. Each of those 100 new recruits is also obligated to pay $100 to the person who recruited him or her; recruiters get a profit of all of the money received minus the initial $100 paid to the person who recruited them. The process continues until the base of the pyramid is no longer strong enough to support the upper structure (meaning there are no more recruits). (From pyramid schemes to envelope stuffing, there are a lot of scams masquerading as legitimate part-time work.

The problem is that the scheme cannot go on forever because there is a finite number of people who can join the scheme (even if all the people in the world join). People are deceived into believing that by giving money they will make more money ("with an investment of just $100, you will receive $900 in return"). But no wealth has been created; no product has been sold; no investment has been made; and no service has been provided.
The fraud lies in the fact that it is impossible for the cycle to sustain itself, so people will lose their money somewhere down the line. Those who are most vulnerable are those towards the bottom of the pyramid, where it becomes impossible to recruit the number of people required to pay off the previous layer of recruiters. This kind of fraud is illegal in the Unites States and most countries throughout the world. It is estimated that 90% of people who get involved in a pyramid scheme will lose their money."

"Together at the top, like a PYRAMID..."

Ibig sabihin, ang Ponzi Scheme at ang mga Pyramiding Schemes ay generally naka-focus sa recruit-recruit lang. Walang produktong gumagalaw. Tao-tao lang talaga. Para mas maliwanag, pag-aralan natin ang pinag-simulan ng legal na legal na Network Marketing...

The History of Multi-Level Marketing 

"1934 - Carl Rehnborg started the California Vitamin Corporation selling what today are known as vitamin supplements. In 1939 the company changed its name to Nutrilite Products Company, Inc.

1945 - Nutrilite contracted with Mytinger & Casselberry to become the exclusive American distributor of Nutrilite products. Mytinger & Casselberry created the first documented MLM compensation plan. It worked like this: A Nutrilite distributor bought his supplies at a 35% discount. (Ex: A distributor bought a box of vitamins for $13 and then sold them for $20 = $7.00 profit.)

To encourage the distributor to sell more, Nutrilite paid an extra monthly bonus of 25% on the total sales. 20 customers x $13.00 (wholesale value) = $260 x 25% =$65.00 profit.

Once the distributor proved that he could get 25 customers he was allowed to become a DIRECT distributor - which meant that he could find others who wanted to sell the Nutrilite products and then they would buy their products from him. In essence, once he proved that he could get customers he was “promoted” and allowed to find other distributors and to train them to get customers. As an incentive to train his distributors well, once he and his distributors amassed 150 customers, he received an additional 2% of the total sales volume.

This is not a pyramid - it’s a quota-based system of management. Those who sold the most boxes of vitamins got a higher reward than those who sold little. The MLM compensation plan was simply an extension of the Fuller Brush Company rewarding production. With MLM (Network Marketing) , the company could motivate a sales person to not only sell more products, but to train others to sell more products as well.

1945 - Earl Tupper created a line of flexible, lightweight plastic containers with tight-sealing lids. He started selling his products through conventional retail outlets, but realized the products needed demonstration. Earl Tupper then teamed up with Brownie Wise (formerly with Stanley Home Products) and launched Tupperware Party Plan, now a world-wide billion-dollar company operating in 40 countries.

1949 - Rich DeVos and Jay Van Andel (high school buddies and business partners) returned from military service and became distributors for Nutrilite vitamin supplements in 1950. After a brief dilemma with Nutrilite in 1959, the two abandoned ship and formed the Amway Corporation. In 1972 Amway Corporation acquired Nutrilite.

1956 - Dr. Forrest Shaklee developed a method of extracting minerals from vegetables and used MLM (Network Marketing) to distribute his products.

1963 - Mary Kay Ash creates Mary Kay Cosmetics. By 1996, company sales were in excess of 2 billion dollars.

1975 - The FTC (Federal Trade Commission) filed suit against Amway corporation for operating a pyramid scheme.

1979 - An administrative law judge ruled that Amway’s multi-level-marketing program was a legitimate business opportunity, as opposed to a pyramid scheme."


So we can therefore define MLM or Network Marketing as a "system by which a parent company distributes its services or products through a network of independent business people." Then these people in turn "...sponsor other people to help them distribute the product or services. This people-helping-people process may continue through one or more LEVELS of earnings." (David Roller, "How To Make Big Money In Multi-Level Marketing", 1989 Prentice Hall, Inc., page 3.)

Sana ay malinaw at malinis na sa atin ang konsepto ng MLM o Network Marketing. Sana naman, kahit na medyo mahaba itong blog ko, ay nakatulong ako para bigyan ng tayong lahat ng lakas ng loob at kapanatagan sa napili nating industriya. 

Happy Networking to everyone! God bless and ADVANCED MERRY CHRISTMAS! 


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