Is Network Marketing a Pyramid Scheme? Uncovering the Truth

You come across this question if you are in network marketing: Is network marketing a pyramid scheme? Or are your people asking you, are you into the pyramid scheme business? If not, you must know the reality of pyramid schemes like the actual truth because they are like objections and come at any time when you show the plan to prospects.

Well, don’t you think it is important to know? If not, I must know the reason from you in the comment box.

Tell you a fun fact: when I was in this industry, people asked me if it was some pyramid scheme. Are you doing pyramid business? etc. But as I know how to handle the objection, I do the cross question: what are pyramid schemes? Can you tell me about this? Then, they have yet to have the exact answers. Rather than saying that I heard this from people, I found out they also need to know the exact thing.

Let’s talk about why people have this question and where this misconception comes from in the world. According to the myth or the information people carry about pyramid schemes, it is the “Network Marketing Top of the People Earn Money” known for the pyramid schemes or pyramid business.

Is it quite misinformed because of their job and the company’s boss? Are they on the top and making the most of the money? Asking this question help you to find out the answer, but here I come up with this blog post where you will know the and get the exact knowledge about the pyramid schemes business.

Where does this misconception come from in network marketing?

Before knowing if network marketing a pyramid scheme, let’s understand the story behind this scenario. So it is about when people know they can make huge money while setting up a direct selling business, as they know this can make them rich. But they come up with an agenda, like when they make enough money, they leave the business, but see in this, lots of people lose their money. As this kind of business rapidly grows in the market, govt. They should take action as they also need to figure out why and what is happening in the market. 

The victims involved in this business find out that the people on the top only make money, and when they make enough, they just leave the business. After that, it grew rapidly in the market, and people called network marketing a pyramid business. Now, let’s talk about the meaning of pyramid schemes. 

What is Pyramid Schemes?

People call network marketing a pyramid scheme, but multi-level marketing is a natural structure. Any organization that distributes goods, services, or any coordinative activities is shaped like a pyramid. And as multiple levels get bigger and wider as they go down. 

Dr. Karl Dean Black Explains it better: “Delegation creates a multi-level pyramid. Our government, schools, and churches form a multi-level pyramid. He says any successful business or organization that distributes comes in the multi-level pyramid. 

In the multi-level structure, power comes from the bottom; we understand that our government provides services down the line, but we also give power in the form of votes. Marketing businesses distribute products down a pyramid, but in the form of power, we give dollars. 

So, a pyramid sets a flow first down and then up, like value flowing down the pyramid; power, in response, flows up. If the values stop flowing down, power stops flowing up, and the system collapses in the meantime. 

According to Dr Karl Dean, Black, American business, government and education – are all pyramids. 

Two Sides Of A Coin Are The Same As The Two Sides Of A Pyramid.

Just like a coin has two sides, every pyramid has two sides. Let me try to understand in detail. In the same way that a cell phone is an instrument, a tool that gives you enormous power and is quite convenient, but in the same way a cell phone can also become a dangerous tool. If I talk about the cell phone, then the cell phone is a neutral thing. The way you are using it makes it legal or illegal. It depends on who is using it and how he is using it.

For example, if we understand this, suppose a person falls in a restaurant and cannot get up, and another person sitting in front of him picks up his cell phone and calls the helpline number; this is a good thing.

Now let’s see this thing differently: the person goes outside and calls in bomb threats to the security. That’s the bad thing. Understand that this is not about the cell phone but the person and how he uses it. The good and the bad depend on the person who operates the cell phone. This same thing goes with the pyramid. There is nothing bad about anything having a pyramid structure. According to Dr Karl Dean Black, pyramid schemes are made if the value stops flowing down.

Read: Does Bill Gates Support Network Marketing? Truth Revealed

Understanding Illegal Pyramid Schemes and Real-Life Examples

Illegal pyramid schemes are money-making scams where the people at the bottom put money in, i.e. the money flows up, but they don’t get the value flowing down to them. It is like very few people get rich, and most people lose their money. 

Some of the examples are: 

• Chain Letters
• Airplane Games
• Ponzi Schemes 

Chain Letters

Well, this is something I want to share. A chain letter is like someday you get some email where a person talks about giving money with inspiring language about prosperity. The email asks you for some money within a few weeks. India, you get a foreign name that says you can earn such an amount of money, and you get a Chevrolet car. 

Trust me, this happened to me at some point in time. It was something like I could transfer the money, but as I discussed with my dad, thank god I saved. 

The chain letter is also like you see in our childhood. I am talking about India, where people distribute pamphlets to people and say if you don’t pass to another, something terrible is happening to you. See such kind of things like seriously. 

Airplane Games

The “Airplane Game,” is a type of illegal pyramid scheme that became prominent in the 1980s in North America and later spread to Western Europe. This scheme is structured so that participants pay a fee to join and are promised a large payout after recruiting a certain number of new participants. Here’s a detailed explanation of how it works and why it is considered illegal:

Structure of the Airplane Game

The Airplane Game typically involves four tiers of participants, each with aviation-themed titles:

1. Pilot: The person at the top of the pyramid.
2. Co-pilots: Two participants directly below the pilot.
3. Crew: Four participants below the co-pilots.
4. Passengers: Eight participants at the bottom tier.

How It Operates

1. Joining the Game: New participants, referred to as “passengers,” pay a significant entry fee (e.g., $1,500) to join the game.
2. Progression: As new passengers join and pay their fees, the pilot collects the money. Once the pilot has collected the total amount (e.g., $12,000 from eight passengers), they “retire” from the game.
3. Advancement: After the pilot retires, the Airplane splits into two new Airplane. The two co-pilots from the original Airplane become pilots of the new Airplane, promoting everyone else up one level.
4. Recruitment: For the new pilots to receive their payout, each new Airplane must recruit eight new passengers. This cycle continues, requiring an exponential increase in new participants to sustain the payouts.

Understand, in the Airplane games, What goes up will also come down with a thud! Airplane crashes when there aren’t enough passengers. 

Ponzi Schemes

Ponzi is the name of a person named Carlo Charles Ponzi. Well, he comes to the top when people also remember the pyramid schemes as Ponzi schemes. History forced them to discover his name as he is the one who discovers the “money tree” even though he is a botanist. 

Here is what Ponzi did: 

In 1920, the Post Office of the World issued international reply coupons, which could be exchanged for postage stamps worldwide. Ponzipurchased this coupon when the inflation rate was high and sold it when it was low. Simply put, he purchases at a low cost and sells it at a high. 

With this, Ponzi created a securities exchange company and issued his “promissory notes’. The investor purchases those notes with a value of $100 or 150 dollars, and within 90 days, the investor can redeem 50% of its value. Where the bank gives 4%, Ponzi notes give 50%! 

In the starting phase, investors start with 10 dollars once they find out and get the same return they trust on Ponzi. Meanwhile, it grows like one million. A Ponzi money machine only operated by robbing Peter to pay Paul. The game is round and round, and in 1920, the Thai game died. You can find out more in detail by reading the book “Who Stole The American Dream- By Burke Hedges”.

As we discussed the illegal pyramid, let’s understand the legal pyramid and the other side of the coin.

Network Marketing: A Legal Pyramid Scheme 

As discussed above, the pyramid scheme is when the product or services flow down and value increases, like in network marketing or direct selling. Direct selling means the product and services are flown directly to the consumer from the manufacturer. 

If your question about is network marketing a pyramid scheme? then the answer is yes, it is a pyramid scheme as the product and services go down and value in the form of money goes up. You know, the biggest pyramid scheme in the world is Social Security. Yes, you heard right. I suggest you go and read the book I mentioned above. You will get the answer in detail. 

Conclusion

I hope you get the answer to your question and you find this information helpful and meaningful. What is your view? What do you think about whether MLM is similar to a pyramid scheme? By reading the above, you can answer, read the recommended book, and share your views through the comment box; I am happy to answer your query.

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