Multi-level marketing is promoted as a great way to make money, and is often marketed at demographics such as stay-at-home-mothers as a flexible part-time job that can make a good income. But does it really work, and what is the psychology behind it?
Multi-level marketing is quite controversial, and for good reason. It is a marketing strategy that involves a large, casually-employed work force that largely earns money by selling products on to sellers further down the chain. The products themselves often have relatively little monetary value, and sellers often rely heavily on the goodwill of family and friends to buy them. The vast majority of sellers involved in most multi-level marketing schemes lose money, but can remain incentivised because they see their colleagues at the top of the pyramid doing well. Sellers are often further incentivised by their participation in mass events with leaders who engage them in motivational exercises and tell them stories about how they will be able to become wealthy through their participation.
To understand why and how so many intelligent people get caught up in schemes of this sort, it is important to understand the psychology behind them.
Multi-level marketing schemes share a lot in common with religious cults, and can be considered to be a sort of secular, commercial cult. Like most cults, they often depend heavily on the personality of the group leader, who is typically a charismatic person with the ability to motivate and inspire. “Motivational” activities often include slogans, which those involved are encouraged to repeat in their daily lives, ritualised behaviours, and the elevation of particularly loyal members to positions of authority, in which they are encouraged to recruit new members, and richly rewarded when they do so. There may also be a degree of secrecy around the activities of the people at or near the top of the “food chain”.
Like other forms of cult, multi-level marketing schemes often target people who are in a vulnerable or difficult stage of their lives. For example, they often represent themselves to single mothers as a viable way to earn money while also staying at home and caring for their children. Other groups that can be targeted include retirees on modest incomes, the disabled, and the long-term unemployed. For most of these people, their involvement in multi-level marketing is more likely to lead to their building up debt than to a sustainable income. However, many cling to their involvement even when they are losing money because they have developed an emotional attachment to the idea that, one day, they will make a substantial profit, and because of what is known as the sunk cost fallacy, whereby someone who has invested heavily (financially and/or emotionally) in a project is reluctant to walk away, and will keep investing in the dismal hope that, at some point, their luck will turn.
Also like other forms of cult, involvement in multi-level marketing can severely damage members’ relationships with family and friends, as they come under pressure to sell the products to them, and get them involved in the scheme.
Clearly, anyone considering an involvement in a scheme of this kind needs to be very clear about what they are letting themselves in for. Most of all, it is important to remember that if something sounds too good to be true, it probably is.
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