There is a repeatable pattern in the marketplace.
A suite of related Health/Beauty products are released whose efficacy can be neither be easily proven or disproven.
Product marketing takes advantage of the lack of objective studies or reproducable metrics and exaggerates the expected results of the product.
The normal retail distribution chain usually has the effect of weeding out these weak products. Standard distribution channels consist of people in the industry whose job is to evaluate the marketability of these types of products and enforce realistic pricing structures and realistic claims.
If the product does not meet their criteria they can refuse to distribute/carry. If a product does have merit, it will be trialed, and if successful, widely distributed and sold. After a time other competitors will enter the market and drive down costs. If the marketing message and advertisements are highly exaggerated or fraudulent, the Federal Trade Commission will impose sanctions. These mechanisms, although imperfect, help to create a fair and competitive marketplace.
To avoid these constraints a company will choose to utilize MLM to sell their product. In addition to being free to set price above normal competitive retail, the company also earns revenue through MLM distributorship fees and by reselling MLM marketing material.
MLM attorneys and MLM marketing consultants, commonly based in Utah, have developed a reproducable marketing system that allows the company to propagate fradulent and exaggerated product claims while shielding the company from legal liability.
This is accomplished through a two part strategy:
#1 Ambiguous Written Material
The publishing of ambiguously written marketing material which although seemingly, does not actually make definitive claims and relies heavily on logical fallacies such as:
The publishing of ambiguously written marketing material which although seemingly, does not actually make definitive claims and relies heavily on logical fallacies such as:
- Appeal to nature - Arguing that the product is better because it is "natural" and arguing that their product is the most natural to justify the premium price.
- Appeal to authority - using a person claiming to be a medical authority who supports the health claims and endorses the product. Often this medical authority is not an actual medical doctor.
- Appeal to antiquity/ancient wisdom - "These ingredients have been used throughout recorded history for a wide variety of wellness applications"
- Attacking the opponent" rather than addressing the argument - "The traditional medical establishment and Big Pharmacuticals do not want you to know about this product because they conspire to make money by keeping you sick."
- Using a correlation to imply an unsubstantiated causation - referring to a recent events such as a miraculous healing and proposing that the product or a product ingredient was the causal factor in the healing.
- Confusing purity with suitability - the marketer will focus on purity rather than provide evidence that the product is effective and beneficial.
- Compositional Fallacy - An element of the product may have desirable properties, therefore they imply the entire product suite is just as desirable and as effective as that component or even more effective because it is combined with other desirable elements.
- Burden of Proof - Instead of providing evidence to support a product claim, implying that it is effective because it has not been proven ineffective.
#2 False Verbal-Only Claims
The MLM marketers use sales meetings to disseminate vivid memorable anecdotes and verbal testimonials given by other distributors rather than company employees. This minimizes company liability.
The MLM marketers use sales meetings to disseminate vivid memorable anecdotes and verbal testimonials given by other distributors rather than company employees. This minimizes company liability.
A common characteristic of MLM sales meetings are:
(1) focus on becoming a disributor, (2) an over reliance on confidence, personality, and enthusiasm of the speaker to create confidence in the product (3) an emphasis on gaining devotees through the emotional impact of group activities and the retelling of product success stories.
(1) focus on becoming a disributor, (2) an over reliance on confidence, personality, and enthusiasm of the speaker to create confidence in the product (3) an emphasis on gaining devotees through the emotional impact of group activities and the retelling of product success stories.
These sales meetings foster an environment of exaggeration because people are encouraged to share their product success stories and strengthen social bonds.
This ties into a logical fallacy that personal experience is the best way to tell whether something works.
People who give such testimonials are usually motivated by a sincere wish to help. After all, when someone feels better after having used a product or procedure, it is natural to give credit to whatever was done.
Since people tend to believe what others tell them about personal experiences, testimonials and vivid anecdotes can be powerful persuaders.
This also is exasperated by our own "Confirmation Bias"; meaning we tend to remember the events that confirm our previously held ideas, but minimize or ignore the events that contradict our convictions. "I used this product and I did not get sick in the last few months and I always get sick normally this time of year. Therefore this product stops me from getting sick and can stop you from getting sick." However, scientific experimentation is almost always necessary to establish whether health methods are really effective.
In Combination
The verbal stories combined with printed marketing material create a deceptive perception of the products to the distributor; who is also usually the main consumer. Despite the deception. the MLM is not legally liable because the fraudulent claims were made verbally and typically by distributors rather than company employees. In short, the MLM products obtain credibility by exploiting people's personal friendships and relationships via "networking".
Should I be an MLM distributor if I believe in the product?
I would question why it is necessary to "believe" in a health care product and to be "devoted" to telling others about this vitamin, oil, cleaning product, etc. Multi-level marketing companies want you to believe that their product is special and has unique benefits that no other product on the market has to justify the higher prices.
The focus of an MLM is on emotions, trust, belief. Trust that the company is being completely honest. Trust that the product is truely superior. By nature of an MLM, the consumer/distributor ascribes the credibility of the MLM company with the credibility of the person who introduced them to the MLM company. This is another logical fallacy. If this were a random company advertising on TV or in a magazine would you believe the claims?
As a new distributor attempts to sell the product or sign up other distributors, their credibility is ascribed to the MLM.
In addition, no one wants to admit they were deceived and are losing money in the MLM because it is embarassing and damages their reputation and ego so we rarely are told by someone that in hindsight joining the MLM was a lapse in judgement. Instead, most of us continue to believe and propegate a lie (products are high quality and this is an excellent opportunity to earn extra income) until the evidence is overwhelming and then we quietly slip out of the MLM without recanting.
Appendix Q&A
The common question - "Why are these products marketed through MLM instead of in a store or on the web?"
The common response - "The MLM structure was chosen to get these high quality products to as many people as possible. Also, to provide the opportunity to everyday people to make a living selling a viable high-quality product, if they desired and put forth the effort."
The Refutation - The first statement is a partial truth; MLM increases product exposure. However MLM is a highly inefficient distribution chain that doubles the retail cost of most products and sidesteps many of the consumer protection controls. Examples of effficient distribution systems are Wal-Mart and Amazon. The product could use those retail distribution systems instead but it is less profitable and has third party oversight.
The second statement is misleading "Provides the Opportunity..." does not mean it actually does what is stated.
Based on my research:
MLM companies earn money through distributor fees, sales training material, and inflated product prices.
MLM distributors are the primary consumer of the product.
MLM distributors earn money not by selling products, but by recruiting new MLM distributors.
Based on my research:
MLM companies earn money through distributor fees, sales training material, and inflated product prices.
MLM distributors are the primary consumer of the product.
MLM distributors earn money not by selling products, but by recruiting new MLM distributors.
Question: What are the reasons an MLM distribtor can not earn an income by selling the MLM's products?
Answer: MLM does not address or measure basic concepts such as market saturation. For example:
- The products are high priced and non-competitive.
- The products are undifferentiated. Similar or even identical products are available for purchase from other companies, in stores or over the Internet. The perception of differentiation is told through ambigous written material and fraudulent verbal statements told at sales meetings.
- Choice is restricted in the direct “person-to-person” method of selling and more people prefer to purchase goods of this type in stores or on the Internet where there is wider choice and no pressure upon personal relationship.
- The profit margin (difference between wholesales and retail) is inadequate for covering sales costs and achieving a net profit. Discounts and free samples are often required and all other sales and marketing expenses are borne directly by the individual sales person. At least a 50% gross profit, which equates a 100% markup (Purchase for $50 and sell for $100) must be viewed as a bare minimum for retail selling and in many cases is still inadequate. As the net profit shrinks the requirement to increase volume grows. Yet the time required to increase the volume makes the selling effort unprofitable and unfeasible. It is simply not worth the effort. Recruiting other sales reps replaces the effort to sell directly.
- The competition for selling the product is too high for profitable retail selling. The non-retail direct selling scheme allows – and strongly encourages – the authorization of unlimited numbers of sales representatives. Each salesperson is instructed to enroll close friends, neighbors and family members also as salespersons. In this manner, retail sales to these people are no longer possible since they now can purchases the goods at wholesale prices. As saturation of authorized sales people occurs in a community, cost-effective retail selling becomes nearly impossible.
- The compensation plan rewards the recruiter over the retailer, focusing the new sales representatives immediately into recruitment efforts and away from retailing, even if they have not already determined that retailing is unprofitable.
doTerra Company Research and Correspondance
Executives of Young Living Essential Oils resigned and started a competing business in 2008 using the same products and blends and selling for slightly less.
doTerra has no independent product certification or regulation. CPTG (Certified Pure Theraputic Grade) is a trademark like the name Wal-Mart. They are only words and carry no actual meaning.
doTerra is a rebottler of essential oils. They do not grow or distill. The intellectual property is in the recipe and supplier sourcing but much of this was acquired while the executives worked for Young Life. There are many other internet based companies that buy oils from these wholesalers and are capable of creating mixtures. This is what licensed aromathearapist do. It is not clear if doTerra uses licensed aromatheurapist to create their blends.
"My name is Mark Wolfert. I am General Counsel for doTERRA. I appreciate this opportunity to clarify some misunderstandings.
doTERRA does not claim that the FDA, AFNOR or ISO has certified, registered or somehow approved its essential oils. Although AFNOR and the ISO have monograph standards for certain plant extracts in different industries, it is my understanding that they do not have standards for grades of essential oils. In fact, there are no current regulatory standards for the use of the descriptor “therapeutic grade” in the industry. Anyone can use the term to describe their essential oils regardless of their purity or potency."
Third Party certification
“CPTG®” and “CPTG – Certified Pure Therapeutic Grade®” are terms that doTERRA has trademarked. As such, the words shown together are registered with the United States Patent and Trademark Office (USPTO), meaning the words in that phrase are registered, not the oils. Another example is Visa Card’s registered trademark: “Bring Home the Gold.” No one should mistake doTERRA’s registered intellectual property right as somehow a registration of the essential oils.
“CPTG®” and “CPTG – Certified Pure Therapeutic Grade®” are terms that doTERRA has trademarked. As such, the words shown together are registered with the United States Patent and Trademark Office (USPTO), meaning the words in that phrase are registered, not the oils. Another example is Visa Card’s registered trademark: “Bring Home the Gold.” No one should mistake doTERRA’s registered intellectual property right as somehow a registration of the essential oils.
More Q&A
Do they disclose their testing method and what percent of batches are tested?
Do they report the variance in consistency?
Are the individuals creating mixes licensed aromathearapists?
Is there any outside guarantee that statements about product quality are accurate - no, no government agency or certifying body has oversight.
Research conducted on permeability of skin to essential oil
