Why social media is rife with multi-level marketing schemes

Social media has become the new ‘front door’ for multi-level marketing schemes with people using the platforms to sell product to and recruit friends of friends for financial gain.

Facebook is one of several platforms being used by multi-level marketers as the new front door.

Facebook is becoming a haven for status-seeking business types who have low financial literacy and a tendency to target mothers and women nearing retirement age in order to earn a side income selling Avon-like products.

The social media company is one of several platforms being used by multi-level marketers as the new front door, as they go knocking on the private inboxes of friends, family and sometimes those who are twice removed in the search for their next target to sell products too and onboard as their next recruit.

The business model, which is legal in Australia, typically lures people in by promising them that if they purchase a large amount of product at a near wholesale price, they’ll make a return on their initial investment once they’ve sold more products and in some cases recruited their friends to do the same. But most rarely turn a profit, said Professor Deanna Grant-Smith, from the Queensland University of Technology School of Management.

In Australia, the majority of “independent consultants” in these schemes were women according to data Director Selling Australia, the body for MLMs.

“The majority of consultants are women and that also is reflected in the dominance of multi-level marketing companies in Australia at least being around products that are more likely to be attractive to women … so we’re talking about cosmetics at home with fashion, like the bed linen lingerie and cleaning products,” professor Grant-Smith said.

Professor Deanna Grant-Smith from QUT's School of Management.

While there wasn’t data around who MLMs targeted directly, Professor Grant-Smith said it did appear women were the main target. “If you look at the way that these things are marketed through social media, they are marketed towards mothers, towards people who are looking to balance their work life and their family and people with caring responsibilities.”

Professor Grant-Smith has completed extensive research on the types of people who are most likely to join an MLM. “What we do know, certainly from my research, is that people who are attracted to MLMs tend to have a higher level of what we call a status seeking orientation.”

Most who join MLMs tend to gloat about their title, often referring to themselves as “independent consultants”, “independent distributors” or “independent sales representatives”.

The latter most prefer not to use it as it implies a contractual agreement with the companies, and research shows most of the people who are drawn to MLMs are seeking to be their own boss, professor Grant-Smith said.

“They tend to like the terms distributor or consultant because it buys into this idea that this is my own business that I own, rather than salesperson which gives the impression that you work for someone else,” she said.

Her research found that while MLM’s typically promised the opportunity to “run your own business”, most who joined had little to no business experience and people who perceived their financial literacy to be higher than it was. “What we’re finding is the kinds of people who are choosing to take on these kinds of businesses don’t necessarily have any experience... There’s no real barriers to entry other than the ability to buy a product, yourself or the starter kit.”

Social media had become a key tool for MLMs as the platform offered “independent distributors” a way to broaden their networks, utilise targeting marketing to attract certain demographics and its tools like groups allowed MLMs to pool people together and distribute information at pace.

It was also a way for people to promote luxurious lifestyles and sometimes falsely attribute it success with MLMs, professor Grant-Smith said.

Tama Leaver, a professor of internet Studies at Curtin University, agrees, adding that influencers often participated in MLMs and marketed products they knew little about.

“For huge amounts of people, social media is the bread and butter for multi-level marketing,” he said.

Mr Leaver said MLM’s selling beauty, health and wellness appeared to be the most prevalent on social media platforms and people today didn’t only sell product but their own micro-courses about how they did it, which often included exaggerated claims.

Curtin University professor of internet studies Tama Leaver.

“In the wellness space, I think it’s fair to say we’ve seen the worst excesses of multilevel marketing where it’s not just claiming that this particular miracle oil does something amazing, but then people selling the expertise or the next person to give it to the next person,” he said. “The short course has become one of the main things that is sold as part of the industry.”

Why social media had become rampant with MLMs was that often “fantastical claims” went viral, Mr Leaver said.

“Industries don’t need infrastructure beyond influencers who not only sell the product but now sell courses on how to sell,” Mr Leaver said.

“A lot of companies allow for this to happen and are probably quite pleased when it does,” he said. “Because it’s at a multi-level, companies can claim that they don’t have control over the people spreading the false rumours … when in reality they’re probably delighted that it’s happened. Most influencers, to be fair, have no professional knowledge of these products.”

Part of the reason MLMs were able to operate so successfully on social media platforms was because most platforms didn’t look closely at their activity, Mr Leaver said. “I think social media companies have much bigger fish to fry in terms of regulation… unless it’s explicitly drawn to their attention through legal platforms they have to respond to.”