Differences Between Fraudulent Pyramid Marketing And Multilevel Marketing
Pyramid And Multilevel Marketing
Two concepts within marketing are often confused or mistakenly believed to refer to the same thing; we refer to pyramid marketing and multi-level marketing. We explain what each type of marketing is and the differences between the two.
Definition Of Pyramid Marketing And Multi-Level Marketing
Pyramid marketing, also called fraudulent pyramid marketing, is understood as a type of business in which participants must attract customers to become new participants and thus obtain profit at their expense. The objective of this business model is that the number of participants grows and is always more significant than the initial one, which is why it is called a pyramid scheme. It is an illegal business model where the slogan says “be your own boss” to make it attractive.
And multi-level marketing is understood as a business model made up of a network of independent sellers or distributors who directly sell products or services that the brand provides. In this case, it is a legal business model since the objective is not to find participants or more sellers but customers interested in paying for that product or service.
On many occasions, multi-level marketing has been branded as fraudulent due to pyramid marketing, but there are apparent differences between the two.
Differences Between Pyramid Marketing And Multi-Level Marketing
One of the main differences between pyramid marketing and multi-level marketing is that the former is illegal while the latter is not. Since the pyramid scheme aims to attract participants to grow the company’s profits unlawfully. In contrast, the multi-level focus is on increasing the sales of your product or service honestly. But there are more differences:
The products or services being sold when we comment that profits grow fraudulently in the pyramid because the products or services offered do not exist. These have always suffered some incidents, so the client pays for something they will not receive. However, In a multi-level business, genuine products are offered that comply with the country’s regulations where it is marketed and have a return guarantee. One of the main objectives of multi-level marketing is that customers talk about the product or service to increase sales, so it must have a high quality and fulfill what was promised.
1. A Fee To Enter The Company
As we have already mentioned, the objective of a business based on pyramid marketing is not to sell a product or service, since it does not exist, but to attract participants. These participants must enter a reasonably high fee to be part of the company and become investors. Alternatively, and although multi-level marketing also requires the income of an amount of money to be part of the team, this is much lower. What’s more, in this case, we are talking about partners, not investors.
2. The Benefits
In a multi-level business, there are no investors but partners. This means that they will obtain a percentage of the value of the product sold or a commission agreed between brand and seller for sale made. However, In a pyramid business, an investor’s benefits depend on the number of people he has managed to attract as participants. The fee paid by a new member is distributed among investors who were already part of a network, always starting with the oldest, receiving the most.
3. Taxes
Multi-level companies issue invoices, pay the corresponding taxes and declare to the Treasury. That is, everything is documented and justified. In addition, the commissions obtained by partners for sales made are within the country’s regulations in which they operate. However, pyramid marketing fraud is evident since this type of business does not declare anything or declare donations to avoid paying the corresponding taxes.
4. Time To Profit
To make it much more attractive, short-term profits are promised. While in a multi-level business, benefits are pledged to, it is specified that these may appear in the medium or long term.
If these differences are taken into account, it is much easier to differentiate a business based on fraudulent pyramid marketing from a multi-level one.
Similarities Between Pyramid Marketing And Multi-Level Marketing
Pyramid marketing is a scam, while MLM is not based on lies and operates entirely legally. Still, many people continue to confuse both business models. This is most likely because there are certain similarities between the two:
· In both models, economic benefits are promised merely.
· Both businesses have an interest in growing the number of vendors.
· There is emotional manipulation in both cases since another person must be convinced since obtaining economic benefits depends on it.
· The investor or partner is motivated by the benefits he will obtain, which depend exclusively on his work.
What is clear is that when in doubt, the simplest and quickest thing to do is to ask yourself what is more important for that company: recruiting more people or selling and publicizing the brand’s product or service. In other words, the objective of the business is key to differentiating what is legal from what is illegal.
