Thursday, May 15, 2008

Network Marketing

Network marketing (also called “multi-level marketing”) is one of the most pervasive systems for working at home. Commonly considered a “pyramid scheme,” it has been given an air of legitimacy by several prominent economic experts such as Paul Zane Pilzer. Network marketing’s primary claim is that people can get rich very quickly, virtually independent of the product being sold.

In this system, a person recruits other people to sell a product and collects a percentage of their sales receipts (as well as the sales of anyone else they recruit). In effect, everyone in the chain is collecting a royalty on the product, restricted to the sales of people they have directly or indirectly recruited to sell the product. The success of the system depends on continuous recruitment and continuous sales, which likely explains why there is so much emphasis on getting rich (providing a strong incentive to recruit others) and the prevalence of products that are used up quickly and need to be replaced (others, such as self-help products, come with a hefty price tag to offset this deficiency by increasing the money made on each sale).

For a producer to make money, the payments to the marketers must be reflected in the end price of the product, an increase that would be proportional to the maximum number of marketers in a chain. Because products must be grossly overpriced, the natural aversion to the lack of associated value (demand) is offset by the promise of high profit for those marketers/customers toward the end of each chain, which to be realized depends on growing the chain as fast as possible. A chain will stop growing at the point where the potential gains are perceived as less than the cost of entry (the price of the product).

Network marketing is fundamentally unethical for at least two reasons. The first and most obvious reason is that it is based on an economic lie: each marketer adds value to the product which justifies earning a royalty on future sales. The second reason is that it promotes rapid growth in material consumption, which in today’s polluted and resource-constrained world is harmful if not deadly to us and other species (unless it is used to distribute some ultra-beneficial or lifesaving product that many people would need to have in a hurry).

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