This
post was inspired by my dispute with one of my neighborhood pals
(well at least I think we're pals) and will include my experience
regarding network marketing: basically I'm offering the pool (or
puddle) of knowledge on the business model and practices of network
marketing that, I am confident enough, most people would find
familiar, owing to its great prevalence as a “get-rich-easy”
scheme.
What
is Network Marketing?
Network
marketing, as it is generally known, is the marketing strategy in
which a sales force receives compensation through the direct sale of
products, complemented by the sales generated by their recruits
(hence the term networking). This business model is closely
associated with pyramid schemes in the Philippines, as both have very
similar frameworks of operation (at least from my perspective) with
the latter often disguised as the former. But to make the
distinction, pyramid schemes offer less/insignificant benefit/s to
participants the further down the system they are recruited (though
it can be pointed out that network marketing is also susceptible to
this distinction, I am not going to argue about it here).
While
passing time at the park together with familiar faces, this pal I've
mentioned in the beginning of this post, offered me a FREE discount
card. This card, by an obscurely named company (Lioness?), would
allow me to avail of products and services with the, I'd like to say,
affiliated companies/groups, boasting a discount rate up to 26%. With
such a simple yet favorable extension of goodwill, one would raise
doubts on the mechanics behind such an offer for after all, one does
not simply come by free goodies in this world. Sensing something else
in play, I probed this friend of mine for the catch, if any at all.
Hesitating for a moment, he described the terms of usage, and
inadvertently, some details on how he got into the business: revenue
is generated by a percent (1%) charged for every purchase with the
card, additionally, 5% (of what? And what is this charged from?) is
gained for every recruit. Basically, he has been recruited to
distribute the discount card/product, with the “recipient/potential
recruit” gaining the option of getting in on the business. By now,
I should have done the job of making this familiar to you, reader.
Piecing
together the bricks of this scheme, I declined his offer. When asked
why I declined, I reasoned that it was network marketing and most
possibly lurking in it a pyramid scheme. He concurred to the
possibility, but told me that I would be better off having the card
with me since I can still avail of the perks without recruiting or
just not use the perks altogether. Though my mind was set, I could
not properly retort what he said when I pointed out that ultimately
the discount card encouraged me to spend, not to save (it lacked
backing and good analogies, possibly because I just got off work).
Before the discussion became heated, I retreated home with the
lingering suspicion that the system he was willingly part of is
rigged.
The
Risks
So
what are the pitfalls of the discount card? Given the chance to
polish my points, I've come up with answers that I think are
competent enough to address my concerns. First on my point that
discount cards don't give any real benefit to the user. There is an
interesting phenomenon when prices become lower, making
products/services affordable, thereby available to consumers: instead
of saving on products that are otherwise at higher prices, you tend
to spend more because they are available in the short term. When a
product is on sale, people tend to buy it in groups, driving up the
demand with the increase in volume. The same can be said of the
discount card: you are inclined to buy, possibly in bulk, because
they are cheaper. It's actually riskier to have a discount card than
getting products that are on sale/discounted: instead of people
availing of products at a lower price, they can get them lower
anytime via the card. The result is that people tend to spend
more frequently, on top of spending more than they should, than they
would, often buying things they may not need or need right away.
There
are two privileges that comes with the card: a) Discounts (but as I
showed not really an advantage) and b) Revenue via recruitment and
recruit sales. Let's apply this to different scenarios one can be
involved with:
- A: X uses the discount card to buy and to recruit.
- B: X uses the discount card only to buy.
- C: X uses the discount card only to recruit.
- D: X no perks are used (card is not kept/card is kept but not used).
Let's
examine A. As I've mentioned earlier, you are in the mindset that
you're saving more but not realizing you're increase in expenses. The
question then is: is the revenue generated actually worth it? One
problem to take note is that the revenue depends on whether or not
the card is being used by other people. No expense, no income.
Another is the fact that though the revenue is variable, in the long
run is insignificant. The amount you gain diminishes the lower you
are in the pyramid scheme (I'm going to make the distinction that
this is a pyramid scheme as I see no opportunity to be promoted up
the chain). B is much worse since you're only spending without
getting compensated/rewarded. C arguably is the best strategy to take
if one wants to make money in this business though however small the
income may be. But if C is the best strategy why did I opt for D? I
will cover this at the end of this post.
Objections
Now,
one may come out and say that pointing out that the kept card may
never be used at all undercuts the discount incentive objection: if
it can be shown that even when given the incentive, people may not
choose to spend more or to spend more frequently when given the
opportunity, then the force of the objection weakens. I would say not
at all. For various reasons, one may not use the card, and perhaps
never at all. For instance, you may want to purchase items with it
but find that the card is not honored in the establishment or the
products are not related to the affiliated companies. In other words
one may not always have the opportunity to use the card. Furthermore,
this does not actually deal with the problem of the discount card;
users of the card spend just to get the discount, not really minding
how often or how much they are spending. The same can be said of a
gun: guns can kill people whenever they are used. Conversely, they
can never kill when not used. The problem arises 'whenever' the card
is used, not 'if' the card is ever used at all.
Cleaning
up
Upon
further reflection, I am comfortable with D because I did not want to
be associated with this product. If we look at how revenue is
generated, it is flawed and presents no real end benefit as you
examine the ranks of the pyramid scheme. Even the way the product is
distributed does not sit well with me. If I'm allowed to keep the
card but pledge not to use it, then why should I keep the card? Why
would you want to give it to me knowing full well that I would not
use it in any way? There is this tacit expectation that anyone who is
in possession of this card would end up using it anyway, even those
who profess to never use it would be tempted if need be. Otherwise,
they would just offer it to those who are interested in using it.
That is just devious, more devious than the usual scams that require
payment. With this distribution platform, people can generate income
without ever having to sell a product (excluding the recruitment
package) or lend a service, by the FUCKLOADS, just by relying on this
notion. No work equals profit. Even then when you recruit others,
what are you equipping them? The opportunity to distribute cards that
enables the frenzied urges of the consumer? Is that a service? It's a
disservice: you need to oversell the concept that it's always better
to spend with a discount card, which I can't stress enough is
actually detrimental, over budgeting expenses. You have to
incorporate this lie that it's legitimate because of the companies
affiliated with the marketing company which perforce legitimizes the
business practice of the scam.
If
ever the tendrils of a networking scheme slithers up to you, do not
hesitate to ask for details. It will save you a whole lot of trouble.
