MLM Intel: Intro to MLM Part 1, and a case study of Lyoness

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[Red:] Introducing my good friend and new guest writer, Australian-based MLM Intel! They work as a collaborative, intelligence-gathering consumer information point, with the aim to provide research and education on multi-level marketing companies. We’re very pleased to be able to host their first guest article with us — an introduction to MLMs, and a case study on ‘cashback MLM’ Lyoness.

Before reading MLM Intel’s article, please remind yourself that all views presented here are those of the authors, and simply reflect their own opinions and personal experiences. Your own personal experiences with MLM companies may differ, negatively or positively.

Over to you, MLM Intel!

[MLM Intel:] Thank you, Red!

When it comes to multi-level marketing (MLM), we all know someone. We’ve also probably been involved in an MLM company once before: you might have hosted a ‘party plan’ get together where a host gets a free prize to have an ‘Independent Consultant’ spruik their wares.

(For those who are not familiar with Australian slang, “spruik” means to “Speak in public, especially to advertise, promote or publicise.”)

These wares are also often not really the best quality, but you more often than not feel bad for the friend/cousin/aunt etc hosting the party and buy something small. Before you know it, the friend/cousin/aunt is now also a host, and you’re bombarded with sales pitches turning a once regular relationship into an absolute nightmare.

Sometimes, we get sucked into the glitz and glamour of the MLM. The bonuses, the earning incentives, the cruises, vacations, cars – and all you need to do is keep hiring.

woman-in-ocean — From Léa Dubedout at isorepublic.com

Multi-level marketing companies are an absolute scourge on our society. Thematically, their attributes are similar to known scams and pyramid schemes — but they get away with the legal technicalities by selling goods, (which can be vitamins, makeup, skincare products, clothing…and recently I heard there is even a bitcoin MLM where the ‘product’ is buying into a share pool to purchase bitcoin (Bernie Madoff, Ponzi schemes, pyramid schemes, anyone?!)

This post is the start of a short series on some of the ‘grey areas’ being exploited by MLMs, including refunds and guarantees, and explores some of the ways MLMs are exploiting legislation to get around honouring these basic consumer rights. In the future, I’ll investigate employment and labour hire, and how it may affect taxation and superannuation obligations in Australia, and other concerns as they relate to small business management. Note: the legal and technical concepts discussed in this post will be mostly based around Australian legislation and consumer rights.

So, what is an MLM?

Multi-level marketing (MLM) is a strategy that some direct sales companies use to encourage their existing distributors to recruit new distributors, by paying the existing distributors a percentage of their recruits’ sales; the recruits are known as a distributor’s ‘downline’. All distributors also make money through direct sales of products to customers. Amway is an example of a well-known direct sales company that uses multi-level marketing(1).

talking — From JeShoots at isorepublic.com

Pyramid selling is unlawful under Australian consumer law, but the distinction between pyramid schemes and multi-level marketing is a fine one and it can be hard to tell the difference(2). They key word here, folks, is product – a key difference in Australian law is there needs to be a genuine transaction [ie sale of product] underlying the scheme(3). So, the technicality in differences between a scammy pyramid scheme and a ‘legitimate’ multi-level marketing company is that a pyramid scheme recruits others solely to pay the people at the top of the pyramid. They also focus highly on recruitment and not product sales.

CASE STUDY — LYONESS

In 2015, an Australian Competition and Consumer Commission (ACCC) investigation found ‘MLM’ company Lyoness did not contravene the pyramid and referral selling provisions of the Australian Consumer Law (ACL) — the allegation was that the Lyoness scheme was offering commissions to members who were recruiting new members, who then make a down payment on future shopping. The Federal Court found that: ‘there can be no doubting the fact that inducements were held out to prospective members that they would ultimately receive “financial benefits” other than the discounts they received on purchases made from Loyalty Merchants'(4).

Background

Lyoness was founded in Austria in 2003 but has evolved significantly since then. It is often aligned with another MLM, Shopping Sherlock, which requires a fee to join and offers a cheap search engine as the product, through which the user is supposed to be able to find cheap online shopping deals (this blog post by barenakedscam discusses this in detail).

Lyoness offers as their product a ‘Cash Back’ product/service whereby if the user uses a Lyoness store/affiliated store, then they will receive a discount on their purchase, saving cash. However, in order to obtain access to these alleged savings, the ~~potential victim~~/user/customer/client/ is supposed to purchase a membership and then commence recruiting others to make their bonuses, and ability to access greater bonuses at greater benefit to them. Sounds weirdly pyramid-like, right?

online-shopping — From JeShoots at isorepublic.com

The bonus structure is based on a typical incentive/bonus plan offered in the style of MLMs – however, also in the spirit of MLMs it primarily offers internal points bonuses which then allow the user to make purchases in the Lyoness store. Membership is also tiered, so the incentive to recruit is high – this is ‘recommended’ in the hope that the more a user recruits, the greater cash recovery on their membership fee plus the bonus they receive on purchases.

The incentive plan is quite complex. The link Lyoness Loyalty Program Benefits, will take you to a version of their loyalty program benefits document.

A simple open source search on the term ‘Lyoness’ and ‘scam’ will bring up a plethora of articles from around the world of people reporting unsavoury and unscrupulous practices akin to pyramid-scheme-like activity. This ruling is not to say that the ACCC believe Lyoness is a legitimate company — in fact, the ACCC highlighted the ‘complex and elusive’ manner in which pyramid selling and multi-level marketing schemes operate. To me, this reads as largely operating within the grey areas of the law, and that the investigation failed to find direct evidence of contraventions.

This is not to say that a substantial amount of circumstantial evidence wasn’t identified, it likely was — it merely says that the ACCC was unable to ascertain definitively that the actions of Lyoness, and the structure of Lyoness, could be proved beyond reasonable doubt as being specifically a pyramid scheme, hiding under the legitimate framework of an MLM.

These are the grey areas I speak of — if it smells like a duck, walks like a duck … well, you get what I mean.

rubber-ducks — From Monika P at isorepublic.com

So, I’m hoping now you’re thinking of an MLM that has somehow impacted your life (Tupperware, Avon, Juice Plus, LipSense, Amway, It Works, Modere, Neutrimetics …), and thinking about whether or not the products they shill really are just a guise to ‘pay the people at the top’. Whether or not it is, is often argued by ‘hunbots’ (enthusiastic MLM members) the world over — MLM manufacturing practises are also under scrutiny, and the quality of their products is debatable.

This is where the anger around MLMs emerges — proving anything hostile about an MLM is difficult because of the grey area of the law they occupy. And hopefully my posts in this series can help shed some light on these inconsistencies. Stay tuned for Part 2, where we investigate how refunds work in Australia! Exciting stuff! 😉

~ MLM Intel – mlmintel.wordpress.com

References used in this article:

Definition of Multi-Level Marketing: Investopedia

Huntsdale, Justin, “Consumer law advocate calls for tighter laws on pyramid scheme selling,” 14 June 2017, ABC News Illawarra

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