Steps to safeguard against network marketing fraud

Network marketing has been known as referral marketing or MLM (Multi-Level Marketing) and many of the companies that deploy MLM tactics do sound fake and often over promising. And as the old saying goes if something sounds too good to be true then it most likely is. If this already sounds like a Ponzi, you are guessing this right.

Why am I covering this topic?

I'm writing about network marketers and their psychological tactics to promote their brands. I've met some of them on business matching apps who claim you can get rich through crypto. My immediate thought was, “This is a scam!” and I believe it is. They try to convince me that investing in their tokens is a smart way to combat inflation. These network marketers often like  targeting vulnerable people. Many relationships have been damaged by these schemes. Lea Sophie Cramer, a renowned German entrepreneur has covered this topic really well in a podcast on spotify (Disclaimer: the podcast is in the German language). ​​

If becoming rich through meme coins was easy, everyone would do it. I find it amusing that the marketer I spoke with didn't realize I have a background in crypto marketing; I understand the risks involved. Yet, the seller lacked basic fundamentals behind crypto and it’s no surpise I thought the guy was utterly incompetent. Everyday people view this technology as a scam because they are exposed to such marketing scams instead.

In 2024, as the economy tightens, these network marketers are getting more sophisticated. For example, I spoke with an Estonian network marketer who claims that they are developing a blockchain and social media platform that mines their native coins. They claim the blockchain will launch in 2025 but, after interacting with their app, I see no real progress. They offer time-limited packages starting at $500, locking customers in for 48 months.

Earlier this year, they expressed interest in entering the Russian market but are cautious due to the ongoing war. I warned them that associating with Russians could be problematic in the EU, and their manager acknowledged this. It raises concerns about their motives, especially since Estonia has cultural ties to Russia.

After six months, I decided to meet them at the Helsinki airport. They still wanted me to host seminars in Germany to promote their products—classic tactics in network marketing. Another red flag was their claim of being registered in Dubai with backing from unnamed investment companies, which makes me suspicious of potential Russian funding. I no way do I want to be associated with a business that may have questionable funding, especially as an EU resident. 

Network marketers often focus on recruiting so called “distributors” who are everyday people that are the target and want these distributors to upsell lame white-labeled products like protein powders or chocolate bars to their friends and family. Now my common sense says that this can easily damage relationships and reputation. 

What Network Marketing Is:

→ Direct selling model: Involves selling products or services directly to consumers through a network of distributors.

→ Potential for earnings: Claims to provide opportunities for individuals to work from home, control their schedules, and earn income.

→ Commission-based: Distributors earn commissions from their own sales and recruitment of new distributors (downlines).

→ Hierarchical structure: Income potential often increases with the number of recruits and sales made by downlines.

→ Legitimate companies: There are some network marketing companies operate under ethical frameworks and may be associated with trade associations.

→ Potentially a pyramid scheme: Many MLMs operate like pyramid schemes, focusing on recruiting participants rather than product sales.

→ Not traditional retail: Unlike standard retail, where profits come from direct sales, MLM relies heavily on recruitment.

→ Often contains overpriced products: Products can be overpriced and difficult to sell, leading distributors to carry unsold inventory.

→ Confusion with direct selling: Distinctive from legitimate direct selling, which does not prioritize recruitment over sales.

→ Hidden Risks and Tactics: Frequently uses misleading advertising, psychological manipulation, and complex compensation plans to obscure the realities of the business.

Listed below are actionable tips to consider to avoid falling into a network marketing scam:

1. Be Skeptical of Unrealistic Income Claims
   Scrutinize any business opportunity that promises lucrative earnings with minimal effort. Look out for exaggerated income potential. Remember, most participants in Network Marketing schemes earn little to nothing. Research financial data from reputable sources to assess typical earnings.

1. Avoid High Upfront Investments
   Steer clear of opportunities that require hefty initial fees or costly starter kits just to join. Be cautious of ongoing fees for membership, training, or necessary supplies, as these can add significant financial strain. Always verify the refund policy before investing any money.

2. Focus on Product Sales, Not Recruitment
   Assess whether the primary emphasis of the opportunity is on selling products rather than recruiting new members. If the program prioritizes bringing in new recruits over actual sales, it may be a red flag. Ensure that the majority of income comes from product sales rather than enrollment fees.

3. Evaluate Product Quality and Pricing
   Research the products being sold. If they seem overpriced, of low quality, or lack verified benefits compared to alternatives on the market, reconsider your engagement with that opportunity. Be wary of unsupported claims and testimonials that lack verification.

4. Investigate Company Legitimacy
   Conduct thorough research on the company operating the Network Marketing scheme. Look for customer reviews, ratings, and any legal issues or complaints against them. Check if the company is transparent about its business practices and income potential.

5. Consult with Trusted Sources
   Discuss any potential Network Marketing opportunity with friends, family, or trusted financial advisors before committing. Seek opinions from people who have experience with Network Marketing to gain insights and firsthand knowledge.

6. Be Prepared to Walk Away
   If any aspect of the opportunity feels off or if you're pressured to make fast decisions, be ready to walk away. Healthy business opportunities should allow you to take your time to evaluate them thoroughly without undue pressure.

Be on the lookout for warning signs that indicate a network marketing operation may be unethical. Are they making unrealistic income claims? Do they charge exorbitant initial fees? Are you feeling pressured to join or buy in? If you notice these red flags, it's time to reconsider.

Instead of getting involved with potentially risky network marketing schemes, explore legitimate online earning options that don’t carry the same risks. You can sell your own products, offer freelance skills, create and monetize content, complete online tasks, or engage in affiliate marketing.

Before diving in, conduct thorough research. What options align best with your goals and skill set? Equip yourself with the right knowledge and strategies to protect yourself from scams while seeking genuine ways to earn money online. Your financial security depends on it!