http://www.mlmwatch.org/01General/mirage.html

Don't be surprised if a friend or acquaintance tries to sell you
vitamins, herbs, homeopathic remedies, weight-loss powders, or other health-related products. Millions of Americans have signed up as
distributors for multilevel companies that market such products from
person to person. Often they have tried the products, concluded that
they work, and become suppliers to support their habit.

Multilevel marketing (also called network marketing) is a form of
direct sales in which independent distributors sell products, usually
in their customers' home or by telephone. In theory, distributors can
make money not only from their own sales but also from those of the
people they recruit.

Becoming an MLM distributor is simple and requires no real knowledge
of health or nutrition. Many people do so initially in order to buy
their own products at a discount. For a small sum of money—usually
between $35 and $100—these companies sell a distributor kit that
includes product literature, sales aids (such as a videotape or
audiotape), price lists, order forms, and a detailed instructional
manual. Most MLM companies publish a magazine or newsletter containing
company news, philosophical essays, product information, success
stories, and photographs of top salespeople. The application form is
usually a single page that asks only for identifying information.
Millions of Americans have signed up, including many physicians
attracted by the idea that selling MLM products can offset losses
attributable to managed care.

Distributors can buy products "wholesale," sell them "retail," and
recruit other distributors who can do the same. When enough
distributors have been enrolled, the recruiter is eligible to collect
a percentage of their sales. Companies suggest that this process
provides a great money-making opportunity. However, it is unlikely
that people who don't join during the first few months of operation or
become one of the early distributors in their community can build
enough of a sales pyramid to do well. In July 1999, the National
Association of Attorneys General announced that complaints about
multilevel marketing and pyramid schemes were tenth on their list of
consumer complaints.

A recent analysis of Quixtar's reported income figures indicates how
poorly most MLM distributors do. In a declaration filed in a suit by
two former Quixtar distributors, he concluded:

A statistical sample of distributors revealed that 99.4% of the IBOs [independent business owners] earned on average just $13.41 per
week—before product purchases, all business expenses, and taxes. This
average income is far less than the costs of the business, resulting
in 99% of victims of Quixtar making no net profit. Fewer than 1 person
in 10,000 are at the "Diamond and above" levels, the upper ranks of
the Quixtar chain that every new recruit is urged to aspire to. . . .

The massive loss rates among Quixtar victims that are revealed in
Quixtar's own data are the inevitable mathematical result of the
endless chain business model. In this model, the success of the IBO is
based on continuous recruiting of additional distributors (IBOs), who
are induced to make monthly purchases for their own consumption,
rather than on making retail sales in the open marketplace. In the
recruitment model, only those participants at the top levels of the
pyramid can earn true profits, since the source of a participant's
real income is the expenditures of individuals below them on the
pyramid, and only a small percentage can be in those top positions.
The untenable model result in approximately 70% of IBOs quitting
Quixtar within the first year. The mission of this deceptive business
model is to continuously enroll losing investors (IBOs) and replace
them as they suffer losses and quit the program.

Many distributors who stock up on products to meet sales goals or
increase their hoped-for commissions get stuck with unsold products
that cost thousands of dollars. Some companies permit direct ordering
of their products, which avoids this problem, but the risk of failure
is still high.

Dubious Claims

More than a hundred multilevel companies are marketing health-related
products. Most claim that their products are effective for preventing
or treating disease. A few companies merely suggest that people will
feel better, look better, or have more energy if they supplement their
diet with extra nutrients. When clear-cut therapeutic claims are made
in product literature, the company is an easy target for government
enforcement action. Some companies run this risk, hoping that the
government won't take action until their customer base is well
established. Other companies make no claims in their literature but
rely on testimonials, encouraging people to try their products and
credit them for any improvement that occurs.

Every company I have looked at has done at least one of the following.

Made misleading statements that could frighten people into taking
dietary supplements they do not need. Made misleading statements of
product superiority that could induce people to buy products that
retail stores sell more cheaply. Made unsubstantiated claims that
their products would prevent or remedy health problems Uses research
findings to promote products without noting that the findings are not sufficient to substantiate using the products. Uses deception by
omission by making statements about the biochemical properties of
various substances without placing them in proper perspective. An
example would be stating that a certain nutrient is important because
it does this or that in the body but omitting that people who eat
sensibly have no valid reason to take a supplement. Exaggerated the
probability of making significant income.

Most multilevel companies tell distributors not to make claims for the
products except for those found in company literature. (That way the
company can deny responsibility for what distributors do.) However,
many companies hold sales meetings at which people are encouraged to
tell their story to the others in attendance. Some companies sponsor
telephone conference calls during which leading distributors describe
their financial success, give sales tips, and describe their personal experiences with the products. Testimonials also may be published in
company magazines, audiotapes or videotapes. Testimonial claims can
trigger enforcement action, but since it is time-consuming to collect
evidence of their use, government agencies seldom bother to do so.

Government enforcement action against multilevel companies has not
been vigorous. These companies are usually left alone unless their
promotions become so conspicuous and their sales volume so great that
an agency feels compelled to intervene. Even then, few interventions
have substantial impact once a company is well established.

Motivation: Powerful but Misguided

The "success" of network marketing lies in the enthusiasm of its
participants. Most people who think they have been helped by an
unorthodox method enjoy sharing their success stories with their
friends. People who give such testimonials are usually motivated by a
sincere wish to help their fellow humans. Since people tend to believe
what others tell them about personal experiences, testimonials can be
powerful persuaders.

Perhaps the trickiest misconception about quackery is that personal
experience is the best way to tell whether something works. When
someone feels better after having used a product or procedure, it is
natural to give credit to whatever was done. However, this is unwise.
Most ailments are self-limiting, and even incurable conditions can
have sufficient day-to-day variation to enable bogus methods to gain
large followings. In addition, taking action often produces temporary
relief of symptoms (a placebo effect). For these reasons, scientific experimentation is almost always necessary to establish whether health
methods are really effective. Instead of testing their products,
multilevel companies urge customers to try them and credit them if
they feel better. Some products are popular because they contain
caffeine, ephedrine (a stimulant), valerian (a tranquilizer), or other substances that produce mood-altering effects.

Another factor in gaining devotees is the emotional impact of group
activities. Imagine, for example, that you have been feeling lonely,
bored, depressed or tired. One day a friend tells you that "improving
your nutrition" can help you feel better. After selling you some
products, the friend inquires regularly to find out how you are doing.
You seem to feel somewhat better. From time to time you are invited to interesting lectures where you meet people like yourself. Then you are
asked to become a distributor. This keep you busy, raises your income,
and provides an easy way to approach old friends and make new ones—all
in an atmosphere of enthusiasm. Some of your customers express
gratitude, giving you a feeling of accomplishment. People who increase
their income, their social horizons, or their self-esteem can get a psychological boost that not only can improve their mood but also may
alleviate emotionally-based symptoms.

Multilevel companies refer to this process as "sharing" and suggest
that everyone involved is a "winner." That simply isn't true. The
entire process is built on a foundation of deception. The main winners
are the company's owners and the small percentage of distributors who
become sales leaders. The losers are millions of Americans who waste
money and absorb the misinformation.

Do you think multilevel participants are qualified to judge whether
prospective customers need supplements—or medical care? Even though
curative claims are forbidden by the written policies of each company,
the sales process encourages customers to experiment with self-
treatment. It may also promote distrust of legitimate health
professionals and their treatment methods.

Some people would argue that the apparent benefits of "believing" in
the products outweigh the risks involved. Do you think that people
need false beliefs in order to feel healthy or succeed in life? Would
you like to believe that something can help you when in fact it is
worthless? Should our society support an industry that is trying to
mislead us? Can't Americans do something better with the billion or
more dollars being wasted each year on multilevel "health" products?
Physician Involvement

Many physicians are selling health-related multilevel products to
patients in their offices. The companies most involved have included
Amway (now doing business as Quixtar), Body Wise, Nu Skin (Interior
Design), Rexall, Juice Plus+. Doctors are typically recruited with
promises that the extra income will replace income lost to managed
care. In December 1997, the American Medical Association Council on
Ethical and Judicial Affairs (CEJA) advised against against profiting
from the sale of "non-health-related products" to their patients.
Although CEJA's policy statement does not mention products sold
through multilevel marketing, CEJA's chairman said the statement was
triggered by the growing number of physicians who had added an Amway distributorship to their practice.

Recommendations

Consumers would be wise to avoid health-related multilevel products
altogether. Those that have nutritional value (such as vitamins and low-cholesterol foods) are invariably overpriced and may be
unnecessary as well. Those promoted as remedies are either unproven,
bogus, or intended for conditions that are unsuitable for self-
medication.

Government agencies should police the multilevel marketplace
aggressively, using undercover investigators and filing criminal
charges when wrongdoing is detected. People who feel they have been
defrauded by MLM companies should file complaints with their state
attorney general and with local FDA and FTC offices. A letter
detailing the events may be sufficient to trigger an investigation;
and the more complaints received, the more likely that corrective
action will be taken. If you possess a distributor kit that you no
longer need, I would be pleased to add it to my collection. If you
would like to help Quackwatch gather information on MLM companies on
the Internet, click here.

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