If it walks and talks like a pyramid scheme, it probably is a pyramid scheme, or at least a close cousin.
Multi-level marketing companies have been around for decades and have taken many different forms. Even the awkward Tupperware parties your mum would drag you to as a kid were MLMs. With the rise of social media and the evolution of ‘influencers’, multi-level marketing companies have a new platform to promote their products.
And arguably, from which to exploit those who work for them.
The Consumer Action Law Centre is based in Victoria and aims to make consumer markets fair. CALC solicitor Barbora Jezek says MLMs involve companies recruiting consultants to sell products by operating on different levels. There’s a hierarchy involved in these schemes, where the person on top makes a lot of money and the person at the bottom, who does most of the work, makes very little. Jezek says pyramid schemes operate in pretty much the exact same way. The only difference is they get most of their money from recruiting people rather than the sale of products.
But in Australia, pyramid schemes are illegal while multi-level marketing isn’t.
Jezek acknowledges it’s difficult to tell the difference between both schemes because they’re structured so similarly. But if they’re both so comparable, why is only one illegal? According to the CALC, the laws which these schemes operate under are out of date. They were enacted during a totally different time when social media hadn’t even been invented.
“The legal definition was created 25 years ago … and it hasn’t really been changed or expanded,” Jezek explains.
Jezek says under Australian law, provided the majority of the company’s profit comes from selling products rather than recruiting people, it can’t be a pyramid scheme. But some MLMs make it compulsory for their consultants to buy products, in order to move up a level. According to CALC, the modern economy is not structured to be governed by this legal definition. So MLM companies are able to get away with some of the things deemed off limits for pyramid schemes.
Arbonne is an international MLM company which has come under recent public scrutiny for allegations it’s operating an illegal pyramid scheme. It’s known for selling expensive products like face washes and energy fizz stick powder with the magical ability to cure all. Former consultants are banding together on social media pages including ‘Sounds like MLM but ok‘, to expose the company for its alleged corruption and unethical treatment of its workers. A pretty picture is painted of what it’s like to join an MLM, with consultants glammed up to the nines in heavily edited Instagram photos. But for Alice Neville-Smith, the experience of being a consultant wasn’t all it was promised to be.
Neville-Smith is a student vet who became an Arbonne consultant in June 2017. She’d start the day by washing her face with the products and posting about it on her Instagram story. She’d then make a smoothie with Arbonne’s protein and post about it. Finally, she’d be pressured by other Arbonne higher-ups to message thirty strangers about buying products and joining the company. And you guessed it, post about it.
“I always found I dreaded it, I dreaded messaging people but there was constant pressure.”
Arbonne technically operates legally because it works in a grey area the Australian Consumer Law definition fails to include. While it’s classified as a MLM company, according to Neville-Smith they employ the pyramid scheme tactic of making consultants pay a sign-up fee. Jezek says this is where the legal fine line between a pyramid scheme and MLM comes in. For Arbonne, most of their money comes from selling the products. But there is extra cash made by the company when their consultants recruit people. Neville-Smith says when she joined Arbonne, she had to pay $105 for her consultant website and a box of samples.
“Then each year you pay a re-subscription fee of $50 to keep [your consultancy] going,” she says.
Jezek says this can create confusion as to where the company’s main profit is really coming from and Australia’s outdated laws mean MLMs can operate in virtually the same way as an illegal pyramid scheme.
“Usually when you’re a salesperson, you don’t have to pay to become a salesperson,” she says.
Misleading conduct and naivety
According to Neville-Smith, other Arbonne supervisors attempted to brainwash her into thinking the company was perfect. When she joined, she wasn’t aware of any controversy surrounding the company or the accusations it was operating as an illegal pyramid scheme. All she saw was an opportunity to make money, as she had a heavy university workload and didn’t have time for a full-time job. But it wasn’t all it was made out to be.
“I never really understood, I was always just told ‘pyramid schemes are illegal, Arbonne’s been around for 40 years’, so it can’t be a pyramid scheme.
“I just believed that because I was pretty naive,” Neville-Smith admits.
Jezek says this misleading conduct is not uncommon among these types of schemes.
“A lot of misleading claims about what’s possible [to make] are usually made by people who are quite high-level, those sorts of amounts are just not achievable at lower levels.”
Neville-Smith can attest to that. During Zoom meetings with 15 other consultants, she’d constantly hear the same story over again. Someone would preach about how they had been homeless and now they live in luxury, driving a Mercedes and anyone can achieve that through enough dedication to the company. But this doesn’t become a reality for most consultants.
“It makes you feel like if you can’t do it, then you suck,” Neville-Smith says.
Pressure to perform
Neville-Smith describes herself as casual, chill and not in any way pushy. She’s never an over sharer on her social media accounts. But when she joined Arbonne, they pressured her into becoming someone she wasn’t. She was commanded by other Arbonne members to message 30 strangers every day to promote the products.
“It felt so weird, so insincere… There were heaps of techniques I was told about how to approach people, but how to harass people is really what it was,” she says.
“We were taught techniques to harass people nicely.”
According to Jezek, many MLMs employ these psychological techniques to try and guilt their consultants into meeting the company’s often unrealistic expectations. She says this puts the fault back on the person and can impact their mental health. Vulnerable people such as low-income earners and those grasping for some hope, are always targeted by these schemes. Beyond the apparent financial instability which evolves from being recruited, the mental anguish can be harmful. It can leave a mark on people.
Neville-Smith was a consultant for Arbonne on and off for almost three years. She stopped her involvement in 2019 because too many aspects went against her values.
“I felt pretty ashamed of it and I felt like I was doing things I didn’t want to do, or I felt pressured to do.”
The financial losses
A report by the Consumer Awareness Institute found 99.9 per cent of people involved in MLMs lose money. Jezek agrees this is a shocking figure. It’s a big risk for consultants to gamble with a statistic like that.
Curtin University marketing associate professor Isaac Cheah researches areas like consumer behaviour and marketing communications. He explains MLMs are often marketed as a collective effort. However, the person at the top of the ‘fizz sticks’ food chain, will make more money than those below. According to Dr Cheah, MLMs are very susceptible to unethical behaviours, purely because they’re a ‘get rich’ scheme. Where the CALC is concerned, a lot of these companies are renowned for misleading new recruits about what their potential income will be. The companies lull these people into a false sense of security. The CALC often receives calls about people being in financially worse situations after joining MLMs.
Jezek says because there can be upfront costs to join MLMs, some people take loans to get involved in the schemes. They do this because they’ve been convinced that not only will they be able to pay back the loan, but they’ll also make an abundance of extra cash.
“And [when they join the MLM] they haven’t achieved this fantasy, or this dream of becoming financially secure,” Jezek says.
Cult or collective?
Dr Cheah believes people buy into MLMs because they’re ‘get rich’ schemes. The companies are marketed as opportunities to join a close-knit family and increase those shiny dollar bills, fast. Neville-Smith didn’t have this experience.
“If you’re doing really well then you get treated like a family member and everyone wants to keep you on and keep you close.”
But if a consultant was struggling to keep up with the sales expectations, Neville-Smith says they’d feel isolated. She says a lot of the interactions she had with the other Arbonne consults were insincere. She’d constantly receive suspiciously nice messages starting with ‘hey hun,’ before the tone shifted and the supervisor would amp up pressure to meet their unrealistic targets. Neville-Smith says it made her feel like they didn’t actually care about her. They only cared about what she could do for them.
At the CALC centre, Jezek says they often receive calls on their advice line, from ex-MLM consultants who compare the companies to a cult. She explains MLMs employ an ‘in-group/out-group’ mentality, which creates extra pressure to deeply inject yourself in the brand and conform to a rigid persona. According to Jezek, this can have cult characteristics. Upon reflection, Neville-Smith can see her time at Arbonne was similar. She says the other consultants always promoted the company as the best in the world. She was told if she conformed to their expectations and met the high sales targets, she’d win trips overseas and makes lots of money. But this wasn’t the case.
“You’re not really free to go about it in your own way, you’re just getting brainwashed.”
In reality, the approach employed by MLMs is more individualistic than it appears on the surface. According to Dr Cheah, as much as it appears collective, it’s in most consultants’ best interest do whatever they can to make themselves the most money.
“It’s a very cutthroat type system.”
According to Jezek, MLMs will continue their unethical practices until Australian law catches up with the modern world. Consumer Advocacy groups like the CALC will continue to push for tighter legislation and broader definitions to capture more companies like MLMs, operating in legal grey areas. Neville-Smith says if someone is thinking about joining an MLM, like Arbonne, don’t. But if they really want to, do thorough research, speak to an ex-consultant or someone who’s involved and won’t directly profit by recruiting them.
“I just wish I’d never got involved, so naive, I was like 19 at the time, at uni, no money but didn’t have time for a job, so I thought it would be great,” she says.
Arbonne and several of their current consultants did not respond to requests for comment.