Multi-Level Marketing

Categories: Marketing

Ever hear of a pyramid scheme? This is the legal version.

Think: Avon, Tupperware, Herbalife. These companies don’t sell directly to customers. Instead, the company sells its products to representatives, who then sell to individuals. That situation provides the "multi-level" part. If you want to buy something, you don't go directly to the company. There are several levels of salesmen between you and the manufacturer.

When your friends host a candle party, or an adult toy party, or a gathering to sell protein shakes, they are involved in multi-level marketing. They start by selling to customers. Then, to make real money, they advance to the point where they're bringing in their own salespeople under them. Then, if all goes well, those folks bring in a new group of salespeople to work under them.

Levels upon levels...with fewer people at each stop on the way up the structure. Shaped almost like, uh...a pyramid.

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Finance: What are ponzi and pyramid sche...0 Views

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Finance Allah Shmoop What are Ponzi and pyramid schemes Think

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about those old movies you know the ones with the

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scam artist The con men work in their mark The

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grift the con the flim flam the hustle the bamboozle

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While we're here to let you in on a little

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inside dope we've got two scams you'll need Teo you

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know lies up to the Ponzi scheme and a pyramid

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scheme First let's talk Ponzi schemes And to start there

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was actually a guy named Pansy Charles Ponzi He was

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a con man during the nineteen twenties You know the

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time of flappers and speakeasies and folks doing the Lindy

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hop on top of flagpoles People were making money on

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Wall Street hand over fist and in Florida land deals

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And for a while with Mr Charles Ponzi you know

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who had a very particulary investment structure But he didn't

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actually invent the hustle Different con artists had used it

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And authors including Charles Dickens had described the scheme for

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at least seventy years before Ponzi gave his name to

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the setup Well a Ponzi scheme works like this The

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fraudster attracts investors by offering up big guaranteed return on

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their investment For instance the actual Ponzi promised fifty percent

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profit in forty five days and one hundred percent return

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in ninety days He claimed that he was using some

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kind of postage arbitrage to reap these returns In actuality

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he just used new money coming in to pay off

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old investors Well Ponzi got initial investors to give him

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some money He used that money to help find new

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investors and those new investors then gave the fraudster their

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money And then he used the new influx of cash

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to pay off the initial investors and kept going And

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it all went well for a while But eventually it

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stopped It became impossible to find new investors quickly enough

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to pay off the old ones and make him go

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away Eventually the whole thing blew up Well the most

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famous Ponzi scheme in history isn't actually the one perpetuated

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by Charles Ponzi It was run by this fine gentleman

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named Bernie Made off he ran a multi billion dollar

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Ponzi investment scheme disguised as a successful money management business

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He was a respected figure on Wall Street for decades

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and use this high profile respectability to rope in nearly

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five thousand clients Well victims have made off included actor

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Kevin Bacon and Nobel Prize winner Elie Weisel and pitching

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great Sandy Koufax Well the scam would work like any

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Ponzi scheme Kevin Bacon deposits a million dollars Madoff takes

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a cut for himself then uses that money to pay

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off other investors That only works as long as there

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are new investors coming along to get involved Eventually though

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Ponzi schemes run out of new blood and Madoff scam

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eventually blew up in two thousand eight when the financial

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crisis spooked Investors who asked for their money back and

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well made off just ran out of money to pay

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off the clients And ultimately while sixty five billion dollars

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went up in smoke okay onto a pyramid scheme A

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pyramid scheme involves your three bedroom two and a half

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bath Victorian style pyramid being listed on Zillow and well

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this guy's your realtor You called our bluff It's actually

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named after the shape of a pyramid The Egyptians are

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in no way involved And yes you geometry nerds Out

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there we realised this image is a triangle and not

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a pyramid Three D rendering is expensive around here from

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up there with us The idea is the same So

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you started the top with one person He gets money

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from each of the people he recruits They finds two

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people They pay him money for the right to recruit

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other people into this pyramid scheme They also get money

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for recruiting people So each of them finds two people

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Same deal These new recruits pay money upward and so

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on It keeps going and going just like Fonzie scheme

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Well the pyramid goes as long as there are new

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people to come onboard until it stops But eventually a

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number of people available for recruiting runs out The people

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on the bottom can't find anyone new stupid enough to

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contribute money to this thing The people on the high

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levels make money and disappear but well the people on

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the bottom we have the largest group They're out of

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luck and pretty much out of money The problem with

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pyramid schemes While some legitimate companies have very similar structures

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they're called multi layered marketing companies or MLM So you

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probably heard of him Avon Party Light Herbalife Yeah those

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guys You know your friends who sell candles or makeup

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or nutritional Shake those air All ml EMS one level

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recruits people on other levels with money moving upwards to

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the top and it's all legal The difference Well theoretically

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riel products are eventually getting sold to really customers A

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classic illegal pyramid scheme just has money moving up and

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not much value sent out or moving down But just

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as in some of those old movies it's not always

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easy to tell the good guys from the bad The

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Bernie Madoffs of the world can look like legitimate Wall

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Street players but turn out to be Ponzi scammers And

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the new Invisible Lipstick product you're so excited about selling

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can turn out to be a you know pyramid scheme

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You have to be careful because well it really all 00:04:47.628 --> [endTime] can blow up in your face Hey

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