Myth: This MLM has a product, therefore it is legal

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The MLM model now apparently depends heavily upon selling to itself: “This is a critical question, because at the core of the short seller accusation is the claim that a purchase for personal use by distributors (also known as internal consumption) cannot be considered a sale to an ultimate user. If this standard were to be adopted, it would cast a cloud overmany well-established direct selling companies, particularly those that sell consumable products such as health, home and personal care” (Babener, 2013). Arguments that treat internal and external consumption the same blur the nature of the selling opportunity and ignore the potential for ongoing recruitment to be the primary source for compensating participants – a key characteristic of a pyramid scheme.

Internal consumption has been argued to be similar to a “buying club” that people join to receive a distributor discount, driving internal consumption above that of external consumption. The analogy is suspect, as an MLM company may lose eighty percent of its “internal customers” each year; in contrast, Costco, a well-known buying club, retains more than eighty percent of its customers each year (Forbes, 2013). The argument is also suspect since MLM firms ubiquitously promote a business opportunity by which people earn income –a set of facts that make a failed business venture a more cogent explanation for the noted annual dropout rates regarding general MLM participants.


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