Tupperware's Bankruptcy to MONAT's Lawsuits— Why Are MLMs So Problematic?

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3:15Today we're diving into some big news in the world of multi-level marketing, or MLM. For those unfamiliar with the world, MLM is a particular marketing structure where people earn money by selling products directly to customers and by recruiting new sellers to earn a share of their profits. Not unlike pyramid schemes, which is why MLMs have gotten a ton of heat. The well-known MLMs are Mary Kay, Herbalife, Avon, doTERRA, and the notorious LuLaRoe legging brand of the Lula Rich documentary series. I did a whole episode about a woman burned by that dumpster fire of a company, and it is linked in the show notes.

3:53But in this episode, I'm talking about the rise of these companies and the potential signs of their decline. Because if you're involved in an MLM, I want you to know the risks involved. And don't get me wrong, there are benefits. I've talked to women who became financially empowered and independent by working for MLMs. But in order to pursue the benefits, you also need to consider the risks. So if you've ever been approached by someone calling you hun and pitching you a great opportunity to work from your phone and get really rich, this episode will provide the clarity you need. For a long time, one of the longest-running MLMs was the gold standard, Tupperware.

4:29But on September 18th, Tupperware filed for bankruptcy, a significant fall for a company that is honestly pretty iconic. When it first hit the market in 1946, Tupperware was kind of revolutionary. It was crafted from the hottest material at the time, plastic, designed specifically for the coolest home appliance at the time, the refrigerator. Now, it might be hard to imagine Tupperware as innovative given how common it is in our lives today. But we have to remember that at the time, the refrigerator itself hadn't been around for that long. So there was some consumer education that needed to go down.

5:02So when Earl Tupper wanted to sell his wild idea of that plastic container that you could put leftovers in to keep food fresh in the fridge to families across the country, he had to figure out a way to teach consumers how to use his product and give suggestions on how to integrate it into their lives. To do this, he hired women in communities to sell his product directly to their friends, family, and neighbors. These women would host parties. Yeah, Tupperware parties. And they sold millions of dollars in plastic food containers to their customers. This scheme was innovative at the time, and it worked brilliantly.

5:39Until it didn't. Tupperware's bankruptcy is a long time coming. At the core, the company had two major problems. One was that their brand had struggled with being the victim of their own success. The term Tupperware has come to describe everything you use as a plastic-resealable storage container, kind of like Kleenex. The loss of identity makes the brand less desirable. If the consumer doesn't associate the brand Tupperware with anything special, they're not going to purchase it over another brand necessarily. The Tupperware company also failed to adapt. They clung to old direct sales models, and they clung hard.

6:15Only 13 % of their total product line was available on their website. The other 87 %? If you wanted it, you had to buy it from a rep. That is no way to do business, you guys. It is not 1946 anymore. Tupperware diluted its brand identity and couldn't evolve with the times. But evolving as a company and getting away from direct sales and multi-level marketing is hard. Two big MLM companies did just that this summer and left a lot of their sellers fuming. So let's take a second here and talk about how MLMs make money. The business model generates revenue in two primary ways. First, it sells products directly to consumers, which is straightforward enough.

6:54But here's where it gets interesting. The bulk of profits comes from individuals recruiting others to sell these products, creating what's known as a downline. Now, while some people can rake in significant income this way, it definitely demands a lot of work, skill and pretty much perfect timing. So just how challenging is it to make a living this way? In a comprehensive study from 2011, 39 % of traditional businesses were profitable for the lifetime of the business. Of MLM participants, fewer than 1 % made a profit. That was 13 years ago, but the numbers haven't improved. They've gotten so bad that companies are beginning to abandon the sales model.

7:34This summer, Rodan and Fields, a skincare company, and Saint Makeup switched away from the MLM structure to affiliate marketing. Grandma and her buddies went to Tupperware parties where the hostess would have a pile of boxes that she could sell on the spot. Now, those parties have gone by the way of, well, Tupperware. Most MLM sellers now are directing people on social media to click their link to buy the product. Even when those parties are happening, the host is directing people to buy the product with their signup code or their link. In contrast, affiliate marketing is paying for clicks or conversion to sales.

8:08If the host or influencer gets 20 people to click and buy the product, they get paid for those 20 clicks, and that's it. This approach is great for companies because they end up being able to own most of their profit. For those at the bottom of the hierarchy, it can also offer some relief. Many MLM businesses require their sellers to hit a minimum sales target each month to stay in good standing, which can create a lot of pressure. Some people even feel compelled to buy their own products just to meet their sales goals, ultimately benefiting those higher up in the organization and hurting their own bottom line.

8:42Another issue with MLMs is that they charge sellers a monthly fee to participate. This means that sellers who struggle to move makeup might end up paying fees without making any profit, leading to a loss. In the past, sellers had to keep a certain amount of product on hand, which meant for a lot of people they were out money, but at least they had a stack of 50 lipsticks. Now folks are just out of cash with nothing to show for it. This is where affiliate marketing steps in. Affiliate marketers have very little to lose. If they get the conversions, they get the money. But if they don't, they don't lose money.

9:17But for that 1 % who are making money in these systems, a switch from MLM to affiliate marketing is a huge blow to their bottom line. Remember, most of an MLM's top earner's income is from having people in their downline, not necessarily from selling products directly. So a pivot to affiliate marketing is like showing up to work one day and having your boss announce that they're cutting your hourly rate by 75%. I don't want to minimize how much this sucks for people, but it also highlights the vulnerability of everyone in the MLM system. For all the be-your-own-boss hashtag boss babe content people are posting trying to recruit others into their downline, no one except the CEO of these companies is actually the boss.

10:02If you're selling one of these companies' products and making money from the labor of those below you, you're part of the sales force of the company, not an independent business owner. And just like any job where you're a freelancer for a company, you're living within the whim of that corporation. If they want to change things, even their revenue model, they absolutely can. It looks like more companies might ditch the MLM model in coming years and opt for affiliate marketing instead. Because it's not just Rodin and Fields, Saint, and Tupperware that have made the news in the last few months. Monet, a haircare MLM, has also been creating a lot of buzz, and not for such great reasons.

10:41There are so many lawsuits and claims against the company that if I tried to list them all out right now, you would be here with me all night. There are class action lawsuits by users who claim that they've been injured or suffered hair loss because of the product. There are viral claims that these products have caused fertility issues. The former president is suing the founders, claiming the company is being run into the ground due to mismanagement and losing a massive amount of money. As the company goes through this crazy period, sellers are jumping ship. And some of those former sellers are now coming forward to break down just how suspect the compensation plan is.

11:17And some of them have screenshots, which seem to show that they were being paid less than what was outlined in the official compensation plan. In any other work situation, it would be unacceptable if your boss shortened your paycheck. But at Monet, some former sellers are claiming it was the norm. So what is it about MLMs that attract so much disaster? Well, if your income is dependent on getting your friends to buy someone else's product or relying on your peers, your downline, to boost your income, there's a lot of room for things to go wrong. Sure, sometimes there's a price to pay to join a company.

11:53Take McDonald's, for example. They charge franchise owners$45 ,000 as a licensing fee every 20 years. But you don't need to get your friends to open up other franchises in order to keep yours up and running. And that's a pretty critical difference. Now, if you're shelling out a monthly fee just to share some links on TikTok, it might be time to hit the pause button. The reality is most folks who pay to sell products end up losing money. But if you happen to be one of those rare exceptions, trust me when I say you can make money selling just about anything, from cars to insurance to jewelry. If you've got sales skills, don't let these companies hold you back.

12:32Surviving in one of the toughest industries means you can thrive anywhere. For today's tip, you can dig straight to the bank. Are you stuck paying for a subscription or a membership that you don't even want? Maybe you're shelling out$12 a month for an MLM and you're not making a single dime. Or maybe you've joined a gym that won't let you cancel unless you've moved to Timbuktu. If you're having a hard time canceling that membership because the company's policies feel complicated or even predatory, don't worry, there's a simple solution. Just reach out to your bank or your credit card company. They're familiar with this situation and can help you stop the payment.

13:04One quick call can save you time, money, and frustration. So if you've been procrastinating, consider this your nudge to take back control and unsubscribe. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content.

13:43And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.

13:57Thank you.