Bloggers often use the term “pyramid scheme” in their articles to disparage the network marketing model for a home business. They often use this trigger term to discourage people from even considering such a business. I’ve often noticed that writers of such articles, often poorly written, are themselves scheming.
Their motivation is to provide a “red herring” in their article. That is, their intention is to divert the unwary reader away from network marketing and toward their own business. The writers of these articles that slap the “pyramid scheme” label on legitimate businesses are often recruiting. However, network marketers are likewise recruiting for their own businesses.
These bloggers that scream “pyramid scheme” hope to lure readers into their own sales funnels by misinforming them about network marketing. The admonition to “follow the money” is always wise advice.
What Is a Pyramid Scheme?
Let’s begin by explaining what a “pyramid scheme” actually is. A pyramid scheme is a business model that defrauds participants. It does this by promising them substantial income simply by recruiting others in the same way that they were recruited.
Typically, a pyramid scheme involves the recruitment of new members at the bottom level, who in turn recruit others. This ploy creates levels of participants, nicely layered.
This “structure” thereby lends itself to a hierarchy that determines how much participants get paid. Each level has an increasing number of participants, evoking the image of a pyramid—narrow at the top and wide at the bottom.
The Pay-to-Play Aspect of Pyramid Schemes
Those who are at the narrow top stand to earn the large payouts since they “got in early” or “on the ground floor.” Those who have the misfortune of being at the wide bottom of the pyramid can expect little—if any— compensation for their participation in the scheme. Worse yet, those at the base of the pyramid are likely to lose money. The winners at the top convince those at the lower levels to “pay to play.”
While the scheme is running its course, those at the base of the pyramid often receive encouraging messages. Those at the top urge them to “hang in there” because “economic salvation is at hand.” These messages often have religious overtones. The words of comfort and encouragement convince the base-level participants that their manipulators at the top are not only good but also righteous.
The Collapse of the Pyramid Scheme
However, the scheme is unsustainable. It relies on a constant inflow of new participants (and their money) who end up funding payouts to the earlier investors. Eventually, all good things come to an end. The pyramid, by necessity, collapses at some point. Most of the participants incur losses, ranging from trivial to substantial to devastating.
Pyramid schemes are illegal in the U.S. and can result in severe financial consequences for those involved. As a matter of fact, those who recruit participants into a pyramid scam can, by law, be charged with a felony.
Are Network Marketing Companies “Pyramid Schemes”?
Now we know what pyramid schemes are and the likely consequences of participating in them. With that backdrop, let’s begin exploring the legitimacy (or lack thereof) of network marketing companies. Shaklee is one such company.
Official government communications assure us that multilevel marketing (MLM) organizations (also known as network and social marketing businesses) are often fully legitimate enterprises. There are several “tests” that we can apply to determine whether or not a business is a pyramid scheme.
The following is a list of questions that we should ask ourselves before signing up for any MLM-oriented business.
Does the company:
- promise that I will make money by “recruiting” people regardless of whether or not I sell any products?
- use representatives to “pressure” me in any way to sign up for and join their “business opportunity”?
- require that I “buy in” to their organization by paying an unreasonable amount of money?
- expect me to attend seminars and/or buy an inordinate amount of “sales materials” in order to be a “member in good standing”?
- require that I purchase considerable inventory for all the sales that it expects me to carry out?
About Those Friends and Family…
We might decide to waltz right into a pyramid scheme simply because family and friends are participating. After all, they must know what they’re doing! What could go wrong?
Plenty. People in our circle of friends and family are just as anxious to make “easy money” as so many others in the world. It’s entirely possible that they may not be aware of the importance of asking the questions that you are. They might innocently believe that they are “helping” you. On the other hand, they might be looking at you with dollar signs in their eyes as they approach you for recruitment into a “ground-floor opportunity.”
More Specifically, Is Shaklee a Pyramid Scheme?
To better understand the legitimacy of the Shaklee Corporation, let’s explore its background, including the founder himself.
Some Shaklee Background
The Shaklee Story and the Role of Nature: Transitioning from Health Care to Well Care
Dr. Shaklee founded Shaklee Corporation in 1956 with his two sons. The vision he held for his new company was a direct sales distribution model—not some kind of illicit pyramid scheme. He was adamant about giving distributors exclusive rights to market the products and to form their own independent “companies.”
These entrepreneurs became the advertising and marketing arm of Shaklee Corporation. For that reason, Shaklee does not invest in advertising and marketing through traditional channels.
Shaklee has essentially no traditional advertising and marketing budget. Hence it is able to divert the resources that are normally reserved for advertising and direct them instead to its distributors and business leaders. Shaklee, therefore, is able to generously reward these distributors and business leaders.
Shaklee’s “Hierarchy”: Pyramid-Shaped as in Any Other Industry
In the Shaklee hierarchy:
- “Retail Customers” purchase Shaklee products from Ambassadors at full price.
- “Members,” for a small one-time fee, have the ability to purchase Shaklee products at a discount, take advantage of “specials,” and enjoy “loyalty privileges” that save them considerable money.
- “Ambassadors” pay a slightly higher one-time fee than Members do for the privilege of distributing products and developing “Business Leaders.”
Ambassadors are “independent distributors.” They are free to run their business as they wish as long as they adhere to Shaklee’s very reasonable Statement of Privileges and Responsibilities.
For example, Ambassadors are free to develop their Shaklee business according to “old school” methods in the “real world,” such as:
- talking with others about Shaklee products
- seeking out people who would consider becoming a distributor for Shaklee products
- seeking out those who might consider becoming a Shaklee business leader who trains others to develop their own distributorships (and potentially earn considerable income)
On the other hand, Ambassadors may choose to take advantage of the great advances in technology since Shaklee started in 1956. They may want to develop their businesses by:
- using online techniques to build out their Shaklee business
- running their business as an affiliate marketer for Shaklee
- running their business as a network dropship business with Shaklee as the supplier/dropshipper
Shaklee Supply Chains Are Not a Pyramid Scheme
Notice that the “job” of Shaklee Ambassadors is to provide “supply chains” for Shaklee products. Ambassadors are paid according to the volume of sales in their organization—not according to the number of “recruits” that they bring in. No sales, no pay. It’s that simple. By no stretch of the imagination is Shaklee a “pyramid scheme.”
We can further bolster the credibility of Shaklee as a legitimate business for anyone wishing to form their own distributorships. We do not need to look any further than the Better Business Bureau (BBB). On its website, we see that Shaklee has been accredited by the BBB since December 1965. Even more impressively, Shaklee enjoys a rating of A+, the highest possible rating.
Furthermore, Shaklee is a member of the renowned Direct Selling Association (DSA), based in Washington, D.C.
The verdict is in. We can safely conclude that a company that started in 1956, that has such an enviable BBB rating, and that is a prestigious member of the DSA…is not a pyramid scheme.
Shaklee Membership for Substantial Discounts!
Just like at some grocery stores, you can save approximately 15% off retail prices on Shaklee products. As you can see on Shaklee’s Membership page, there are three ways to become a Member:
- A one-time cost of $19.95
- By spending $150 on your first purchase, you get: 1) free shipping; 2) free Membership; and 3) all Member “perks.”
- Purchase a “Ready Set Wellness Bundle” for $179 (worth $285) for:
1) free shipping; 2) free Membership; and 3) 25 bonus Loyalty Points (see below).
On subsequent orders, Shaklee Members have the option of either a flat-rate shipping fee ($8.99) or free shipping on orders over $150.
Shaklee Loyalty Points
In addition to the standard 15% Membership discount, Shaklee offers “Loyalty points” that can be used to earn free products or, in some cases, further discounts. Additionally, the longer you keep up your recurring Loyalty Orders, the more points you earn back on purchases.
For an explanation of the details of the Loyalty Rewards Program, click the “Learn More” button toward the bottom of the Membership page.
Shaklee Ambassadorship
By becoming a Shaklee “Ambassador,” you are given the right to establish a Shaklee distributorship and sell Shaklee products (including, of course, Shaklee’s anti-aging skin care products). For greater income, you may consider training others to build their own distributorships; you have a financial interest in their businesses.
For a look at the exciting details of becoming an entrepreneur in the wellness industry as a Shaklee Ambassador, select the following button:
What Are Some Ideas for Operating a Shaklee Ambassadorship?
There are many ways that you can operate your Shaklee Ambassadorship. For instance, you can use the long-time traditional methods involving meetings and talking with people you know—as well as people they know.
Or you might wish to consider the exciting world of online marketing!
Engaging in online marketing requires a vast amount of knowledge. But to give you some idea of what this might entail, you may want to see my articles on a Dropship Business Plan and Network Affiliate Marketing.
