As Malaysians, many of us have probably experienced, or know someone who has experienced being involved with Multilevel Marketing, or MLM scam.
However, many end up being scammed of their money. Protect yourself and your loved ones by learning how to spot the warning signs of a MLM scam.
MLM is structured in a hierarchy manner, where members are rewarded by selling products, when they recruit new members, or a combination of both. With that being said, there are legitimate and illegitimate MLM’s. Below are tips on how to spot MLM scams.
The Business Model
The difference between a legitimate MLM and an MLM scam is the business model. A legitimate MLM company would focus more on direct selling, such as where members are encouraged to sell the products rather than having to recruit new members.
With a legitimate MLM or direct selling business, you will still be able to generate income even during the months you don’t recruit any new members.
An MLM scam will have a pyramid scheme, where a person will first have to pay to receive future benefits. A pyramid scheme works on the premise of recruiting, and then getting the recruiters to recruit others under them.
These types of MLM companies will have “uplines” who are people that recruited you and “downlines”, who are people you recruited.
Be sceptical if emphasis is put on having to recruit new people, or claims of earning big money with minimal effort. You should also ask about the percentage distributors are actually making as this will give you an idea if the business model is product based or recruitment based.
Testimonials can be convincing, but don’t be fooled by them. Whether it is written, a video or even a person telling you of his or her experience, don’t make a decision based on testimonials.
Another red flag to look out for are testimonials that mention luxury cars, big homes and large income figures by getting other people to do the work for them. Remember, you cannot be sure of the identity of the people giving the testimonials, they could have been paid to say all those things.
The Scarcity Tactic
If words like, “limited time offer”, or “special promotion”, are thrown around, be wary. Businesses use scarcity to make opportunities appear more appealing to you by claiming there is limited availability.
This is a technique of persuasion that is frequently used and which you are most likely to be exposed to. So remember this tactic and take it into account when you are making a decision on any purchase.
Creating scarcity and urgency is another trick often used by MLM and scams. They tell you there’s an expiry time for the offer to create pressure and a sense of urgency so you don’t have time to think things through.
Don’t fall for it, don’t rush into things, especially when it involves having to part with your hard-earned money.
The Value of Their Products
Look at the type of products that the company sells. If the value of the products they sell are questionable, such as health products which claim to be able to cure various diseases or beauty products with fast results, this is another warning sign.
The products could just be a decoy when in reality the business works by getting money from recruitments.
Ultimately, Malaysians should consider other ways to generate extra income, such as by renting out your extra room, offering ride services or by providing your services as a freelancer online. Remember, there are no easy ways to generate large income with minimal effort, if there were everyone would be doing it.
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