Pyramid schemes and network marketing have gained new access to a much larger number of people on social media. And that's why we would like to provide information here, because these systems have already thrown many people into financial and interpersonal abysses!

To begin with, we just want to clarify what snowball systems (or pyramid systems) and, in contrast, network marketing (also MLM for multi-level marketing) actually are. There are differences, similarities and ultimately also common dangers!

Pyramid schemes

Very important, pyramid schemes are fundamentally illegal. Nevertheless, they appear again and again and work because they use certain mechanisms. The consumer advice center writes:

A pyramid system is a term used to describe business models that require an ever-increasing number of participants to function, for which you get a “bounty,” analogous to a snowball rolling down a slope and constantly growing. Profits for participants come almost exclusively from recruiting new participants, who in turn invest money without receiving any service or product.

So one of the most important features of pyramid schemes is the method that the money always flows towards the top. This means that those who are at the bottom of the system pump money into the system and are usually the losers. They can only “win” something by looking for someone who is below them in the system. This is why snowball systems are also known as pyramid systems.

There are different ways to detect these systems. This starts with recruiting. Recruitment means reaching out to people whether they are looking for an easy job with high earning potential or ___STEADY_PAYWALL___ returns. In the past, this often happened on the street or at sales events for the products being sold. Today, social media is becoming more and more involved. This means that you will receive a private message on Instagram, TikTok or Facebook from someone who is already in this system and wants to recruit you. The bait is buzzwords like easy work, high income, passive income (you earn by recruiting others) or flexible working hours.

The system itself works as long as new recruits are continually found. Basically, if you want to break it down like that, it's always looking for stupid people to finance the next level up.

There is usually no real product and therefore no buyers. Entry-level financing (with large amounts) is required, there is no free access. The refinancing only takes place through the recruitment of new people who are then placed hierarchically below the advertiser.

But also be careful of so-called “heart and gift circles”

Here we are dealing with an often viral version of pyramid schemes, which is often operated on WhatsApp. So-called heart and gift circles appear to be spiritual and friendly on the outside, but in the end you just get ripped off! We have already talked about systems called “Secret Sister” in the past. Behind the spiritually tinged giving circles with the common motto “Give away some money, get a lot of money back” is simply a pyramid scheme in which you can only lose.

These “gifting circles” are quite intense on WhatsApp! On the surface it's about friendship and cohesion. This lures people and suggests that they are doing something good. But the opposite is the case! The participants are sworn to recruit even more participants. In these cases, this is often absolutely necessary because the starting prices are between 500 and 5,000 euros. And everyone wants to get that back for themselves.

The giving circles like to appear spiritual. The WhatsApp groups of gift circles package their pyramid scheme as softly as possible with “good morning” sharepics, motivational sayings or spiritual messages. Flower pictures or mandalas are the graphic messages. But at some point the hard part comes: the new participants get a supposedly great offer! If you give 500 euros to a total stranger in a group, you'll end up getting a lot more in return. However, this only works according to the classic snowball system, in which a certain number of additional participants are recruited for the giving group. They should then invest the starting money themselves, which will be passed on to the higher authority. We explain why this can't work and only the initiators win in THIS ARTICLE .

Network marketing vs. pyramid schemes

Another important term in this scope is “network marketing”. Network marketing is a form of direct selling and, unlike pyramid schemes, is not illegal . However, confusion often occurs because both systems have certain similarities. These lie primarily in the structure of the sales structure, which can be pyramidal. Parallel to the sale of the products, there is always the opportunity to recruit new salespeople to expand the sales structure. These are then “under” the recruiter. There are also companies that consciously work in a gray area between pyramid schemes and network marketing.

Nevertheless, the differences are clear, because network marketing is not primarily about looking for someone who is at the bottom of the pyramid and pumps money into the system. The distribution of a product plays an important role in network marketing. But there can also be pitfalls lurking in network marketing that can end up giving you a stomach ache.

Network marketing is very much about selling products. The quality of these products is not always certain. There are product lines and products with appropriate quality and also an appropriate price. That's completely fine. But there are also companies that sell trash. The system then often stays afloat by exploiting interpersonal relationships (more on this in the section “Social Selling: Why Friends Might Turn Away from You!”). The big difference is that with network marketing, a real product is actually sold in the end. The pyramid scheme is basically just about pumping money from the bottom up into a system and looking for people who are below the structure and pumping money into it.

However, problems can occur with both systems! There are financial traps, but there are interpersonal problems!

Investments in the system

Network marketing in particular is not primarily about looking for people lower down the “food chain”. This system wants to sell products. These products can be of different types. These can be, for example, household items, perfumery products or any financial products. In many cases, the approach is that the newly recruited people (often called salespeople) first either have to buy a starter kit or even attend expensive seminars in order to acquire basic knowledge.

These starter kits may be overpriced or consist of poor quality products. In general, the entire product line can consist of rather dubious products that now have to be sold directly by the new distributors.

The previous seminars can be tough, as they can sometimes be very expensive. The recruits therefore have to make advance payments here. Various motivational units take place at the seminars so that the recruits get excited about the product. People often talk about “personal development seminars”. Accordingly, this enthusiasm should also be transferred to potential customers, where new salespeople can also be recruited.

So we see the first danger of this system: By making an initial investment in a starter kit or seminar, the new salespeople spend money that they have to recoup. A kind of financial compulsory situation arises at this point. The new salespeople must ensure that they sell the respective products in order to fill the financial hole that has arisen. A not necessarily pleasant starting situation. Anyone who doesn't make this start will be stuck with the costs.

The new employees are often attracted with special bait. At the top of the list is the company car or discounted leasing offers for such a car. The idea behind this is to create a commitment once such leasing contracts have been signed. And this creates the second problem. The forced situation and the motivational seminars build up (over) motivation. In the maximum case, a kind of brainwashing takes place at these seminars and the new salespeople are sort of assigned to the company and product.

Social Selling: Why Friends Might Turn Away from You!

Network marketing and pyramid schemes often rely on the principle of social selling. This term is explained quite simply. Both systems rely on the salespeople or participants recommending the products or the system to good acquaintances and friends.

This is where a psychological effect comes into play, because the new customers or recruits assume that their own friends won't recommend anything bad to them. But that is often a misconception! Because of the need to recoup their invested capital, it is precisely these private connections that are used. Over-motivation for a product can also lead to the sales representatives desperately wanting to force this product on their circle of friends.

It's quite similar in a snowball system, because your own friends and circle of acquaintances are of course the first access. There is a certain basic trust here and therefore a greater chance that these people will take part in the system themselves. The situation is very similar when looking for new salespeople. They can also be recruited from their own circle of friends and then also get into the system.

At this point I don't even want to look at the illegal pyramid scheme (which in the end probably always leads to ruined friendships and relationships), but simply at legal network marketing.

Here it is often perceived as annoying when people in your own circle of friends keep pushing you to sell your products. This can lead to unpleasant situations because I don't want to politely tell my boyfriend or girlfriend straight to their face that they should leave me alone with their products and their over-motivation. In the end, this does not have to lead directly to conflict, but can end in a silent withdrawal from the friendship or a reduction in contact.

Therefore, you should always carefully consider whether and to what extent social selling should extend into friendships and acquaintances. In the end, am I really just exploiting my contacts? Am I perhaps annoying my friends and relatives? Or do I end up trying to sell myself away from friends and relatives? Of course, we cannot answer these questions; it is always at the discretion of the salesperson himself.

Let's finish

This is in no way about badmouthing direct marketing systems. What is important, however, is the difference between pyramid schemes and direct marketing systems. However, we still advise caution if you are contacted by unknown people out of the blue on social media. If they promise you jobs with good pay and little work, you should be skeptical.

Check carefully beforehand whether you would like to take advantage of these offers. Look carefully at what system is behind it. Check carefully whether this system is legal. If so, then also check whether you want to participate in this system. Take your time and don't rush into anything. Look carefully at which investments are worthwhile or whether certain advance payments are perhaps a rip-off. This is what we would like to give you on your way.

That could also be of interest

Incorrect! Vaccinated people do not count as unvaccinated people as soon as they develop symptoms. Vaccinated is vaccinated. It makes no difference whether symptoms appear afterwards. Unlike the claim currently making the rounds on social media. Continue reading …


Note: This content reflects the current state of affairs at the time of publication
.
The reproduction of individual images, screenshots, embeds or video sequences serves to discuss the topic.