Hamline News

Researching Multilevel Marketing vs Pyramid Scheme


Millions of people around the world make their living as distributors in the direct selling industry, but the business model and the promised income levels are sometimes called into question. The potential intersection between multilevel marketing and pyramid schemes has been much discussed in the last few weeks after hedge-fund manager Bill Ackman made his case to the world claiming that Herbalife (one of the world’s largest multilevel marketing firms) falls squarely in that gray zone. Herbalife officials plan to formally refute Ackman’s claims on Thursday, January 10 to reassure its investment community. 

School of Business assistant professor of economics Stacie Bosley has researched and conducted deep analysis of the direct selling industry for two years. Bosley says this story has gained traction at a time when record numbers of people are working as distributors in multilevel firms around the world. According to World Federation of Direct Selling Associations, 91.5 million direct sellers were working as distributors in 2011, the majority working in multilevel member firms. In the United States, home of Herbalife, the direct selling industry reports a distributor base that reflects one-tenth of the U.S. labor force.

“Given its current exposure, this is a perfect time to discuss the unique attributes of this industry, the potential overlap with pyramid schemes, and the subculture that is created within distributor networks,” Bosley said.  "Exploration of this world prompts discussions of marketing and distribution within developed and developing countries, business ethics in compensation and sales, psychological and sociological aspects of person-to-person sales, and regulatory issues for state and federal institutions.”

Bosley has presented her research at academic conferences and is currently analyzing data from a multilevel marketing firm charged as a pyramid scheme in several U.S. states. From a global perspective, she is examining the relationship between multilevel marketing activity and national economic/cultural factors. Bosley’s research also explores the participation decision made by individual distributors and the conditions under which the industry thrives or contracts.

“The Federal Trade Commission stated in 2012 that a subset of the multilevel marketing industry does likely meet pyramid scheme criteria, but that the determination needs to be made on a firm-by-firm basis with detailed fact finding,” Bosley said. “Let the fact finding continue - a legitimate firm can stand up to this level of scrutiny.”