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The Jewish Ethicist: Pyramid Puzzle, Part One

The Jewish Ethicist: Pyramid Puzzle, Part One

Is multi-level marketing ethical business?

by

Q. A neighbor tried to sell me some cosmetics and suggested that I could also make money by selling to others. Is this selling system ethical?

A. The phenomenon you describe is called "multi-level marketing." The idea is to create a kind of pyramid where each customer in turn becomes a salesperson, creating a new level in the marketing pyramid. All salespeople obtain earnings from all sales beneath them in the pyramid: their own customers, their customers’ customers, and so on.

Multi-level marketing is not inherently unethical, but it presents a large number of difficult ethical challenges that are not easily overcome. It is worth considering these challenges carefully before joining such a system. This question is so complex that we will devote two columns to it.

One problem with multi-level marketing is not unique to this pyramid selling idea but is found in all kinds of "neighbor to neighbor" selling or even incentive systems like "bring a friend and get a discount." The problem is that the seller is often trying to mask the salesperson’s financial interest in the transaction. As we pointed out in a previous column [see Chatroom Charades], this violates the Torah prohibition of "putting a stumbling block before the blind;" one meaning of this prohibition is to give advice to someone who is blind to the adviser’s conflict of interest. Rashi gives the example of advising someone to sell a field and buy a donkey while hiding our own interest in acquiring the field.

There is nothing wrong with a neighbor giving a friendly recommendation for a product he or she enjoyed; there is also nothing wrong with a salesperson giving a glowing but honest account of the advantages of his or her merchandise. But it is misleading for the salesperson to somehow imply that the sales pitch is really an impartial endorsement. Therefore, one prerequisite for this selling is that the sales pitch is professional, and doesn’t try and build on neighborly trust -- which it will ultimately undermine. It’s a shame to damage relations of trust carefully built up over years just for a few dollars earned from a marketing system.

A related problem with neighbor selling is that it often pressures people into buying items that they don’t really need, out of a desire to avoid saying no to a neighbor. There is nothing wrong with voluntarily buying something from a merchant out of a desire to help the person make a living, and this is indeed the highest level of charity -- to help a person in business rather than through a handout. It’s also permissible to give a little non-pressured encouragement to people to give to a worthy charity; therefore, selling cookies and the like for youth groups is not unethical even though some people buy only in order not to seem miserly.

But this is completely different than buying something to avoid awkwardness, which is not voluntary at all but rather pressured. A previous column discussed the similar idea of subtle pressure on a person to give a gift without true consent [see Pauper Presents].

Neighbor-to-neighbor selling systems can be "value-adding" if there is a real advantage to knowing the needs and habits of potential customers and if there is a sincere enthusiasm for the product on the part of the seller. However, not everyone is capable of living up to the challenge of taking off the neighbor hat and putting on the seller hat for the duration of the sales presentation.

Furthermore, the basis of ethical selling is to have the full desire and consent of the customer, and neighborhood selling runs the risk of leveraging carefully nurtured good will for the purpose of making money. In order to avoid both of these problems, the neighborhood seller needs to strive for an attitude of professionalism in selling, and this attitude is not necessarily easy to achieve.

Send your queries about ethics in the workplace to jewishethicist@aish.com

The Jewish Ethicist presents some general principles of Jewish law. For specific questions and direct application, please consult a qualified Rabbi.

The Jewish Ethicist is a joint project of Aish.com and the Business Ethics Center of Jerusalem. To find out more about business ethics and Jewish values for the workplace, visit the JCT Center for Business Ethics website at www.besr.org.

JCT Center For Business Ethics

Copyright © JCT Center for Business Ethics.

Published: March 8, 2003


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Visitor Comments: 4

(4) Beckie Cohen, March 14, 2003 12:00 AM

An educated response.

As an Independent Business Owner for over 7 years, affiliated with a corporation most people would lump into the MLM category, I really feel the reasonings given that this type of marketing or selling has many unethical issues is not a very educated answer. Yes, people, acting on their own accord, can make unethical decisions how to run their business, but so can anyone in any business venture. I will not disagree that there are many MLM's out there that do not promote good business ethics, but there are many successful ones that absolutely promote excellent ethics, regardless of the individual's choice to follow those ethics. Not one of my clients/neighbors/friends, etc feel pressure to purchase anything, nor do I make money off of my downline. I provide training and support to help their own business grow, and only then do I make a small percentage from the corporation for my leadership efforts and abilities. Traditional business cannot even offer that. Please understand that in ANY business opportunity, research and education is absolutely necessary to make good judgements and decisions, but do not lump EVERY business opportunity that seems like a MLM scheme into the same category without doing that research. Those of us out there that have great business ethics and have worked very hard to provide our services and products to people through this manner of marketing do not deserve skepticism that comes from uneducated information.

(3) Anonymous, March 14, 2003 12:00 AM

Let's clarify some things

The information given in this article is a direct result of individuals taking a sound business model, adjusting it and distorting business practices to adapt to their personal ethical shortcomings. Since, these people exist (in majority I must say)all comments given by the writer and some commentators are probably and shamefully true. I'm not singling out the following professions because of anything more than to make a point. There are those individuals whom we all know of, who go to college and grad. school, take the Bar exam and become successful attorneys. This does not make them unethical, dishonest people in life or their law practice. Lawyors, however, have a general bad rap (at least in my city/state). Used car salesmen have a bad rap. MLMs have a bad rap. I know it and guard against it. If I pressure someone into buying or selling any product or service I represent that is not interested or try to make money from selling available marketing material, or any of the above slams against my business, then, yes, I too could be unethical. That does not make the business model unethical. I have downline who make much more money than me. I do not make any money from sales of literature and it's not even required to purchase. Last points: I kept my mouth shut about my business in my neighborhood for the very reasons that have been stated in the article. This is to prevent anyone from judging me and what I do. If someone needs something I offer, they buy/sell or whatever they were looking for or they don't. No problem, we're still friends. All businesses require some sort of marketing material or some tools to run the business. If this is foreign, I would make the assumption the individual making this comment has not operated any business. Lastly, my Rov is in complete agreement and support of what I do, not because he buys (he doesn't) not because he sells (he doesn't) but because I check with him as I would my upline so I can do things ethically and in a Torah way all the time. Hopefully this helps educate some, from an experienced, successful business owner.

(2) Lyle Stanley, March 10, 2003 12:00 AM

multi-level marketing often has an unethical basis

As person who has had a number of friends and associates involved in multi-level marketing (MLM), I have had serious reservations about this system of selling products to the public. There have been a number of studies done as well as exposes on TV news magazines. From what I am to deduce the MLM approach is most often supported by fanastic stories of people making a lot of money if they only put the time required in. The fact is that most folks who get sucked into these schemes start down a sorry road to idolatry and alienation as they virtually canabalize all their familiar and social relations. Their drive to succeed becomes so consuming that they basically sell 24/7 and lose their perspecitive in life. These companies make a religion of success and money and often back up claims for their products on unsubstantiated sources and claims i.e. a lot of anecdotal eveidence. Similiarly their sales conventions are showcases for greed.

(1) Lyle Stanley, March 10, 2003 12:00 AM

too continue

This is a continuation of my previous comment.

It is most telling to scrutinize the pay structure of these companies. A very small percentage of the product(s) selling price is commission; a much smaller commission than is normally found in most non-MLM businesses. So virtually all a person's income must come from a person's "downline"- people who they get to join the company as their recruits. Of course recruits need sales literature and other materials and then there is always the fees for joining. These expenses have the profit built in for their recruiters. In effect salespeople with these firms make very much more from selling prospectives employees/franchisees a business opportunity (or more rightly, the hope of a business opportunity). In the end since almost everyone a person knows has a similiar circle of friends and lives proximate to their upline the market they can realistically and affordably reach quickly becomes saturated. After that the hype dies down and people who have been unlucky to be seduced become frustrated with their lack of success and they can no longer motivate their downlines, who in turn become discouraged. The entire thing collapses and the unlucky marks suffer the setback and subsequent humiliation. The only ones to benefit from this is the pyramid organizers who become wealthy but lose their self respect; and eventually the spouses and relatives and friends get some relief as the storm of craziness and greed has subsided and they can then get back to their normal lives again.

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