The Future Of

Get-rich-quick Schemes

Episode Summary

Get-rich-quick schemes are known as too good to be true, so why do people continue to participate in these businesses?

Episode Notes

Episode Transcription

Jessica Morrison (00:00):

This is The Future Of, where experts share their vision of the future and how they work is helping shape it for the better. I'm Jessica Morrison. Get rich or get scammed, we've all likely seen an example of a get-rich-quick scheme, whether it's a poster at your local shopping centre, promising an exorbitant amount of money for very few hours work, or a family member or friend trying to push their side hustle of selling beauty products on social media. And while the allure of these schemes may seem too good to be true, many people continue to get involved in these sorts of businesses, with social media, providing even more access to potential customers. But with greater awareness of the realities of these ventures, what is the future looking like for these get-rich-quick schemes? To discuss this topic with me today, we have associate professors, Dr. Isaac Cheah, and Dr. Billy Sung. Both from the School of Marketing at Curtin University. Thank you both for joining us today.

Dr Isaac Cheah (00:56):

Thank you, Jess.

Jessica Morrison (00:57):

So these get-rich-quick schemes that we've talked about are often known as pyramid and multi-level marketing schemes. So what are these schemes and how do you spot these?

Dr Isaac Cheah (01:07):

Really good question. I think they both business models to put quite bluntly. I think with the multi-level marketing business model, what you're essentially looking at is people selling products to get a commission from it. It's a very much similar to a direct selling sort of a business sort of transaction. It's hard to spot a pyramid scheme because they almost disguise themselves as similar multi-level marketing models. Essentially these schemes work off what we call recruitment.

Dr Isaac Cheah (01:40):

So recruiting people and the more people that you recruit, essentially, the more commission that you get. So you've probably heard about how models like this quite unsustainable because by the time you get to the third and fourth tier of new recruits that come in, they would have to go out and recruit more people, which essentially then the numbers won't add up. So I think the biggest difference between the two essentially is that you're looking at multilevel marketing being more or less the selling of products and having a getting commission from that. But with the pyramid schemes, the biggest difference here is essentially looking at people recruiting others, building a network around these people in order to then receive some form of commission. So that would be, I think, the biggest red flag for the two models.

Jessica Morrison (02:31):

And pyramid schemes, are they illegal in Australia?

Dr Isaac Cheah (02:34):

Yes. In most cases, I think in most countries, the biggest challenge here is to be able to spot what they are and how different they are to MLMs. And I think a lot of them like I was saying before, they do disguise themselves as MLMs. That's where I think people often get sort of a mistake them for this being the same thing. It's not only 'til you're actually in the process that you start sort of figuring out that maybe this is not what it actually is.

Jessica Morrison (03:03):

So joining the dots, essentially.

Dr Isaac Cheah (03:04):

Yes. Definitely. Yeah.

Jessica Morrison (03:06):

And Billy, the idea of a get-rich-quick scheme is well known as being too good to be true. So why do people continue to get involved in these sorts of businesses?

Dr Billy Sung (03:14):

Well, there's a number of different reasons. I think one of the major reason is the get rich quick scheme really does promise you getting rich. And I think it is not really just selling that, but it's actually selling it as the promise of being flexible and free. So it's kind of like being your own boss. And also it actually promises of becoming this independent business owner where you can sell these products on behalf of this company. And I think this is one of the major reasons why people join either pyramid scheme or MLM or multi-level marketing schemes because they hook people on with the stream of becoming flexible, independent business-owner. It also really appeals to emotion. So what they do when they're recruiting for MLM or pyramid scheme, they use or deploy a number of different emotional tactics to actually get you hooked into it.

Dr Billy Sung (04:06):

One of them is actually getting you into seminars to actually look at successful sales. So they would quote this person actually make a million dollars a year just by selling these things and actually getting commission from that. And what we're seeing here is actually a very innate human bias. So in cognitive science or cognitive psychology, we call it what we call base rate neglect or base rate bias whereby we actually look at a successful case study and we actually extrapolate that and go, well, if he can be successful or she can be successful, I can also be successful. And what this is MLM, pyramid scheme will actually hook you into these kind of seminars, these type of information on brochures and actually make you feel that yeah, I can be that person. I can actually make that money and actually be flexible in my work arrangement.

Dr Billy Sung (04:54):

And I guess the other aspect of it is really optimism. So if you go into these MLM schemes or pyramid schemes, they really, in a sense, engender an optimism, kind of fight of optimism, where you get all the support system, you get all these different marketing assets that you can use that is proven to drive sales. But if you actually look at the numbers, in fact, research has shown that if you look at the numbers and the sales, it doesn't add up, which is quite interesting because that really speaks to, I guess, another bias that we have as human. We're supposed to be rational, but we are not. And we are really affected by our emotions, our base rate neglect bias, so on and so forth.

Jessica Morrison (05:37):

Following on from that, are there examples of people owning significant incomes from these schemes? So can they be legitimate businesses or sort of sounding like they can't be?

Dr Isaac Cheah (05:47):

I think depending on the point of view of who you're asking, obviously, I mean, if the guy or the person is sort of the founder or one of what they call up-liners, I guess then sure, why not? Because you're starting this process whereby you're at the beginning of recruiting your members and whatever they earn, you get cut. Obviously, if you're lower down to the scheme or the tiers, then you're not going to feel like you're getting much. In fact, you're going to feel like you're putting out a lot more. You see the way that obviously pyramid schemes or MLM works is that when you do get in, you don't have a filtering process, there is no screening sort of interview to say like, "Look, are you qualified for the job?" In fact, all of us sitting here could be qualified to sell whatever they put out there. Coming in at that level, you're not going to be reaping the benefits per se.

Dr Isaac Cheah (06:39):

So I guess from the founder's perspective, it could potentially be a legit business. They could be very well earning six, seven figures sitting at home. But I think also the classification of the legit business, then it goes back to really understanding the processes is one of the mechanisms as well. So, I mean, we talk about having some form of equity in terms of business relations and so on. And I think with MLM, if you're looking at, again, a pure product transaction, some from a direct-selling, shouldn't be an issue there. Not that I'm aware of, but I think if you're counting on people and obviously what Billy has mentioned about you're preying on people's insecurities and getting them to then go out and recruit more members because that's where your commissions are coming through and it was where you're getting the bigger cut. Then obviously there's some form of a legality issue there I feel, or at least morally.

Jessica Morrison (07:30):

Many of these MLM schemes focus on selling health, wellness, and cosmetic products. I see them a lot on my social media that's for sure. So why do these sorts of products lend themselves to this business model so well?

Dr Isaac Cheah (07:44):

I've thought about this a little bit and Billy might have some ideas as well around this as well. The two reasons I feel that do so well, first of all, they're products that can be broken down as samples, right? Because they're easier to sell than direct sales. If I'm able to give you a sample of vitamins or soap it's easier to move through different people, it's easier to talk about it. So people understand these products as well. So the other one is that because they're very much trendy and again, going back to what I said, it's easier to understand and hence that's part of the recruitment as well. So you don't need a degree to sell vitamins. You don't need a degree to sell supplements to a certain extent. So those are probably the two things that I feel why these products are more or less targeted for these schemes. But this being said, I've heard of MLMs doing education as well.

Jessica Morrison (08:40):

Really?

Dr Isaac Cheah (08:40):

So that's also a very interesting model, but I feel that there's a lot of incentives then for members, there is also a lot of training for members as well. And that goes back to what Billy was talking about in relation to having these seminars, it's all this thing about self-help and motivation and doing your best and all that. There's a whole heap of investments in relation to getting them members ready, feels like they're in being empowered to then go out and then empower others, so to speak. So it's not just limited to those products or these products like you were saying in relation to cosmetics, wellness, and health are the main groups. But I feel that's because anybody could sell them. Anybody could go, well, I understand what they are, but yeah. What do you think, Billy?

Dr Billy Sung (09:24):

I think that's definitely sums it up. I think the weirdest or strangest MLM I have heard of is actually selling horses. So yeah, so selling horses for, I guess, horse racing. So it's a big pyramid or MLM scheme and basically operates overseas. And they generally goes through even countries where they breed kind of these high performing horses and their promised in a sense breed the next winner of, I don't know, the Melbourne Cup or whatever. But I guess there's also a social aspect towards that with the healthiness trend and I guess the supplements products, you kind of have that not only the trendiness, but I guess the social norm.

Dr Billy Sung (10:06):

So you actually see that society, especially in Australia tending into kind of these healthy trends, healthy eating, so on and so forth. So by actually leveraging on these social norms or social aspect which MLM and pyramid scheme really relies on because you're pretty much selling to your friends, family, anyone who are close to you, it's easier to, in a sense to pitch to the potential either downline or so people who you recruit to sell more or people who will be your potential customers.

Dr Billy Sung (10:37):

And so I guess from a social aspect, it makes sense that a lot of these pyramid scheme and MLM schemes really focuses on health and nutrients and those kind of products.

Jessica Morrison (10:49):

On the social aspect that you just mentioned, how is social media changing the way that these schemes operate and are marketed?

Dr Billy Sung (10:57):

Definitely. So from social media, we call them what we call recursive marketing. So what that means is you basically are selling to whoever those close to you. So in the 1980s, 1990s, we don't have Mark Zuckerberg, we don't have Facebook, we don't have Instagram so on and so forth. So recursive marketing goes by these meetings. So gatherings, having a cup of coffee over, I guess, a seminar to talk about what makes you healthy? What doesn't make you healthy? And then what they would do is they would invite the family and friends. And so if you have heard of some of these well-known company that has been in a few lawsuits Avon or Amway, they actually train the consultant, so to speak, to actually host these gathering. But now what we have is shows your media actually it's basically replacing what we call recursive marketing.

Dr Billy Sung (11:52):

In fact, it is probably now the definition of recursive marketing, whereby you have a social media platform, you can actually advertise your product or promote what it does. And that will get spread to all your network, which are your friends, family, and colleagues, and people who are around you. And I guess what they are actually doing here is social media, in some sense, actually facilitate that whole promotion of MLM scheme because I think if we do scroll over our social media feed, we will have seen or identify a number of different pyramid scheme or MLM like kind of scheme that our friends or family might be in.

Jessica Morrison (12:32):

I suppose it's an instant customer base, isn't it? Do you have anything to add on this one?

Dr Isaac Cheah (12:38):

Yeah. I completely agree with Billy. I just wanted to say that social media obviously is that lubricant that's allowed things to just move a lot smoother for these companies. There are also very vulnerable groups, I guess, that are more or less exposed to these sort of things, especially on social media. So I read somewhere like stay-home parents, in particular, they will get these ads if you will, or these things that are targeted towards them to say, "You're staying home, would you like to make money while you're doing that?" Be your own boss and stuff. So again, these red flags are the things that are going to get you and get people to start thinking. And I think all they need to do is to plant a little bit of that thought in your mind. And if you seek it out, you probably get that idea or that hope that it's possible. But I completely agree with Billy, social media and this whole idea of recursive promotions and marketing is essentially, what's allowing these things to travel word of mouth that travel a lot faster and recruit a lot quicker as well.

Dr Billy Sung (13:41):

I think also adding to that, when we look at social media platform, in fact, if we're not looking at the consultant level, if we're looking at the company level, so the company that started these MLM or pyramid scheme, the amount of data that the social media has on you, your interests, whatever you look at, literally Facebook know exactly how many seconds you actually look at a post. And so that can infer what you're interested in because they have a team of people that codes every single image, video, texts that you're looking at to go, "Well, person A is actually interested in, I guess, nutrients or healthy eating." So what happens is companies have already been using social media advertising for the past 10 years. When you go on social media, you might get a ad from an insurance brand, a car brand, so on and so forth.

Dr Billy Sung (14:31):

MLM can still use these as their advertising kind of assets. So what they could do is they could pretty much just go if an MLM pyramid scheme that is selling vitamins. I can literally tell Facebook that I want these ads that I have to people who want to get rich and who are actually looking for more money sources or income sources and they're interested in nutrients or vitamins. In fact, I think in the targeting, you can even target what type of vitamin they're interested in. So is it more so the joints, or is it more so for health? And so you can see how Facebook and all these social media advertising, it's a common place for marketers to leverage on. But again, that makes it really easy for MLM or pyramid scheme or any company to actually target specific consumers that might be in a sense vulnerable or in a sense, more susceptible to kind of these kinds of get-rich-quick scheme.

Jessica Morrison (15:32):

Wow. Look, ex-participants of some of these schemes have described them as cutthroat and cult-like. Billy, I can start with you first. What is it about these schemes that creates this culture and what kind of psychological effects can it have on people?

Dr Billy Sung (15:47):

I guess within the MLM scheme, what you will find is that they actually are quite cult-like. So if you look at the psychology of cults, the emotional manipulation, the tactic that they use, setting up that support system, the social network that these MLM pyramid schemes actually promise you, it is really like a cult. And what happens is when you actually go back to let's say you're upline or the company who sells you those product for the demo, and you say it's not selling. What they would do is they will now start blaming you because they will say, "I have actually shown you these success cases. You see if you work hard enough, if you are like these people, you will be successful and it's not our product that doesn't sell because these people have already sold them."

Dr Billy Sung (16:36):

And so you're constantly in a sense, once you have hooked in, and whether you actually complain about the product or make some negative perception on it, what happens is they will start blaming you for being a failure. What this is they're trying to drive you and motivate you to actually work harder to actually recruit other people. However, I think in a more grand scheme of thing, I think it is not really the emotional effects that the company is actually asserting onto these consultants so to speak.

Dr Billy Sung (17:06):

It's actually more so the consultant themselves, so MLM and pyramid schemes are based on you selling products to friends and family. However, and it's actually more so that fears, shaming, guilt, that you might feel when you find out that the MLM scheme is actually a scam or the product actually doesn't work, or you're actually selling I guess, a subpar or lower quality product. So you actually selling these products on behalf of this company to your friends and family, and you are actually not only a victim, you're now a person who actually sold it. So you are actually the facilitator of the whole MLM scheme.

Jessica Morrison (17:46):

What trends are you both seeing as the next get-rich-quick scheme of the future?

Dr Isaac Cheah (17:51):

I was thinking crypto. But I think very much what we're seeing currently with the whole MLM sort of model is that of diversification to perhaps the different types of products. I'm sure everyone knows a bit about have seen some form of infomercials before. So perhaps again, different products, different services that they can get into. We talk about investments as well so perhaps other non-tangibles could be something. But I feel like the foundation of get-rich-quick schemes are always going to be laid quite similarly. It's just perhaps the packaging, the outer appearance of what it might look like to different people could potentially be quite different.

Jessica Morrison (18:40):

Yeah. And maybe like you said, technology and social media could possibly aid this into the future and make it look a little different or a little easier, maybe, I don't know.

Dr Billy Sung (18:49):

Well, I guess from a social media platform perspective, they actually see this as a big issue because they don't want in a sense companies or MLM scheme or pyramid scheme to sell the product where people now start avoiding the social media platform because there's too many of them. And so if you look at say those social media platform, one of them is TikTok which is one of the most popular social media platform in the past two years. In December 2020, they actually start banning pyramid scheme and MLM scheme. So if they found out and they have an algorithm to actually detect that. So if they found out that you're selling products or services that are in a MLM business model or a pyramid scheme business model, they will ban your account or actually take off all your content. And what we'll see is that this is just the first social media platform.

Dr Billy Sung (19:39):

And I think apart from misinformation, that's probably the next big thing that social media a trying to crank down on. And so Facebook, Instagram, which is the same company, Twitter, and all these other social media platform will start actually thinking we have a social responsibility and in order for us to keep people using social media platform, we have to make sure that we don't have these kind of content or MLM scheme or pyramid scheme leveraging on us. And so I think from a social media perspective, they have the incentive to actually try to curb this, I guess, behavioural at this business model.

Jessica Morrison (20:14):

Billy, you just sort of talked about how social media platforms are looking to almost ban or stop these schemes from being advertised and marketed on their platforms. So there is a growing anti-MLM movement with consumer advocacy groups, pushing for legislative reform as well, and even documentaries and Netflix series targeting these companies, is this movement likely to affect the success or prevalence of these schemes in the future?

Dr Billy Sung (20:39):

Definitely. I mean, when you look into some of the fundamental psychology behind how individual operates in a day-to-day life, we have what we call elaboration likelihood model, which suggests that we process information and make decisions based on two routes of processing. So the first route is a central route where persuasion and decision is made or results from I guess, a careful and thoughtful consideration of the information. And what we're seeing is these advocacy groups, documentary about anti-MLM information, really try to prompt that central route. So before you even consider joining, or when you're looking at those marketing on social media, or if someone is actually inviting you to join MLM scheme, these are the things that you need to consider. And so what we're seeing is that we are prompting that central route, and you're telling them you shouldn't just jump into it.

Dr Billy Sung (21:33):

You should look at the costs, the benefits so on and so forth. And obviously, there's also the peripheral routes where persuasion and decision is made based on, I guess, association with positive and negative cue in the stimulus and what advocacy group documentary and these anti-MLM information is doing is actually prompting that association or negative association with MLM. So in fact, even if you tell your friends or family that this is actually a pyramid scheme or MLM scheme, that's a very bad or negative connotation. No one wants to admit that. And so what we're seeing is these anti-MLM kind of pushes, is actually pushing, I guess, both processing routes in the sense that we should be a rational consumer in a sense, you need to weigh up the information, but also it actually people are more associating MLM and pyramid scheme to even more negative association or cues.

Dr Billy Sung (22:29):

What's interesting here is if you're a completely rational consumer and you're considering, let's say your entry to a MLM scheme, you will probably engage in a cost benefit analysis. And most of the time the cost outweighs the benefits. But what you can actually see is if you're a completely rational, you'll be comparing the cost of the entry relatively to the benefits. And so the prospective consultant, or if a consumer is going to buy into it, you probably want to calculate the cost of the startup package, which is the demo package that normally you would have to buy if you go into the MLM or pyramid scheme. You will weigh it against the anticipated benefits of sales. So how much you think you can actually sell. And if they expect the sales were greater than the startup package, well, that's a rational decision.

Dr Billy Sung (23:17):

Now we're engaging in central route. However, a lot of the time, what people don't weigh in is actually the sunk costs. So for instance, you actually are spending time in selling these products, the guilt and fear and whatever emotion that we talked about may actually occur if the product is subpar so on and so forth. Now we would have to assign a certain value to it. And so the benefits of actually entering this MLM scheme must outweigh all these costs. And if you calculate all these costs and the time that you put in, and maybe what we call opportunity costs if we are economists, you could have spent that time working at McDonald's or working in another place that gives you 25, 30 dollars an hour.

Dr Billy Sung (24:00):

Does it really makes sense for you to be entering these MLM scheme? And research have shown that if you weighed all these cost benefit analysis or conduct these cost benefit analysis, most of the time, probably 99% of the time if you are rational, you should not be entering MLM and pyramid scheme. And so that's another thing about elaboration likelihood model where we're prompting people to be rational to carefully and thoughtfully process all the information and actually do a cost benefit analysis. And that's something that's important if consumers are considering to join a MLM pyramid scheme.

Jessica Morrison (24:38):

Isaac, do you have anything to finish off with this one today?

Dr Isaac Cheah (24:40):

Yes. So Billy is pretty much covered quite nicely. I think it's an uphill battle for these guys. I think people should really consider if they want to jump into these different schemes or these different multi-level marketing network marketing type programmes and so on. But there are a lot out there that talk against the whole pot of gold mentality, which I think that is what drives people to be more susceptible to the schemes in the very first place. And it's a lot of it is knowledge sharing and cognitive learning. And I think it's also doing your due diligence as a person. I mean, being rational is a huge thing as well, but it's hard. And then, like I was saying because it's an uphill battle because you're fighting against these things whereby they promising you the world, financial security, be your own boss, flexible income, which are all really, really enticing keywords really.

Dr Isaac Cheah (25:37):

But I think we're getting there. I think there's a lot of information out there and you don't have to look very, very far. So, as much as we're talking early about how social media has helped facilitate and it seems to be helping these different schemes and just different companies to push product and to really have better relationship management with your recruiters and downliners and stuff like that. There is also good out there as well, in terms of educating people. You just have to know where to look and I guess also surrounding yourself with people that have the knowledge or at least people that have good intentions, I guess in some ways. I think that's always a good first step, but yeah. Do your due diligence. Watch out for the red flags. They're everywhere. You just have to also most importantly, trust your gut because if it's too good to be true, probably is. So yeah.

Jessica Morrison (26:26):

A very, very fine point to end on today. Thank you very much, Isaac and Billy, for coming in and sharing your knowledge on this very interesting, fascinating topic. We appreciate it.

Dr Isaac Cheah (26:36):

Thank you, Jess. We appreciate your time too.

Jessica Morrison (26:37):

Thank you. You've been listening to The Future Of, a podcast powered by Curtin University. Leave us a comment wherever you find this episode. We'd love to hear from you. And if you've got something out of today's episode, please rate us. Bye for now.