The Problems and Realities of Network Marketing (Multi-Level Marketing)

The Problems and Realities of Network Marketing (Multi-Level Marketing)

What is Network Marketing?

Network marketing (also known as multi-level marketing or MLM) is a business model where participants earn commissions by selling products while recruiting new members to join their sales network.

Typical products include cosmetics, health supplements, and wellness equipment, but in recent years, services such as electricity, mobile phone services, and emerging investment products (including cryptocurrencies) have also been incorporated as "service-type" offerings.

While multi-level marketing itself is not illegal and is regulated under specific commercial transaction laws, it essentially relies on chain recruitment and is associated with many problems.

In network marketing recruitment scenarios, people are often lured with sweet promises like "You can make good money!" The Tokyo Metropolitan Police Department also warns that "sweet words like 'anyone can easily make money' should be approached with caution."

In reality, many cases involve acquaintances or seniors inviting people to meals or study sessions with phrases like "there's a good side job" or "you can earn money easily," leading directly to product purchases or membership contracts. Such explanations often contain exaggerations or falsehoods, and experts strongly warn that stories of easy money should not be trusted.

Problems with the Profit Structure

The biggest problem with network marketing is the bias in profit distribution. Only the operating side and senior members (upper management) can earn significant rewards, while those closer to the bottom of the organization struggle to achieve results.

The Tokyo Metropolitan Police Department's explanation also points out that "there is a tendency to purchase large quantities in pursuit of high profits while being unable to recruit as many people as expected, leading to problems of carrying unnecessary inventory."

According to stories from those who have been recruited, cases where "only a few people at the top of the organization actually make money, while others end up with large amounts of unsold inventory" are common.

In other words, for most participants, the "business" does not succeed, and many end up suffering losses without being able to recover their investment.

For example, according to a case study by the Consumer Affairs Agency, a university student was recruited under the condition of "3,000 yen membership fee + 300,000 yen total product purchase" and received sweet explanations like "anyone can do it" and "some people earn 1 million yen per month." However, in the end, neither recruiting acquaintances nor selling products worked out, and they ended up with a large amount of inventory.

In this way, contrary to the enticing promises, in reality, neither sales nor recruitment grow, and participants face high risks of ending up with only large debts and inventory.

Recruitment Methods and Impact on Relationships

In network marketing, it is common to use personal relationships for recruitment. For example, there have been reported cases where people thought they were being invited to a meal or drinking party by a friend, only to find a stranger present who pressured them into purchasing products or registering as a member.

If you get caught up in the atmosphere and sign a high-value contract, you may later face problems such as "not understanding the contract terms" or "being unable to get a refund."

In reality, many cases involve young people who were recruited without being clearly informed of the company name or business details, and when they later tried to cancel or request refunds, they couldn't find contact information.

Recruitment often uses sweet sales talk like "you're guaranteed to make money" or "you can earn money easily," but the Tokyo Metropolitan Police Department and consumer centers warn that these may constitute exaggerated advertising.

Rather, while initial membership may be advertised as free or low-cost, in reality, participants often need to bear the burden of large purchases or ongoing fees.

Furthermore, such recruitment activities carry a high risk of significantly damaging personal relationships. In fact, there are countless cases of "losing friends through MLM," and it's typical for those at the bottom to be pressured into recruiting family and friends, leading to broken relationships.

Once caught up in excessive recruitment, there are even cases where people lose contact with family and friends and become isolated.

The reality of such recruitment is the opposite of building trust in business. One analysis points out that "network marketing is difficult to get support from others" and "while business generally requires trust to make money, this business destroys the trust of those around you."

In other words, the process of continuously recruiting friends destroys trust relationships, making it impossible to build the "trust" that is fundamental to business.

For example, continuing in network marketing is said to be like "asking friends to become your downline and earn money for you," creating a structure that converts the trust of those around you into money.

Illegal Solicitation Examples and Administrative Penalties

Legally, network marketing is subject to the "Specified Commercial Transactions Act," which includes strict regulations such as disclosure obligations during solicitation and cooling-off periods.

However, malicious cases where these rules are not followed continue to occur. According to enforcement cases by the Consumer Affairs Agency, there have been reports of companies receiving six-month business suspension orders for solicitation methods that hide company names and purposes, lure people into closed rooms, and omit explanations before contracts.

Such illegal solicitation is frequently repeated, and there are concerns that even after receiving administrative penalties, the same methods will be used again to create new victims.

The Tokyo Metropolitan Police Department also warns that expressions like "you can get high rebates by introducing new purchasers" or "some people earn 1 million yen per month" may constitute exaggerated advertising.

There are also increasing consultations about sophisticated solicitation through SNS and seminars, as well as solicitation methods targeting young people, such as "dream seminars" that establish contracts without the person knowing.

Consumer centers and police call on people to immediately consult with specialized offices like consumer centers when they feel uneasy about network marketing contracts or solicitation.

Summary of Main Disadvantages

💰 Few Benefit from Profit Monopoly

Only the upper management of the organization makes significant profits, while those at the bottom achieve almost no results and face high inventory burden and debt risks.

👥 Deterioration of Relationships

The structure of earning money by making acquaintances and friends into "downlines" makes it easy to damage friendships and family relationships through recruitment. This is why it's said that "MLM causes you to lose friends."

⚠️ Malicious Recruitment Methods

People are lured with sweet sales talk or hidden contract terms, and problems arise from insufficient product explanations or aggressive recruitment after contracts. As the Tokyo Metropolitan Police Department warns, words like "anyone can easily make money" or "you can get rich quickly" are excessive exaggerations.

🚫 Low Social Trust

In Japan, network marketing has a very bad reputation, and once you start, it's difficult to gain understanding and cooperation from those around you. It's virtually impossible to earn money sustainably without trust.

📞 Increase in Administrative Penalties and Consultations

Companies continue to receive penalties for violations of the Specified Commercial Transactions Act, and numerous consultations are being received. Although chain sales contracts allow for a 20-day cooling-off period, many cases report difficulties with actual refunds and cancellations.

Conclusion

As described above, network marketing has many structures and methods that cause substantial damage. The Consumer Affairs Agency and experts point out that "network marketing is not recommended" and "may have negative effects on life," calling for caution to prevent children and young people from being easily involved.

Considering the above points, it can be said that the best approach is to avoid involvement with network marketing.