What is a Pyramid?

To most people who are unaware of the concept of Network Marketing, a network marketing business is a “Pyramid”. The main reason is because of the “pyramid” structure of the network marketing organization. This is of course not the case because all organization structures are shaped like a pyramid. It is not the shape of the structure, which determines whether an organization is a “pyramid”, but how the system is operated.

Dr Dean Black, in his book “The MLM Simple Success Guide” describes a pyramid as follows:

“Above a certain size any organization that distributes products or services ends up shaped like a pyramid, with multiple levels that get bigger as you go down. Delegation creates a multi-level pyramid. Our government is also a multi-level pyramid. So are our schools and churches. All successful businesses, because they distribute products and services, end up shaped like a pyramid.”

The power in any multi-level pyramid structure comes from the bottom. Dr. Dean Black describes it:

“Our government distributes services down a pyramid, but we give it power from the bottom, with our votes. Marketing companies distribute products down a pyramid, but we give them power from the bottom with our dollars. So pyramids set up a flow that runs two ways: first down then up. Value flows down the pyramid; power, in response, flows up. If value stops flowing down, power (in the form of dollars or votes) stops flowing up, and the system collapses.”

In an illegal pyramid scam all or some of the following features are present:

1. There are no legitimate products or services offered by the company. In the long term a company can only pay its salaries, commissions and bonuses out of profits from sale of products and services. Where there are no sale of products and services the salaries, commissions and bonuses are paid out of the collection from participants. There is no flow of value and the “pyramid” structure will eventually collapse resulting in loss to the participants.

2. The products or services are over-priced in order to contribute to the commissions and bonuses of the participants.

3. There is “head hunting” involved. The participants are paid on mere recruitment of members since there are no sales of products and services. In a network marketing environment independent distributors are paid only on sales made by their organization.

4. There is the practice of inventory loading. The participants are made to purchase large amount of stocks. Furthermore, these stocks cannot be returned back to the company and no refunds are available.


5. There is no possibility for people joining later to overtake the earlier participants in terms of status and income. In network marketing, the downlines are able to overtake the uplines in terms of status and income.



By Richard Quek