Pyramid Scheme: A Business Model Excluding ROI For the Consumer

A pyramid scheme is a form of investment (illegal in the US and elsewhere) whose structure resembles that of a pyramid. The scheme starts with a single person say “A” recruiting a particular number of people. Each of the recruits is supposed to pay a certain amount as recruitment-fee. These recruits are further asked to recruit a certain number of people and give some percentage of their earning on each recruitment to “A”. These schemes are illegal across various nations like Australia, Canada, New Zealand, South Africa, the UK and even in the USA. However, these schemes have still been practised for centuries now. 

What Exactly Is A Pyramid Scheme? 

"Pyramid scheme" refers to a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit. These schemes are often labeled as illegal.

An intriguing case of Pyramid Scheme is the capture of American Citizen Robert Fletcher, who was captured by the Ukraine State Police subsequent to being charged by Ukrainian Investors that he was running a fake plan and was likewise connected with a Pyramid Marketing Scam netting 20 Million US Dollars. The Kyiv Post announced this news on 26th November, 2008. 

How Do Pyramid Schemes Work? 

Pyramid schemes get their name from their pyramid-like structure. Such a scheme starts with a single point on top and as one moves downwards. it gradually becomes wider. People participating in a pyramid scheme can only benefit or make money if they are able to recruit more members. 

In order to get a better understanding of a pyramid scheme and its working, let's assume you are the founder of one such scheme. The assumed pyramid scheme starts from a single point i.e. you. Suppose you recruit 10 second-tier people to the level directly below you. Every person recruited by you is supposed to issue you a cash payment, for the privilege of joining. Also, all of the people recruited by you are further required to recruit 10 third tier people who are then supposed to pay recruitment fee to the second tier people. You, as the founder, will not only get money for your recruitments but also receive some percentage of what people recruited by you get from their recruitments. That's how a pyramid scheme works. 

Types of Pyramid schemes: 

Pyramid scheme can be broken down into a lot of categories. However, only two types of schemes seem to dominate. They are:

Naked pyramid scheme: 

In the case of a naked-pyramid scheme, no products or goods are involved. Here's how a naked-pyramid scheme works: 

• The scheme starts with a person say "A" recruiting 10 other people to participate in a "no-fail investment opportunity."
• Each recruit is supposed to pay $100 to "A".
• Once that's done, "A" asks all of his recruits to recruit 10 more people to do the same.
• Every successful recruitment means a profit of $900 from a $100 investment. 

The working of this scheme is as easy as a pie but it's not necessarily fruitful. That's because this scheme is not sustainable. Wondering how? Well, let us su[pose, the initial 10 recruits each make 10 recruiments. These 100 new recruits will have to find 10 recruits each to make $900 like their recruiters made by recruiting them. That means they have to find 1,000 people willing to sign up for the program, which seems to be quite a difficult task. And if they somehow find 1,000 people, that next level of the pyramid will need to sign up 10,000 to make a profit. This further indicates that there won't be enough recruits at the bottom of the pyramid to support the level above it. Thus, everyone at the bottom of the pyramid goes through a loss rather than enjoying a $900 profit.

Product based pyramid scheme 

Coming to the product-based pyramid scheme, the mechanism remains almost the same with the only difference of the involvement of some sort of a product or good. Here's how it works: 

• A distributor, say "A", recruits 10 salespeople to sell a kit of products. Each of these recruits pays $500 for this kit.
• "A" gets 10 percent of each starter kit that's sold.
• "A" also gets 10 percent of each kit that any of his recruits sells, including more starter kits.
• The people at the top of the pyramid get commissions from everyone in their downline. 

The issue here is, that the item deal isn't that advantageous. That is on the grounds that such items either don't sell great, or have extremely thin overall revenues. So the best way to make cash is to discover more selects which makes the market be immersed very soon. 

How Does The Pyramid Tumble? 

As a matter of fact, pyramid schemes are fruitful as long as the lowest levels remain wider than the upper ones. However, once the lowest levels start shrinking, the pyramid starts to tumble. By nature of exponential math, pyramid schemes are simply not sustainable. People are bound to lose cash at some point or the other in the chain. Strangely, even abnormal state early adopters may lose cash close to the end, because of conditions that postpone their instalments from subordinates, which regularly require holding up periods. 

Multi-Level Marketing vs Pyramid Schemes 

Multi-level marketing (MLM), also called pyramid selling, network marketing, and referral marketing, is a marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce selling the company's products/services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system. In the case of multi-level marketing, the promoters not only get a commission on the products that they sell but also get compensation for sales that their recruits make. 

On the other hand, Pyramid Schemes are illegal schemes disguised as lawful MLM programs. The main difference between the two is the involvement of a product that is present in a Pyramid scheme but not in an MLM program. Members endeavor to profit exclusively by enlisting new members into the program. The sign of these plans is the guarantee of out of this world returns in a brief time frame for doing nothing other than giving over your cash and getting others to do likewise. 

So that was all about the pyramid schemes. Doesn’t the entire concept seem quite an easy one? Well, students pursuing a higher degree in Marketing may not really find it that easy. The reason, you ask? That’s because this is just one of the many concepts that they need to learn by heart so as to perform better academically. In addition to the complex syllabus modules, pressing exam stress and extended lectures, students need to deal with the additional burden of assignments on tough topics like “Pyramid schemes”. That’s where they feel the need for some guidance that can help save their grades and career. 

There are a number of resources that marketing students can refer to, so as to clear their concepts and perform better in exams as well as assignments. Here are the most preferred books we have seen so far: 

• Pyramid Scheme by Dave Freer and Eric Flint (Published by Baen Books – the Year 2001).
• You can’t cheat an honest man: How Ponzi schemes and Pyramid Frauds work and why they’re more common than ever by James Walsh (Published by Silver Lake Publishing – the Year 1998). 

Nonetheless, there are times when even the brightest of students struggle with their marketing assignments despite the availability of the best resources. They often find themselves stuck amid a lot of half-done academic writing tasks, thus, hindering their exam preparations and ruining their academic and other goals. That’s where a reliable online assignment help like Myassignmenthelp.com comes into play and saves their grades miraculously. 

Now you must be wondering, how?

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Our writers can assist students in framing their assignment and during their homework completion regarding Pyramid Scheme Issues like Chain Referrals. These writers have years of experience in academic writing and are capable of providing all possible help to students during their essay tasks and even in dissertation projects regarding Pyramid Scheme Topics like MLM – Pyramid Scheme relationship. 

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References:

(https://consumer.sd.gov/fastfacts/marketing.aspx)

(https://www.investor.gov/protect-your-investments/fraud/types-fraud/ponzi-scheme)

(https://www.investopedia.com/insights/what-is-a-pyramid-scheme/)

(https://money.howstuffworks.com/pyramid-scheme1.htm)

(https://en.wikipedia.org/wiki/Multi-level_marketing)