Is Green PolkaDot Box an MLM company or a Pyramid Scheme?By
This weekend I’ve had several people ask me if Green PolkaDot Box is a multi-level marketing company or a pyramid scheme. My answer is no. They are not MLM or a pyramid, they are a buying club. This weekend I watched their entire video, read multiple news and industry articles, talked with other investors and spent time on the phone with GPDB (they have customer service even on a Saturday), plus reading the documentation for investors. I do not claim to be an expert on them or represent their company, I’m just a member trying to rightly divide and help others make sense of their options.
There are multiple differences between a buying club, pyramid scheme and an MLM. Let’s start with defining what a MLM is via Wikipedia:
Multi-level marketing (MLM) is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a downline of distributors and a hierarchy of multiple levels of compensation. Other terms for MLM include network marketing, pyramid selling,and referral marketing.
Independent, unsalaried salespeople of multi-level marketing, referred to as distributors (or associates, independent business owners, dealers, franchise owners, sales consultants, consultants, independent agents, etc.), represent the company that produces the products or provides the services they sell. They are awarded a commission based upon the volume of product sold through their own sales efforts as well as that of their downline organization.
Independent distributors develop their organizations by either building an active customer base, who buy direct from the company, or by recruiting a downline of independent distributors who also build a customer base, thereby expanding the overall organization. Additionally, distributors can also earn a profit by retailing products they purchased from the company at wholesale price.
Let’s define a pyramid scheme via Wikiledia:
A pyramid scheme is a non-sustainable business model that involves promising participants payment, services or ideals, primarily for enrolling other people into the scheme or training them to take part, rather than supplying any real investment or sale of products or services to the public. Pyramid schemes are a form of fraud.
These types of schemes have existed for at least a century, some with variations to hide their true nature, and many people believe that multilevel marketing is also a pyramid scheme.
A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula which is used for profit. The essential idea is that a “con artist” Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the “business” expands.
Such “businesses” seldom involve sales of real products or services to which a monetary value might be easily attached. However, sometimes the “payment” itself may be a non-cash valuable. To enhance credibility, most such scams are well equipped with fake referrals, testimonials, and information. The flaw is that there is no end benefit. The money simply travels up the chain. Only the originator (sometimes called the “pharaoh”) and a very few at the top levels of the pyramid make significant amounts of money. The amounts dwindle steeply down the pyramid slopes. Individuals at the bottom of the pyramid (those who subscribed to the plan, but were not able to recruit any followers themselves) end up with a deficit.
And now let’s define a buying club via Wikipedia:
Buying club are organized to help members purchase goods that might otherwise be difficult or expensive to obtain. The food conspiracy and Seikatsu club are two examples of different “food buying clubs” that help members purchase organic or natural food that might otherwise be unavailable. Many cooperative grocery stores began as loosely organized buying clubs, and larger organizations such as United Natural Foods and the Weston A. Price Foundation encourage buying clubs as a way to expand market or mind share for their products.
I understand that Wikipedia is not the end-all and be-all of definitions, but for the purpose of this conversation, a working definition is acceptable. Now let’s compare and contrast how Green PolkaDot Box compares to the definition of an MLM and a buying club.
- An MLM requires that all members sell products with the MLM’s brand name to other people. GPDB does not require any selling, all of the products are available from sources other than GPDB and you aren’t required to buy a minimum amount per month for your own personal use.
- An MLM gives greater payments (often in cash) for people who recruit others who then sell. For the basic membership, GPDB does not do this. If you are a Reward Member, you receive a greater discount if you recruit others but you receive no cash payments. You do not have to become a Reward member in order to participate in the purchasing and discounts.
- An MLM has multiple levels of compensation, all with the ability to add people under you to build a hierarchy. GPDB does not offer a hierarchy or have multiple levels of compensation. Only one level receives compensation, and rarely in the form of cash, only greater discount on your purchases. Green PolkaDot Box‘s Membership agreement states “Club Members cannot qualify to receive Personal Purchase Discounts or PolkaDot Reward Points. Club Members may refer other Members, but they are not eligible to receive Referral Purchase Reward Points. Club Members must upgrade to a Reward Membership to become eligible to receive Personal Purchase Discounts and PolkaDot Reward Points, which will accrue from the new Member Commencement Date upon upgrade or renewal.” In order to get any cash, the people you have referred to the buying club must have spent well over $11,500 in purchases beyond the discount you take on your regular purchases. That is hardly possible for most regular members to recruit enough people to reach that goal. If you have people buying that much under you, it isn’t reasonable to expect you can buy and consume that much food, hence the payment.
- An MLM requires a hierarchy. A hierarchy requires at least three on-going levels that you can work to obtain, and GPDB has only two. Either you are a Reward member or a Basic member. You can also choose to become an investor (Founding Trust member) before the launch of the company, but it is not a requirement or even a goal for members to work towards obtaining as that option disappears with the launch in October. With an MLM, the positions in the hierarchy are always available and always a goal to obtain. There are multiple levels at which a person can move up to, often labeled as titles like Vice President, Global VP, Executive VP, and the like with no limits to the number of people who can obtain that title. Once GPDB launches, there are only two positions available to new members- Basic and Rewards.
- An MLM refers to its people as distributors working in a business opportunity for profit. In the agreement that you sign with GPDB, in section 5.9 of the Founding Trust Membership, you state that you understand that you are not a representative of the company and it is not a business opportunity. It states “Not a “Business Opportunity. Members shall not refer to any form of Membership in the Company as a “business opportunity” through or in combination with any other system, program, or method of marketing.”
- An MLM requires that people maintain an active status to receive profit, with greater and greater sales under them the higher they move up. GPDB doesn’t have a sales requirement, a purchase requirement, or levels to obtain for greater cash payments.
- An MLM requires that you re-sell their branded products. GPDB is not selling their own branded products, but products from other brands at discounted prices. You aren’t purchasing a package of pasta or a bottle of vanilla that has a GPDB label on it and paying an inflated price for the name. Everything you buy will have the label of the manufacturer and be the same products you can buy in your local stores.
- An MLM has a downline with a customer base for all levels in its hierarchy. GPDB does not do this once it is launched.
- An MLM allows distributors to buy items a wholesale to sale at a markup. GPDB gives the wholesale price to everyone, even those who join for free.
- A pyramid scheme doesn’t provide products for sale or sell products of value. GPDB sells products.
- A pyramid scheme makes the profit for current members based solely on the income obtained from high new-member fees of people enrolling at the bottom of the pyramid. It will collapse. GPDB only offers Founding Trust members the ability to receive free products for receiving reward points off of the membership fees of people they directly enroll, at the amount of .1666% each month (2% per year) in exchange for investing a large sum of money up front, per section 3.6 of the user agreement. Basic and Rewards members do not have this opportunity.
- A pyramid scheme makes every member buy in at the same amount, with all of the fee going to their upline. GPDB puts the buy-in money for a Founding Trust member towards future purchases, all of it available for use on the day the company launches and no one who enrolls a Founding Trust member receives any profit from their enrollment fee. Section 5.30 of the user agreement states “a Trust Member may not refer another Trust Member to the Company.”
- A pyramid scheme focuses on profit from membership fees, whereas GPDB‘s focus is on providing quality food at a group buying discount to all members at all levels of the program.
- A buying club works to get better pricing on expensive or difficult to obtain food. This certainly fits the definition of what GPDB is doing. Their prices are cheaper than Amazon‘s Subscribe and Save, UNFI and the online sources I normally use to buy food, personal care and household products.
Are MLMs bad?
No, I do not believe all MLMs are bad. Tupperware is a well-known MLM and most people who use their products love them. Pampered Chef is another one. I would be a sad woman if I didn’t have their stoneware, I use it daily and I recommend their stoneware to others. I also participate in the forth-coming Beyond Organic, which I believe will be a good way to get quality, grass-fed beef to people who have no local access to it or live in a food desert. I know many people who swear by Amway, Melaleuca and Young Living, although I have never personally tried their products.
But they’re selling packaged products!
Yes, that is true. But the vast majority of us do use at least some packaged products. Do you buy salt? How about ANY coconut product? Coconut oil? Rapadura or maple syrup? Olive oil? Use lemons but you don’t live in FL or CA? Use grains? Spices that aren’t grown in the US such as vanilla, cinnamon or chocolate? Can you find all of your dried beans locally grown? Pasta? Canned coconut milk for when you don’t have time to make your own? Do you make all of your own canned tomato products? Tomato paste?
Very few people eat a 100% local foods diet and go without all salt, spices and grains that can’t be obtained within a 50 or 100-mile radius of their own home.
There are future plans to offer local and regional produce to members in those areas and frozen foods. Personally, I will be happy to buy citrus from FL since it doesn’t grow here in North Carolina. I will stick to locally-produced for the items I can get here, but I will gladly take part in group buys for products, like citrus, that aren’t available here at any price.
What about the Trust Memberships?
Trust memberships are available to people who wish to invest in the company up-front before the launch. You are not required to purchase a Trust membership to participate. You can gladly take a one-year free membership and walk away.
It is an investment that carries risk. Once they have 2,000 people or the company launches, this opportunity is gone. Yes, it is $2,000. And, yes, it does come with some perks that are not available to other people. But it also comes with a risk. And that risk is what defines it as an investment opportunity and not an MLM-buy in. If this company does not get off the ground or folds before people can use their benefits, their money is lost. That is not the situation when you buy into an MLM company that is established and you’re trying to move up the ranks, which GPDB does not have.
I do not encourage people to invest. I only encourage people to consider the free membership to see if it shakes out as something that would benefit them and their grocery budgets. You are not required to spend a penny to join for the first year.
If you have other questions or want more information, you can send me a message or post in the comments below.
Disclaimer: If you sign up for a Rewards membership, I will receive a very small percentage of any purchases you make. That money will be invested in the CTF website. Running a website and forum of this size does incur costs, and your purchases help defer those costs. If you choose a Trustee or Basic membership, I will not receive a dime from your joining, as per the membership agreement. Again, I do not advise anyone to risk their money.
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