This scam will leave you with nothing but overpriced hand cream

by Tony Levene on 30 June 2012  |  14 comments
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This pyramid scam promises to make you rich from beauty products. You'll need to know an awful lot of people though...

I answer the phone. It is a woman, with an Indian accent, who tells me she is phoning from Switzerland.

As I am not rich enough to qualify for a secretive Swiss bank account, I wonder what on earth it can be. A few minutes later she informs me that she would like me to participate in a short survey on skin care. From Switzerland?

My personal skin care routine

She started with “my personal skin care routine”. I don't have a skin care routine, I don't buy dermatological potions and lotions. So I stammered about soap and water, and sometimes sunblock on the few days when the clouds dissipate.

Question two was to describe my skin. I had never thought about it – it's not easy relating your body covering to a stranger, especially one who cannot see you. So I mumbled something about having an average white European complexion.

It was all strange. Walk into any posh department store and the first counters that usually hit you sell perfumes, cosmetics and skincare, mostly aimed at women. I usually dash past. But it is clear there are lots of lotions and creams, in a wide variety of shades and types.

What suits a woman from West Africa won't work for her sister from Scandinavia. And it is obvious you need to see the stuff – it's impossible to buy on the phone.

Here comes the sales pitch

But having kept my interest for two questions, my caller moved on to the real sales pitch. I could radically improve my complexion if I bought something. There then followed a whole list of products – all at eye-watering luxury prices.

I said: “Sorry, this is out of my price league.” But I was told not to worry. I could have my new beautiful skin at no cost at all. Suddenly, the price had dropped from many hundred Swiss francs to free.

So what is this Swiss swizz? It turns out that all I have to do to ensure my supply of free skin stuff is to recruit five others either to buy cosmetics or to each sign up five others.

Welcome to the world of multi-level marketing (MLM). MLM is more politely referred to as network or referral marketing and less fragrantly known as pyramid sales. It's been around in cosmetics (and to a lesser extent household cleaners) for around 50 years, primarily in the United States.

This is how it works. Take a product – skin cream – which might normally retail at $10. Create a story that says your version is five times as powerful as the $10 tub in the supermarket. Now it is priced at $50 although it is really the same stuff as the $10 tub.

But to make that affordable, once you have sold the tub to five people, you get one free. And if you recruit them to flog the stuff, you get a percentage from every item those five sell. When your new recruits induct others, you get a cut of their sales as well. These folks are your 'downline'. However, you have to give something to your upline - those who recruited you. The higher you are in the organisation, the bigger the cut from each $50 tub because the bigger the downline.

The money only goes one way

Go to an MLM presentation. The riches flow, according to the Powerpoint presentation. But only one way. The highest earnings go to those who set up the chain. Those at the bottom get nothing – not even a pot of skin cream. The downline does the work, the upline banks the cash.

Unless you are in at or very near the start, the maths pile up against you. Multiply five times five eight times and you get to the population of a medium-sized city. A few more layers would require the entire British Isles to be in the pyramid. But to get one recruit, you might have to talk to 100 people. To get the numbers for serious money, you might have to talk to half of Europe.

That could explain why online complainants about this scam say much the same whether written in English,, German, Italian, Portuguese, Spanish or a dozen other languages.

And it also explains why anyone tempted needs to ask when the chain started. Unless it was very recently, your chances of more than a pot of expensive skincare are minimal.