Is Market America a Pyramid Scheme or MLM? Breaking Down the Business Model

If you’re a go-getting self-starter embued with an ambitious and entrepreneurial spirit, you may be considering becoming a distributor with Market America. If so, you should first ask the question — is Market America a pyramid scheme?

Our team of experts at Business2Community gets to the bottom of your query in this deep dive into Market America’s business practices. Keep reading for all the information about whether Market America is an MLM or pyramid scheme so you can make the best decision for you.

The Market America Business Model

The Market America MLM has not been legally declared a pyramid scheme. However, it has faced allegations that it operates as one. The most notable lawsuit was in 2017 when the company was accused of running a pyramid scheme that targeted Chinese-American immigrants.

The case did not result in a final judgment of Market America as a pyramid scheme.

How Market America Works for Distributors

Market America distributors are officially called UnFranchise Owners. UnFranchise Owners facilitate the direct selling of Market America products by using customers’ survey data through their individualized Shop.com ecommerce websites.

The UnFranchise Business Development System is a standardized system created by the company to provide a blueprint for distributors to be successful. Distributors devise their own plan just like with a franchise, but Market America claims it differs from a franchise because the UnFranchise Business model has no exorbitant startup costs, high overheads, and no royalties.

UnFranchise owners earn money from gross retail profits. They first purchase inventory from Market America and then sell them for more – at the suggested retail price. The other way to earn income is by “building and managing two sales and distribution organizations” according to the website, which most likely refers to recruiting more distributors and creating a downline.

This document provided by Market America in Malaysia for training distributors shows just how important the recruiting process is. Distributors are instructed to continuously look for recruits as part of their daily and weekly routine.

As an UnFranchise Owner, you sell Market America products, choosing from dietary supplements, cosmetics, and household items through your personalized ecommerce site.

Like many MLMs, Market America also skews the reality when it comes to earnings vs. debt for distributors. Promotional materials may indicate significant earning potential, but the reality is that very few make any money.

Market America’s Legal Troubles

The most notable lawsuit involving Market America was in 2017, when two former UnFranchise Owners, Chaunjie Yang and Ollie Lan, alleged racketeering and deceptive business practices.

Yang and Lan claimed that Market America lied to distributors about potential earnings, causing them significant financial loss. The plaintiffs argued that Market America presented an unrealistic picture of income potential, suggesting that distributors could earn up to $560,000, while in reality, only those at the very top of the hierarchy made such sums. According to the lawsuit, 90% of sellers received no payment at all.

The lawsuit also detailed the financial commitments required to participate in Market America’s business model. Distributors were allegedly required to pay $399 to start, followed by $129 in monthly fees. Additionally, distributors had to invest between $130 and $300 monthly in product purchases and were expected to attend costly events, seminars, and workshops. Yang, one of the plaintiffs, claimed that he lost over $35,000 during his involvement with Market America, highlighting the financial risks faced by many participants.

The lawsuit was initially filed in California but was transferred to North Carolina in August 2017 after Market America filed a motion. As of 2020, the court proceedings were put on hold pending the completion of arbitration.

Aside from the 2017 lawsuit, Market America has faced the following legal troubles as well:

• 1999 SEC investigation
  • The Securities and Exchange Commission (SEC) investigated Market America for alleged violations of federal securities laws.
  • The investigation focused on a backdoor deal between founder JR Ridinger and a former stockbroker, which was not disclosed to investors.
  • Although Ridinger admitted nothing, he and the stockbroker settled by paying $1.2 million in restitution and a $350,000 fine.
• 2012 product liability lawsuit
  • A lawsuit was filed against Market America alleging that its products contained lead, which reportedly caused the plaintiff’s mother to fall ill.
• 2020 FDA warning
  • The Food and Drug Administration (FDA) issued a warning to Market America for not reporting the side effects from one of its supplements.
  • The side effects, including abdominal pain and dizziness, led to hospitalizations during a 21-day challenge promoted by the company.

Key Business Model Features

Similar to other MLMs, the business model of Market America includes:

• Recruitment: Market America relies heavily on the recruitment of new distributors, as when there are more recruits, the earnings are greater for those higher up in the hierarchy.
• Investment in products: Members must continuously purchase inventory to stay active.
• Personal network targeting: Distributors are encouraged to sell to their family and friends, as well as recruit as many people in their broader network as they can.
• Earnings vs debt: It’s a common theme in the MLM industry that sellers have difficulty making a profit and oftentimes even end up in debt. According to the Federal Trade Commission, less than 1% of MLM distributors make a profit.

Another part of the Market America business model, and the one that really makes it look like a pyramid scheme, is the requirement to pay regular membership fees.

Market America’s Hidden Fees

At first, it looks like the only cost for joining Market America is the Starter Kit which costs $449.95 plus tax. This kit includes the annual subscription and a selection of products that you choose, from health and nutrition, cosmetics, weight management, or the web center.

If you don’t have those funds available, you can also opt for the Fast Start Program Kit which costs $169.95 plus tax.

Beyond that there are a variety of additional expenses:

• Sales volume requirements: There is a quarterly volume requirement of $200 that distributors must order if they want to be in “good standing“.
• Unfranchise Management System: $21.95 per month
• Annual subscription renewal: $119.95 per year
• Unfranchise Auto-Ship: Ranges from $105 to $260 per month, based on your total commissions.
• Required training: 3 training programs costing a total of $60.
• Recommended training: 3 sessions costing up to $530.

One concerned commenter on Reddit expresses their confusion at this monthly fee, which probably refers to the Unfranchise Auto-Ship.

Dropshipping without the help of Market America or another MLM is drastically cheaper, mostly because of these exorbitant fees.

Market America for Consumers

As a consumer of Market America products, you’ll do most of your purchasing through the Shop.com ecommerce site.

On Trustpilot, some reviews for Market America products are positive.

However, there are also complaints about scams on the ecommerce site.

Is Market America an MLM?

Market America is an MLM. It shares all of the primary characteristics of MLMs, including financial incentives to recruit distributors, the targeting of personal networks, and the requirement for distributors to purchase products to remain active or in “good standing” with the company.

Have a look at the following breakdown of the shared characteristics of Market America and an MLM:

Primary Characteristics of MLMs and How Market America Matches

• Recruitment-driven income
  • MLM: In an MLM, members earn income from selling products and services, but also from recruiting others. The recruits sell in a tier underneath their recruiters, creating a downline. Sellers earn commissions based on the sales of their downline.
  • Market America: In Market America, UnFranchise Owners make most of their money from recruitment (if they make any money at all). They earn commissions from the products they sell, and also from the sales and purchases made by the recruits in their downline. In these sorts of companies, building a downline will earn you more money than direct selling.
• Inventory purchase
  • MLM: MLMs require their distributors to purchase products from the company for direct selling. Sometimes only an initial inventory purchase is required, but some MLMs require product purchases on an ongoing basis.
  • Market America: Distributors are required to purchase the starter kit up front and then they must continue to purchase $200 of products every quarter to remain active. Oftentimes, sellers aren’t able to sell all of the products they purchase from the company, but are required to buy the quarterly $200 worth of inventory anyway. The result is that sellers often spend more than they earn, a very common sign of an MLM.
• Overpromising
  • MLM: In an MLM, the earning potentials are often exaggerated to new recruits, but the reality is that most people earn little to nothing. In fact many people end up losing money thanks to the ongoing costs of remaining with the company.
  • Market America: Market America created a Management Performance Compensation Plan, which it claims is based on marketing statistics that determine what the average individual selling in a network marketing business can make. The problem with this is that it says “the average individual participating in a network marketing business” not the average Market America distributor specifically. Based on this plan, it claims that UnFranchise Owners can earn up to $3,600 per week.

John Oliver talked about Market America’s predatory practices on an episode of Last Week Tonight, where he covered MLMs and pyramid schemes. See his video below:

You can also see a TikTok reviewer’s look at Market America here:

@bertalikewhoa

Reply to @nikki1982marie JR Ridinger is WILD man. 😳 #antimlm #antimlmtiktok #marketamerica #pyramidscheme #dimaryp #scam #cult #antimlmadvocate

♬ original sound – Roberta Blevins

Is Market America Safe and Legit?

Market America, like many multi-level marketing companies, operates within a legal framework that allows it to conduct business. Many of these companies find legal loopholes that enable them to escape legal troubles and escape being labeled pyramid schemes. However, its legitimacy and safety as an opportunity for potential distributors are subject to scrutiny.

While it is important to note that being an MLM does not inherently make a company unsafe or illegitimate, there are several factors to consider before getting involved.

The Federal Trade Commission gives some tips for identifying pyramid schemes disguised as regular companies:

• Exaggerated earning potential: Promoters of the company will make promises of huge earning potential that seem too good to be true.
• Emphasis on recruiting: Distributors will be encouraged to recruit people to join your downline as a better way to make money than actually selling products.
• High-pressure sales tactics: Promotors will make you feel like you’re missing out on an opportunity if you don’t act right away and become a recruit. They will discourage you from taking your time to properly research the company.
• Inventory push: Distributors are often encouraged to purchase more products than they can sell just to qualify for bonuses or to stay active in the company.

The Safety and Legitimacy of Market America

1. Legitimacy
   • Legal standing: Market America is a legally registered business and has been operating since 1992. It’s not been definitively classified as a pyramid scheme by the courts, which means it is legally permitted to operate as an MLM. However, it has faced various legal challenges, including a 2017 lawsuit alleging that the Market America pyramid scheme is real, targeting Chinese-American immigrants, though this claim did not end in a legal ruling.
   • Business model: The company’s MLM structure is permitted under US law, as long as it focuses on product sales rather than just recruitment. Market America does sell a wide range of products, which helps it stay within the legal framework. However, the heavy emphasis on recruitment and the need for distributors to purchase products, as well as the requirement to pay membership fees, makes it highly resemble the most problematic of MLMs.
2. Safety Concerns
   • Financial risk: One of the primary safety concerns with Market America is the financial risk involved. Studies show that 99% of MLM participants lose money. Many distributors end up spending more money on products, training, and business-related expenses than they earn, leading to financial loss.
   • Workload and compensation plan: While some people do make money with Market America, it typically requires a significant amount of time, effort, and skill in sales and recruitment. The company’s promotional materials often highlight success stories, but these are not representative of the average distributor’s experience. Many Market America UnFranchise Owners work long hours with minimal financial return, which can be discouraging and unsustainable for most people.
   • Deceptive income claims: Market America has been criticized for making misleading income claims, which can give potential distributors an unrealistic expectation of what they can earn. In 2020, the company was found to have made hundreds of deceptive income claims, which led to a crackdown by the FTC.

Market America is technically a legitimate business, and it is possible to earn money through its MLM structure. However, the reality is that the vast majority of participants do not see significant financial success, and there is a substantial risk of financial loss due to the high costs associated with maintaining the business.

The company has faced criticism for deceptive marketing practices and income claims, which raises concerns about how it presents the opportunity to potential Market America distributors.

If you’re considering joining Market America, it is crucial to approach the opportunity with caution, fully understand the risks, and be realistic about the amount of work required and the potential for earnings. While some individuals may find success, the majority may find the business model challenging and financially unrewarding.

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