Knowing the difference between a pyramid scheme and affiliate marketing is important for business owners and marketers, but also for anyone interested in joining any program to make extra income. The following information can prevent us from committing or becoming victims of illegal activities. The crucial difference between a pyramid and affiliate marketing is that the first one is a crime and the latter a valid marketing tactic.
The differences we observe in this article not only apply to what is called affiliate marketing but also to alternative similar terms and models like network marketing, multi-level marketing and referral marketing. Of course there are many kinds of affiliate marketing activities and many kinds of pyramid schemes too, so this is a general approach.
1. Pyramid schemes promise unrealistic earnings
We’ve all probably seen the ads already. They claim you will quit your full time job by working from home. You will earn thousands of dollars a day and have a lot of free time to enjoy travelling around the world. Sometimes they even provide numbers: “I’m earning $50,000 a week and I can teach you how”. The first lesson to keep in mind is the old adage: if something sounds too good to be true, it probably is. An affiliate marketing program will not make these kind of claims because they are simply false advertising.
2. Pyramid schemes hide the nature of the “opportunity”
Since most people know pyramid schemes are a scam, scammers avoid telling much about what they do at first. So usually their sales pitch involves ambiguous descriptions like “a unique opportunity I want to tell you about”, “a revolutionary business model bankers don’t want you to know about”, a “business proposal that will certainly interest you” and so on. Professional salesmen know that being concise and direct is fundamental, so obscure offers should immediately raise red flags.
Scammers can even make ambiguous job offers: “We are looking for someone to fill an important position in our international company and you seem to match the profile”, “You have been chosen to represent our prestigious brand in your country” or “We are looking for natural-born leaders to join our team. You only need a computer and internet access”.
3. In pyramid schemes the product is not important
In pyramid schemes the earnings do not come from selling products or services that bring real value but from getting new people into the scheme. In some cases there might be a product but it does not make a difference because it is secondary. People join the scheme and buy the product to begin getting referrals, not because they are really interested in acquiring the product.
Scammers will hurry to state you shouldn’t worry about the cost because you will get your money back as soon as you get certain number of referrals. Unfortunately that does not happen, either because people know about pyramid schemes or because they do not want to buy a product they are not interested in. Instead, in affiliate marketing programs the income comes from real transactions from a real business model.
4. In pyramid schemes there are no customers, only resellers
The affiliate marketing tactic is just one of many marketing actions to promote an established business. If the affiliate marketing does not exist, the business still works. Instead, if we remove the referral structure from a pyramid scheme, the whole “business” disappears. Because, as stated previously, it does not produce any product or service of value and there are no real customers. Every person who joins the scheme does it only to become a reseller. They do not buy or resell something tangible, only the promise of future earnings. Just by common sense we know that practice cannot last long. And in fact it does not. The supposed pyramid has only one real step: the scammer and the victims who bought from him.
5. In a pyramid scheme the effort is not worth it
Strictly from a business perspective, a pyramid scheme requires too much effort and too much risk for a very small reward. It requires you to buy or invest and to work for free promoting a product or idea that is not yours, only to receive a small percentage of your final sales. It would be far more advantageous to invest and begin selling your own product or service and to get the full return from the sales. In some cases the deal is so insulting that it can only attract people without business knowledge whatsoever. Also, people who fall victim of pyramid schemes usually do not have sales skills and are not familiarized with the product they are supposed to sell.
Here we have some quick examples to see the difference between a pyramid scheme and an affiliate marketing tactic:
Nu Skin, a pyramid scheme
Nu Skin is a well-known international company infamous by its pyramid scheme practices. It has been brought to court in many occasions not only because of its pyramid scheme structure but also for false advertising. Unfortunately that did not stop it from continue its practices. Incautious people who joined their pyramid scheme had to purchase an expensive and overpriced set of products and they expect to receive a 5% commission for every purchase they get, so they have to get 20 customers to get their investment back. They are lucky if they find just one. It is not rare to receive spam messages from desperate people trying to resell Nu Skin products on social media, especially on Facebook and Linkedin.
Payoneer, an affiliate marketing example
Payoneer is an international prepaid credit card that became popular because it allows you to transfer money from any Paypal account and receive direct bank transfers to your card. It has an also very popular affiliate program that rewards both the referrer and the referral with $25 USD. You can check specifications here: Payoneer Affiliate Program. In this case, the core business is of course the credit card. The affiliate program is just one of many promotion activities Payoneer does. It does not promise spectacular earnings nor it is supposed to be a full-time job: you can refer people just by sharing a link via email or on your social networks.