Don't be seduced by "multi-tier sales plans"; this is just another name for illegal pyramid sales plans.  If you recieve email promoting one of these plans, and it contains mailing addresses, it should be reported to the US Postal Inspector at fraud@uspis.gov.  Read on for details on why pyramid sales plans are illegal.


Too Good to be True:
Pyramid Sales Plans,
or Last Players Lose

Copyright 1988, 1998 by Ralph E. Kenyon, Jr.

I have begun to receive pyramid sales promotion letters on the average of once a week. These letters suggest that participants use the classified ads for sources of names to use. One letter even suggested this paper as a good source of names.

Each promotion is supported with testimonials proclaiming the success of the plan. Promotion letters even proclaim that the plan is legal according to Postal Regulations.

What the letters don't tell you is that these plans have been declared illegal in most states. Moreover, according to the Postal Inspector, these letters are, in fact, illegal, and should be sent to:

Fraud and Prohibited Mailings Branch
Chief Postal Inspector's Office
United States Postal Service
475 L'Enfant Plaza, S.W.
Washington, D.C. 20260-2100

The plan has the same structure as "Dare to be Great", the Airplane Game, and many other illegal pyramid sales schemes. Each new participant buys one report or service from each of four or five names on a list. The new participant then shifts the names on the list, dropping the name which had been in the last position, and inserting his or her own name in the first position.

The new participant is instructed to mail the revised list to his or her own mailing list, supplementing the list with names taken from the classified ads of major publications.

The directions are simple to follow, but the results are not.

Why are they un-ethical? Early participants profit at the expense of late participants who are left holding the bag.

To see how it works, take an example with 4 levels and limit each mailing to only two other persons. Further, limit the play to a small town with only 31 people. I shall follow the play through the first 5 tiers.

The last 16 persons are left holding the bag with no possibility of any return because there is no one left to participate in the plan.

If this seems complicated, here is a table of results.

  No rdr ic cst 2tr 3tr 4tr 5tr 6tr Tot Avg Net
Originator 1 30 0 0 2 4 8 16 0 30 30 30
2nd Tier 2 28 1 2 0 4 8 16 0 28 14 13
3rd Tier 4 24 2 8 0 0 8 16 0 24 6 4
4th Tier 8 16 3 24 0 0 0 16 0 16 4 1
5th Tier 16 0 4 64 0 0 0 0 0 0 0 -4
6th Tier 0 0 0 0 0 0 0 0 0 0 0 0
No
rdr
ic
cst
2tr
3tr
4tr
5tr
6tr
Tot
Avg
Net
= Number of participants at that level.
= Number of people remaining to be participants
= individual cost to participate
= total cost for participants at that level
= total income from the second tier
= total income from the third tier
= total income from the forth tier
= total income from the fifth tier
= total income from the sixth tier
= total income from all tiers
= individual income from all tiers
= individual income less individual expense

If there were an unlimited number of people, each participant would stand to expend 4 units and get a return of 30 units and make a net profit of 26 units.

The mathematics of 4 levels, with large mailing lists, and with a reduced percentage of response do not change the result. Sooner or later a large number of people are left with no possibility of return because the willing participants are 'saturated'. The mathematics works out so that the total number of people who lose is always more than the total number of people who come out ahead.

Let X be the number of responses to a mailing.
Then the theoretical return for a 4 tier program is: X + X2 + X3 + X4 - 4
and the number of 5th tier (losers) is: X4
and the maximum number of possible winners is: X3 + X2 + X + 1
The probability of a win is:
[which is approximately 1/X]
(X3 + X2 + X + 1) / (X4 + X3 + X2 + X + 1)
The odds against winning are:
[which is approximately (X-1) to 1]
(X3 + X2 + X + 1) to X4

Here is a chart for a few numbers. The response column is the number of responses returned from a mailing; "result" is what a winner could expect; "losers" is the number of losers in the plan; "winners" is the number of winners in the plan; "prob" is the probability of winning, and "odds" is the odds against winning.

Response result losers winners prob odds
2 26 16 15 .48387 1:1
3 116 81 40 .33057 2:1
4 336 256 85 .24926 3:1
5 776 625 156 .19974 4:1
6 1,550 1,296 259 .16655 5:1
7 2,796 2,401 400 .14280 6:1
8 4,676 4,096 585 .12497 7:1
9 7,376 6,561 820 .11109 8:1
10 11,106 10,000 1,111 .09999 9:1
11 16,100 14,641 1,464 .09090 10:1
12 22,616 20,736 1,885 .08332 11:1
50 6,377,544 6,250,000 127,549 .01999 49:1
100 101,010,095 100 Million 1,010,101 .00999 99:1
125 246,109,496 244,140,625 1,968,875 .00799 124:1
200 1,608,040,195 1.6 Billion 8,040,195 .00499 199:1

If you have no information about the plan, then your chances of winning decrease with the size of the mailing. With only 4 levels, a return of 125 uses up the population of the U.S. Even though I have never participated, I have begun to receive pyramid sales promotion letters on the average of once a week. Clearly the market is reaching the point of no return. Moreover, the odds against winning are even greater for late participants.

These plans amount to implicit conspiracies among the fewer number of winners to 'rip-off' the large number of losers. The name of such a plan should be "Lots of Last Players Lose".


This page is maintained by Ralph Kenyon and has been accessed 355 times
Would you care to read and/or make comments about this site?
home extrapolator home general semantics personal site map