Affiliate Marketing Vs Pyramid Scheme: A Clear Difference
Updated October 6, 2023
In a down economy like the one we have today, people tend to look at other sources of income to make ends meet. Businesses also start to look at different models to increase sales and get their brand out to as many people as possible. Two alternatives to the traditional retail market are affiliate marketing and pyramid schemes. While aspects of the two seem similar, they are both completely different tactics.
What Is Affiliate Marketing
Affiliate Marketing is where you agree to sell or endorse a product in exchange for a portion of any sales that you generate. A company will typically give an individual a referral link, or some sort of unique identifier to keep track of how many sales were generated due to you referring a customer to the product. Most affiliate marketers will have used the product and so a business has little risk of an affiliate speaking badly of the product. Affiliates are not paid spokespeople, or employees, so there is little conflict of interest for anyone making money as an affiliate.
Related:- Affiliate Marketing Tips
What Is A Pyramid Scheme
A pyramid scheme begins when a single business transaction between two people. An offer is then made that person B can make money selling this product as well. For all sales made by person B, there will be a commission earned on the sale. For each additional person that person B can get to sell the product or service, person B gets a percentage of all revenues they make as well. This creates a pyramid where there are different levels of supposed income potential.
What’s So Bad About A Pyramid Scheme
The problem with pyramid schemes is that they are generally misleading or fraudulent. Think about how many people can be on top of a pyramid. That’s right, there is only one person on top of the overall pyramid, and that is usually the business owner himself. Sure, you might make a little bit of money, but how much have you invested to make any money at all? How much support do you get to sell the product? Very little usually, you are just a pawn to make money for the people at the top. Also consider the fact that most of the time you are asked to sell an unknown product to your friends and family first. If this product was so great, why wouldn’t your marketing pitch work with the neighbors, and why don’t they already have whatever it is that is being sold if it is so great.
Pyramid Schemes Are Illegal
For the reasons listed above, pyramid schemes have been deemed illegal in several countries, including the United States. Most have compared a pyramid scheme to a ponzi scheme, in which an investor gets one person to invest, and then gets the money to repay the first person by borrowing from others. The scheme continues until the original investor runs out of money, or is caught like Bernie Madoff. These types of illegal activities have been also compared to MLM schemes, or Mult-Level Marketing schemes. The basic premise is the same although an MLM is still technically legal in the United States despite many MLM company contentions that they are not a scam.
How Affiliate Marketing Is Different
Affiliate marketing works because the payment model is the same for everyone, or is usually based on an objective payment amount. Usually an affiliate will be paid a percentage of each sale made, or sometimes they will get paid a percentage of the amount of revenue that ads on their page will generate. The multi-level marketing aspect is largely non-existent when it comes to marketing by affiliates. This eliminates any semblance of pyramid-like activities. An affiliate marketer is almost like an extended sales forces although they have less influence over actual sales methods.
Why Affiliate Marketing Is Legitimate (And Likely The Future Of Marketing)
Affiliate marketing is legitimate because you are not getting people to click on your referral code just to get money. There is a legitimate product that you are selling on behalf of the company that makes the product. You are using nothing but your own experience and endorsement of the product. Think of it as posting a testimonial about something that you used and enjoyed. You would want other people to see this product and to use it to make their own lives easier, but you just happen to get paid as an incentive to do so more publicly. It is more or less cheap publicity for the company that makes the product and cheap advertising brings down the cost of a good in the marketplace.
Similarities Between Affiliate Marketing And Pyramid Schemes Can Be Confusing
A lot of people may end up getting caught in a pyramid scheme because they think that it is an affiliate marketing opportunity. One such scheme is known as a cash referral scheme. What happens is that a person pays to sign up for the opportunity to use a particular website. There is no service or product offered, you just try to get people to also sign up for the site and you get paid for that referral. This might seem like an affiliate site, but since there is no product to market, and there is a multi-level concept to it, it is not an affiliate scheme. Since the difference is so subtle in this case, it can be hard to understand what you are actually getting into.
At the end of the day a pyramid scheme is an unsustainable business model that is usually built on fraud. Affiliate marketing is a process in which a customer refers a product to other people and gets paid a certain amount for each sale made. An affiliate is someone who has used a legitimate product from a legitimate company that is both useful and safe. A pyramid scheme often sells products that are shams and will never pay out as much as they promise to. For those reasons alone, a pyramid scheme is mostly considered to be a scam and is outlawed, while affiliate marketing will be the wave of the future for advertising.