Pyramid Puzzle Part I

Q. A neighbor tried to sell me some cosmetics and suggested that I could also make money by selling to others. Is this selling system ethical?

A. The phenomenon you describe is called "multi-level marketing." The idea is to create a kind of pyramid where each customer in turn becomes a salesperson, creating a new level in the marketing pyramid. All salespeople obtain earnings from all sales beneath them in the pyramid: their own customers, their customers’ customers, and so on.

Multi-level marketing is not inherently unethical, but it presents a large number of difficult ethical challenges that are not easily overcome. It is worth considering these challenges carefully before joining such a system. This question is so complex that we will devote two columns to it.

One problem with multi-level marketing is not unique to this pyramid selling idea but is found in all kinds of "neighbor to neighbor" selling or even incentive systems like "bring a friend and get a discount." The problem is that the seller is often trying to mask the salesperson’s financial interest in the transaction. As we pointed out in a previous column [See Chat Room Charades], this violates the Torah prohibition of "putting a stumbling block before the blind;" one meaning of this prohibition is to give advice to someone who is blind to the adviser’s conflict of interest. Rashi gives the example of advising someone to sell a field and buy a donkey while hiding our own interest in acquiring the field.

There is nothing wrong with a neighbor giving a friendly recommendation for a product he or she enjoyed; there is also nothing wrong with a salesperson giving a glowing but honest account of the advantages of his or her merchandise. But it is misleading for the salesperson to somehow imply that the sales pitch is really an impartial endorsement. Therefore, one prerequisite for this selling is that the sales pitch is professional, and doesn’t try and build on neighborly trust -- which it will ultimately undermine. It’s a shame to damage relations of trust carefully built up over years just for a few dollars earned from a marketing system.

A related problem with neighbor selling is that it often pressures people into buying items that they don’t really need, out of a desire to avoid saying no to a neighbor. There is nothing wrong with voluntarily buying something from a merchant out of a desire to help the person make a living, and this is indeed the highest level of charity -- to help a person in business rather than through a handout. It’s also permissible to give a little non-pressured encouragement to people to give to a worthy charity; therefore, selling cookies and the like for youth groups is not unethical even though some people buy only in order not to seem miserly.

But this is completely different than buying something to avoid awkwardness, which is not voluntary at all but rather pressured. A previous column discussed the similar idea of subtle pressure on a person to give a gift without true consent [See Pauper Presents].

Neighbor-to-neighbor selling systems can be "value-adding" if there is a real advantage to knowing the needs and habits of potential customers and if there is a sincere enthusiasm for the product on the part of the seller. However, not everyone is capable of living up to the challenge of taking off the neighbor hat and putting on the seller hat for the duration of the sales presentation.

Furthermore, the basis of ethical selling is to have the full desire and consent of the customer, and neighborhood selling runs the risk of leveraging carefully nurtured good will for the purpose of making money. In order to avoid both of these problems, the neighborhood seller needs to strive for an attitude of professionalism in selling, and this attitude is not necessarily easy to achieve.