Lazy Man and Money

The Seven Persuasion Tools of Scammers

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Have I ever mentioned how much I love Lifehacker. It’s must reading for me. Last week, I came across an article Seven Persuasion Tactics Repeatedly Used by Scammers. Regular readers know that I often write about MLM and other scams in this space. I feel that keeping your hard-earned money away from scammers is an overlooked part of personal finance.

Thus an article showing the scammers’ playbook can prove to be extremely valuable information.

The information that LifeHacker is pointing it is Understanding scam victims: seven principles for systems security (PDF). Yes, the title gives you a clue it is going to be about nerdy computer systems, but in reality it is a quite readable paper on scams themselves.

The paper lists many scams, such as the old 3-card Monte and explains why it works. The really interesting part though, is when they boil the scams to the 7 lessons and principles that form a common thread through them.

Here are all seven and how they apply to MLM (though you can certainly find them in other scams as well):

1. Distraction Principle

The distraction principle is common in any magic act. The idea is to make the mark focus on thing while the trick is being performed. It’s common for pickpockets to use this for example.

In the world of MLM, there is distraction all over the place. The MLM company and salespeople focus on telling you about the dream vacations and dream cars that come with the opportunity. They’ll even show a few people with big checks walking across a stage. The deception is to get the mark focused on the great prize and ignore the truth that well over 99% of people lose money in MLM.

The paper also noticed that a “sexy swindler”, an attractive female, can get the male mark to let down his defenses. It’s not a surprise that all the top MLMs put pictures of the successful people on their websites, and generally these people are fairly attractive.

2. Social Compliance Principle

This where someone dressed as a fake police officer can pull of crimes such as a jewelry swap that normal people couldn’t get away with. Fake car valets with fluorescent jackets can steal cars. A fake waiter can walk away with your credit card if he times his appearance right.

Perhaps most noticeable is that police officers and military members are extremely susceptible to these scams as they are taught never to question someone of higher rank.

In the world of MLMs, there are “leaders” who are at the top of the pyramid. These people are looked at as experts in MLM, when in reality they were just quick to the game, knew the right person at the right time. In fact, I’ve caught many of these “top experts in MLM” breaking the law such as claiming that MonaVie juice prevents Swine Flu.

These leaders are often given rank such as “diamonds” or “platinum” which parallels the example with the military rank. The marks are often told to “listen to their upline”… those with higher rank who are making money from the questioning lower people. The marks are also told not to listen to the negativity of everyone else… a famous tactic employed by cults to divide people from their trusted family and friends.

3. Herd Principle

I’ll let the paper’s wording speak for itself, “Even suspicious marks will let their guard down when everyone next to them appears to share the same risks. Safety in numbers? Not if they’re all conspiring against you.”

This is one of the biggest reasons why MLM still exists today. Most of the people involved are part of the herd principle. This often called Groupthink, and is explained here. Essentially everyone in the room thinks that it can’t be a scam, because everyone else in the room is not saying it is a scam. The new MLM mark comes in and sees a bunch of people seemingly involved in a real business and falls in line.

4. Dishonesty Principle

Once again, I’ll defer to the paper for the explanation, “Anything illegal you do will be used against you by the fraudster, making it harder for you to seek help once you realize you’ve been had.”

In terms of MLM, people who have been scammed rarely complain about it. Here are two of the main reasons why:

A. They have friends in the MLM. They don’t want to get their friends in trouble.

B. As explained in this principle, they’ve played a role in the deception. Thus if they report it, they’ll could be brought up on charges as well.

5. Deception Principle

This is very similar to the Distraction Principle above, but is more straight-forward. For example a fake cash machine that is used to steal ATM numbers.

The paper itself mentioned the distraction of the attractive female on male marks again as deception, not just distraction.

In the world of MLM, there’s deception at every point. They try to claim that your company is a pyramid scheme. This is classic deception where a a legitimate hierarchical organization is falsely compared to an illegal pyramid scheme which is dependent on endless recruiting.

MLM marks are taught that if it were illegal it would have been outlawed by now. That’s what the president of one MLM said, until 3 years later his company was shut down by the FTC after consumers lost hundreds of millions of dollars.

6. Need and Greed Principle

Paper’s explanation: “Your needs and desires make you vulnerable. Once hustlers know what you really want, they can easily manipulate you.”

The paper’s research quotes one scammer: “If you want to con someone, all you need to know is what they want, even if it doesn’t exist!”

So this is where the MLMs that are health products come into plan (no they don’t work.) MLMs exploit people’s need and greed for health, wealth, and the happiness of their friends. The pitch usually involves all three. The products are supposed to bring health. The “business opportunity” is supposed to bring health. Sharing it with friends will bring those to them as well.

It is an amazingly convincing formula. The only thing is that what they want doesn’t exist. The products are not proven to be clinically effective by the NIH or FDA standards. The “business opportunity” has been shown in hundreds of companies to cause losses for well over 99% of the participants. The only truth is that this pain is shared with friends, which often kills the friendship.

7. Time Principle

Paper: “When you are under time pressure to make an important choice, you use a different decision strategy. Hustlers steer you towards a strategy involving less reasoning.”

MLMs do pitch “get in now on the ‘ground floor’.” In this case it makes sense, because once there are few dozen in it, there’s really not much opportunity left. The organization is saturated with too many salespeople selling “business opportunities” and not enough marks who ignorant enough to fall for it.

However, I’ve seen this most often used outside of MLM. I’ve written about how RainSoft promised thousands of dollars of soap if we made a deal right away. Similarly, Marriott time shares have a policy of putting a limited time bribe on the table.

Whenever I see this marketing tactic, my Spidey sense alerts me that I should tread very cautiously.

The Final Word

The conclusion of the paper was most interesting. It cited about a half dozen similar works, but was careful to note how there’s very little research on the subject of scams. The limited literature that does exist seems to contribute to these seven principles.

While my intent here was to take it a step further and apply it specifically to MLM, one shouldn’t limit the scams to any particular domain. The best defense is to be aware of them and as The Department of Homeland Security says, “If you see something, say something.”

Invest in Yourself?

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This is a phrase that I’ve heard a few times over the past few weeks. It comes in different forms, but that’s what it essentially amounts to. Perhaps not so surprisingly, it has come from people with a vested interest in making that “investment.”

It’s made me think, are these investments really worthwhile?

Over the years, I’ve invested in myself several ways, with my college degree being the biggest. (Though, I earned a full scholarship covering the tuition.) The value of college is a huge topic that I can’t do justice in a single post.

I’ve also bought a lot of eBooks… some of which I’ve actually read. That should give you an idea as to how those investments in myself worked out. Usually, I have limited time to take advantage of everything that’s out there. Of the ebooks I have had the time to read, I’ve found that like everything, the results are hit and miss.

One case this recently came up was in discussing the Contactually service with John Corcoran of Smart Business Resolution. He’s a big fan of how it organizes and helps you build and maintain business relationships. I currently use a spreadsheet. So I’m on the fence if I want to spend nearly $20 a month do something similar, maybe better. The $20 a month may not seem like much, but these subscription services add up over time. I try very hard to limit them because they push me away from being financially free… having my passive income surpass my expenses.

So is Contactually a good investment in myself? I don’t know. I’m in the free trial right now, but it seems to require so much time to set-up the hundreds of contacts that I have, that I don’t know if I’ll actually get a chance to use it. When I run into difficulty there’s usually a video to help, but watching that is more time gone. I’ve been emailed by at least 4 members of the support team offering to help, which is great, but again, requires more time to write them back and explain how slow it is to set up when you have so many contacts.

I was listen to Jim Wang’s awesome Microblogger podcast which had Billy Murphy as a guest. Murphy built a poker training site that has made more than a million dollars. He made a brilliant comment in the podcast about how the first version of the site cost $16,000 to make and the second version required $60,000. He said he could have made a lot more money by spending the $60,000 upfront, but made the excellent point of (paraphrased) “You don’t know if it is going to work, and $16,000 is a lot of money when you are starting out.”

Even when you invest in yourself, there’s the question of how much you should invest and what happens if the investment doesn’t produce a return.

Perhaps the best example of a “bad” invest in yourself is what Bill Ackman revealed is going on in the Herbalife nutrition clubs. He showed that the clubs lose $12,000 a year on average making it a terrible business “opportunity” (if one can even use that term). There is a training program that looks like it takes 4 weeks to complete, but due to strict rules it can take years. While in the training program, the trainees have to buy numerous product estimated of costing more than $3,000. It’s billed that if you invest that money in yourself, you too can open up your Herbalife nutritional club… where again, you lose $12,000 on average. The people getting taken by this are generally poor with little education.

This is from Bill Ackman’s extensive research, but is hardly surprising if you know the MLM industry. As Harper’s Magazine once wrote about Mary Kay, “The women I interviewed for ‘The Pink Pyramid Scheme’ told me stories about struggling to patch together daycare or to survive high-risk pregnancies while working long hours scouting prospects and hosting parties without any guarantee of a sale. Debts mounted, marriages failed. They couldn’t have it all because Mary Kay’s business model (like that of any multilevel-marketing enterprise) is designed primarily to profit from, rather than enrich, its workforce.”

And then there is the Flip This House seminar scam that I’ve written about before.

Sometimes it’s hard to know what is a scam and what isn’t. If you have a high level of intelligence and some critical thinking skills you can eliminate some of the easy-to-spot scams and throw those aside. Then you are left with legitimate educational options that may or may not give you a return on your time and money. I don’t know how to navigate those waters. In some cases you could ask someone who has taken the course, but you might be at a higher level than they are. For example, I’m not likely to get much out of investing in a beginner level blogging course, but that isn’t to say it’s not valuable for someone else.

At the end of the day, I think I’m left with more questions than answers when it comes to investing in yourself. What do you think? Let me know in the comments.