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Pyramid Schemes 101

Updated: Aug 7, 2021

By: Sumay Mcphail

Hello! Today we are going to be talking about a business model called a pyramid scheme. Pyramid schemes are used everywhere, and most of us probably don’t even notice they’re there. But by understanding the pyramid scheme, you can start to understand why people do certain things. In this article we’ll touch on three things: what a pyramid scheme is, why they are important, and some examples of pyramid schemes being used! This business model can not only be applied to thinking about businesses, but there are many examples of it being used in many different areas in everyday life. I hope you enjoy!

A pyramid scheme is a type of business model that some businesses use to promote their product. The way it works is basically promising your customer that they will get a certain cut (usually payment using money) if they enroll others in the same scheme. For example, a business says to you, if you tell other people to use our product you will get some of the money they pay to buy it. And then you tell somebody else, if you buy this product, and then tell someone else they should buy the product, you’ll get some amount of money from them buying it. Then the person will promote the product again saying that the next person who buys it will get some amount of money if they promote the product, and so on.

Pyramid schemes are important to know for two different reasons. One, is that it is important to recognize when something actually has value, versus, fake value being created using something like a pyramid scheme. And also, so you don’t get caught up in a pyramid scheme and wasting your time, because the only position you would want to have in a pyramid scheme is at the top. So by knowing what a pyramid scheme is, and applying it to things to try and find out if something actually has value, or is a pyramid scheme, you can save a lot of time and energy by avoiding the trap of not wanting to miss out on something that might be “the next new thing” even if it isn’t.

An example of a pyramid scheme being used is a makeup company called Mary Kay. And the way they market their product is using a pyramid scheme. The way they do this is by saying, if you promote our product and the person buys it through you, you get a 10% cut of what the product cost. Then the person who gets the product is told if you get someone else to buy the product through you, you get 10% of the cut. This happens so on and so on so more and more people are telling more and more people to buy Mary Kay products, which makes more and more people tell more and more people about Mary Kay's products. That is only one example, another is in schools. If whoever the cool kids is wears a new pair of shoes, then other people start wearing those shoes, because instead of getting money, they get to be cool. And then more and more people start wearing the shoes so they can be cool. And then other kids start to see that the people wearing those types of shoes are cool, so they start to as well, and so on.

Thank you for reading about pyramid schemes! Pyramid schemes are a way of telling people, if you do this same thing, you’ll get whatever I have. This is demonstrated by the company Mary Kay, and is also demonstrated in schools all across the globe, and who knows, maybe in your own neighborhood! And that is why I wrote about Pyramid schemes. By realizing what is just a pyramid scheme, and what has actual value, you can focus your time on the things that are actually useful and not a waste of time. Again, thank you for reading!



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