Matrix scheme
 | It has been suggested that this article be merged into Matrix_scheme and Talk:Matrix_scheme#Merger proposal. (Discuss) Proposed since September 2007. |
Matrix sales are a form of Multi-level marketing, similar to a pyramid scheme or Ponzi scheme. It usually employs custom-designed message boards on the internet. Many former participants of these schemes consider them to be a form of confidence trick.
In a matrix sale, customers are told they can obtain an expensive item at a low price. To do this, the customer purchases a cheap item from the operator. Typically, this cheap item has very little value in itself and is sold overpriced; the principal motivation to buy it is that the buyer is added to a list. The operator then promises that every time the number of people in the list passes a certain margin, an expensive item will be sent to the first person on the list who has yet to receive one. Reaching the point on the list where you receive the expensive goods is termed "cycling".
In most cases the operator of the scheme does send out the items as requested, and thus participation in such a scheme does have a possibility of being worthwhile - the first few participants may actually receive the high value item. However, since for every single person who receives such an item multiple others must also join the list, sooner or later the supply of new members will run out, and the operator will get to keep the money from the later members who now have no hope of receiving the expensive good. Typically, the number of participants required to join for an item to be sent out will be such that the operator will be able to purchase the expensive item using the money paid to join by those participants: thus, they take no risk.
As an example, customers may be told they can obtain a $100 mobile phone by purchasing a ringtones CD for $15. Every time 10 ringtones CDs are sold, the next person on the list will be sent a mobile phone. When the first 10 people join, the operator has made $150, and can send the mobile phone to the first buyer while keeping a $50 profit. This will continue to apply for every 10 people that join.
When the supply of new members dries up, there will probably be some number of members who have joined since the last phone was sent out (between 1 and 9, since if there were 10 another phone would have been sent out); since with no new members no more phones will ever be sent, the operator will get to keep the money these people have paid (between $15 and $135).
Note that this does not mean that everyone who joined prior to those last 1-9 people received a phone; it means only that the operator does not get to keep all of their money, since they must spend some of that money buying phones for the few who did get them. From the consumer's point of view, by necessity only 1 in 10 of people who join will receive phones. When the first phone is sent out, 9 more members will have joined to enable that to happen, and will be hoping to receive phones too - but they will only do so if 90 more members join. Of course, customers are able to predict how many more people will need to join for them to receive the expensive item and will decline to join the scheme when the number gets too great, thus further increasing the probability that only a very small number of items will actually be sent out.
The sale of the low cost item is intended to prevent the operator being charged with running a gambling game or failing to supply ordered products; the operator can argue that the buyer did indeed receive the low cost item they were paying for. Some sites offering matrix sales claim the schemes are legal. This is strongly contested by groups such as Matrixwatch.