Matrix scheme
A matrix scheme is a business model that involves exchange of money primarily for being added to a waiting list for a product. The person at the top of the list is only served once enough people have been added to the bottom of the list.
Generally, a matrix scheme involves buying a product at a price which far exceeds its actual value, or paying solely to be added to the list. For every, say, 20 people who join, the person at the top of the list is given the product and then removed from the list. Sometimes it is possible to skip places in the list by referring more people to pay and add themselves to the list.
Success in such ventures rest solely on the exponential growth of new members. Unfortunately, simple analysis will reveal that with any amount of members which join, very few will be given the final product and most will wait indefinately. Therefore, the vast majority of people who participate in these schemes simply lose their money.
Although matrix schemes have been declared illegal (being almost equivalent to pyramid schemes), they still persist in many forms. Many schemes persist that purportedly "sell" a product to mask the primary intention of simply enrolling new members. The distinguishing feature of these schemes is the fact that the product being sold has little to no intrinsic value of its own.
There are numerous matrix schemes that sell such intrinsically worthless products which market themselves as legal programs.
The key identifiers of a pyramid scheme are:
- A highly excited sales pitch
- No product, or a product being sold at a price ridiculously in excess of its real market value.
- An income stream that chiefly depends on the commissions earned by enrolling new members.
- A tendency for only the early joiners to make any real income.
The key distinction between these schemes and "legitimate" MLM businesses (e.g. Excel Communications) is that in the latter cases a meaningful income can be earned solely from the sales of the associated product or service. While these MLM businesses also offer commissions from recruiting new members, this is not essential to successful operation of the business by any individual member.
Compare To: multi-level marketing, Ponzi scheme, Pyramid scheme
See also: marketing, make money fast, LGAT