Pyramid Schemes and Multi Level Marketing Explained

I have just done a radio interview about pyramid schemes and why they are a bad idea. I only had ten minutes so I struggled to get in all the information. Click on the image below to listen to it. I am at 1.32.

 

 

Here, I cover the information I gave, with references and further information that I couldn’t cram in.

What is a pyramid scheme?

It is useful to think of pyramid schemes on a spectrum. Just before you get to pyramid schemes, there is Direct Selling. This is where people sell things and get a commission from the sales. Like a double glazing salesperson who goes door to door and gets a cut of the sales. That is perfectly legal, although it can be hard on the salesperson to earn money if they don’t sell much.

On the other extreme, after pyramid schemes, there are Ponzis. These are schemes where people pay a fee to join. They have to recruit to people and they recruit two people, and they recruit two people. When the pyramid is a certain size, all the joining fees from the people on the bottom rung go to the person at the top. They then retire with a large amount of money and everyone moves up a rung. To be successful and leave with money, 64 people would have to pay the fee. Quite often, not al the spaces can be filled and the whole thing collapses. An example of a Ponzi is the Airplane game.

Ponzi schemes are illegal in the UK. In Albania in 1997, there was a civil war due to a Ponzi scheme collapsing. Two thousand people died and a government was toppled.

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Between Ponzi schemes and direct selling, you have pyramid schemes. These are defined by the Fair Trading Act 1973, under the section called ‘Part IX Pyramid selling and similar trading schemes’. The law calls these schemes ‘Trading schemes’ that have to comply with the pyramid selling regulations. It talks about the pyramid structure of the schemes. In 1996, when the Trading schemes laws were being updated, there was an attempt by Amway ( a large multilevel marketing scheme) to have the term ‘pyramid scheme’ defined as an illegal scheme. The Government stated that they saw the terms ‘pyramid selling’ and ‘multi level marketing’ as interchangeable.

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It doesn’t sound very good though, to say that you are in a pyramid scheme. It would be very hard to recruit people if you said you were in a pyramid scheme. The Direct Selling Association (DSA) are a trade association and promote these schemes, trying t make them appear respectable. Of course, they wouldn’t want to put off people joining their schemes so they say this on their website.

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I challenge them to show me where in law it says pyramid schemes are illegal. I believe in fact checking and looking at the evidence and I will be happy to change my statements if they are wrong.

So what is a pyramid/multi level marketing scheme? The 1997 consultation document makes this clear-

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More simply, this means that people are in a trading scheme if they sell products, usually in their home, and recruit others to do the same. They can earn commissions from the sales of the people they recruit, and also get bonus payments. The structure is pyramid in shape. To be considered legitimate, they must adhere to a set of rules. These are The Trading Schemes Act 1996. The Pyramid Selling Schemes Regulations 1973 , and later The Trading Schemes Regulations 1997  lay out the conditions that a scheme must follow to be considered legal. If any of the conditions are broken, the scheme is illegal. Importantly, the law says that the definition of a ‘trading scheme’ remains the same as in previous legislation.

“trading scheme” has the same meaning as in Part XI of the Fair Trading Act 1973.”

These are the conditions-

Part 3. Adverts for the scheme must say the name of the company, describe what is being sold, and give the statutory warning.

Part 4. A written contract has to be given to anyone joining up.

Part 5. The contract can be cancelled within 14 days. People must be told of their financial obligations for the first year. Further minor contract details.

Part 6. When someone leaves a scheme, they are entitled to a refund for the products bought in the previous 90 days.

Part 7. Some technical rule about refunds.

Part 8. People in these schemes must be given receipts from the company for every transaction.

Part 9. Rules about commission payments once someone leaves a scheme.

Part 10. People cannot pay more than £200 in the first week of joining a scheme.

Part 11. People who join up are under no obligation to buy anything unless it was clearly stated in their initial join up agreement. They should not be tricked into buying anything.

Section 1, part 3 of The Trading Schemes Act 1996 says that trading schemes must provide products or services to external customers. The participants can’t just purchase products for themselves.

That is quite a list of rules that a company must adhere to be considered legitimate. You can see why it is difficult to determine if a scheme that is being presented to you is ok or not.

These schemes cause problems for people, regardless of whether they are legitimate or not.

These problems are-

  1. Dr Jon M Taylor analysed the statistics of MLMs and found that participants typically lost money in 99.9% of cases. He concluded that gambling on roulette gives 286 times more chance of winning money than earning anything in Amway. These statistics were presented to the Federal Trade Commission.

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Image from MLM-The Truth Website.

2. People lose money through paying for training, going to conferences, buying their own marketing products, petrol costs from driving everywhere, buying nibbles and drinks for in-house parties, buying samples, buying prizes for raffles, buying products for themselves, paying for stalls at fairs.

3. People in these schemes follow the Law Of Attraction where they are taught to believe that bad things happen if you have bad or negative thoughts. They also believe that good things happen if you exclusively concentrate on positive things. The Law teaches that if you want something, you can have it if you want it hard enough and visualise it enough, sending out the correct ‘vibrations’. You are encouraged to act rich if you want to be rich. The theory is that you acting all successful will attract success and will attract recruits who want to be like you.

Hence you see memes like this

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People in these schemes become afraid to think of their failure and will not allow themselves to focus on the money they are losing. This type of dangerous thinking could be called a mind control technique. People stop themselves from being critical and lose the ability to be rational. This is a very dangerous state to be in. It keeps people in these schemes longer than they would otherwise stay.

Another side effect of this way of thinking is that people are encouraged to cut contact with people who are being critical. I know people who have lost brothers, sisters and children through these schemes. They were taught that the negative vibrations from these people would bring failure. This further isolates people and they surround themselves by other scheme members who are all believing the same thing.

A further problem with this type of thinking is that when people inevitably fail, they will blame themselves. They will have attracted the failure to themselves. This makes them feel ashamed and they will often try to forget about the whole thing, and not come forward to speak about their experiences. So the deception continues. When people leave a scheme, they often find themselves ostracised from the group, who now see the person as a failure who could bring them down. They are now left feeling like a failure, lost friends/ family and no support group. This can make people feel terribly isolated.

4. People in these schemes are often seen making false health claims for the products they sell. This is because the products are expensive due to the added amounts that are needed to be fed up the pyramid. The sellers become desperate to make sales so that they cam achieve their monthly targets and to earn money themselves. The products are nothing special so people will lie about how good they are, breaking advertising laws and encouraging people to ditch their medications in favour of their snake oil.

Truth in Advertising (TINA) have documented some false health claims they came across with MLM products. They found that of the DSA member companies in the USA“( 97%) have made or are making — either directly or through their distributors — claims that the companies’ products (which include supplements, as well as devices, clothing, and skin care products) can treat, cure, prevent, alleviate the symptoms of, or reduce the risk of developing diseases or disorders, in violation of the law.”

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Who joins these schemes?

Anyone can be vulnerable to joining one of these loss making schemes. People who need money and are not getting what they need from their current situation could join. They are vulnerable because often it is a trusted person who approaches them to join and people don’t think their loved ones would lie to them. Often, people are promised that it is easy to earn money, just follow the system, recruit people and you will be successful. Examples are held up of the few people that earn large amounts of money.

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Image from TINA.org

It is easy to see why people would want to try pyramid schemes when their current situation is less than ideal.

Intelligent people and professionals are sometimes targeted because they can lend credibility to the company. I have seen adverts on Facebook aimed at NHS staff, trying to recruit them to sell MLM products and the opportunity.

It is important to realise that anyone is vulnerable to being recruited. The best protection is to educate yourself. Stay one step ahead and be as aware as you can. If you are on Twitter or Facebook, follow me or the MLMtruth coalition. There are a few campaigners you can add to the people you follow. Keep these scams at the forefront of your mind and you may be better able to resist.

What to do if a friend is involved

This can often be a very difficult situation. Your friend may be asking for your support and may be desperate to make a success of it. They may not know of the full facts around MLMs and may not be willing to hear it.

I wrote a blog post full of tips that you can look at for ideas on how to deal with your situation. Have a read of it here.

If you have a friend who goes from one scheme to another, get them to read this article on how to choose their next one. You may not be able to help them leave just yet, but you might be able to stop them joining one of the more ridiculous ones.

If your friend is maybe open to the idea of listening to reason and they want to hear what you have to say, get them to read this or this.

If you would like more of an insight into what is going on with your friend, you would do well to read up on cults. Pyramid schemes have been described as commercial cults or greed cults. Once you read up on why they are cults and how they work, it can be quite concerning. However, it will give you a good understanding of the behaviours you might be witnessing. Have a read of Steve Hassan’s work. He has written two really good books on the subject called Combatting Mind Control and Freedom of Mind. Margaret Singer has a good book on the subject too, called ‘Cults in our Midst: The continuing fight against their hidden menace’.

Cultwatch explain how cults work, and they delve into commercial/greed cults.

Steve Hassan has a website about cults that you may find useful.

I have written a piece on MLM and cults with John Evans from Juice Plus Lies website.

How to fight MLM

Become a Bot Watcher and join the team. You might be able to help us or the coalition if you have any skills or experience that might be useful in our cause. Perhaps you could help with some research or advise us.

If you have had an MLM experience, consider telling us about it and we can get your story out there to warn others.

Write emails to complain if you see something dodgy going on. Complain to fairs that allow MLM stalls. Complain to schools if they allow MLMs anywhere on the premises. Write to your MP if you feel things need changing. I have some letter templates here to help you guide your writing.

Report dodgy health claims to the ASA and get the advert pulled. Blog post on understanding about health claims.

Order something from the coalition’s little shop to help our cause and help spread awareness.

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Take the cup to work to spread the message. Keep cards in your pocket to slip to people that you might hear being prospected. Someone we know has been slipping the cards in library books aimed at MLM reps!

Please contact us if you need any advice with any of the issues discussed in this article.

If you come across a Ponzi scheme or a pyramid scheme that you suspect is an illegal one, complain to Trading Standards via their Consumer Line. You can also report illegal schemes and fraud to Action Fraud. They are part of the police.

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Testimonial use in MLMs

We already know that MLM often sell products with absurd health claims. Health claims that are not allowed by law. See here, here, and here about the laws around what health claims are allowable.

People in MLM schemes end up with products that are usually overpriced and of little actual use. The only way they can sell these products is to exaggerate their uses and make it sound like it has magical qualities. Have a look at TINA’s findings of false health claims made by MLMs.

Hence, you see posts like this on Facebook-

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However, these sorts of claims are frowned upon by the law, advertising authorities and the companies themselves. The companies tell their reps, outwardly at least, that they must not make health claims. They have compliance departments that are supposed to be finding these claims and asking their reps to stop.

If these wildly inacurate and illegal claims are not allowed, how are people supposed to sell them?

Juice Plus have come up with a great idea. Share testimonials. Then people are not making claims, they are just sharing stories. Here is an email from their compliance department to a Bot Watcher.

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“If someone has seen that the product has helped them with a specific condition, then we encourage them to tell their story in the first person”.

 

“share this story with your readers or tag them in the post.”

 

 

From this belief sprung the Juice Plus Testimonials page on Face Book. Here, people tell stories about how they took Juice Plus and their health condition improved. Here is a selection of some of those testimonies-

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You can find any medical condition there and use their stories to put on your own page if you are selling Juice Plus and want to make health claims without actually making health claims. Reps end up discussing their customers and working out which of their products to recommend. Totally not making any health claims though. Here’s an example of one such discussion.

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Well there you  go, The shakes must be ok in pregnancy, the rep says so. Even though she has no training. I’ve looked up the ingredients to see if there is any vitamin A in the shakes. There isn’t. Vitamin A can be found in their capsules, but not the shakes. I did find something interesting though. There was a link to click that was labelled

“California residents: Click here for Proposition 65 WARNING.”

I don’t live in California but thought I’d click anyway. This is what I found

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The shakes can cause birth defects. This is pretty serious and it concerns me greatly that reps are telling other reps and customers that it is safe because they used it and they were ok.

It should be pretty obvious that sharing testimonials is a very bad idea. We don’t know the truthfulness of these claims and they could be very harmful. People may try and come off their medications, or have false hope for their condition. There are many, many conditions catered for on the Facebook page and shared widely.

The Law in the UK

Section 15 of the non-broadcast CAP advertising code states what sort of claims can be made for foods or food supplements.

 

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So claims that Juice plus capsules can replace anti depressants would not be allowed. The claims that can be made are very clearly set out I these registers. But what about personal testimonies? Is it ok for someone to say that a product has helped with a condition?

There are some general rules that marketers must comply with when sharing testimonials-

  1. The marketer cannot be the consumer and give their own testimonial.
  2. The marketer must have written permission from the person making the testimonial.
  3. The marketer mush hold evidence the claim is true- evidence of the ordering history, email records (not Hotmail, but a provable email address), address of the customer and be able to prove the testimonial is genuine.

 

This next bit is very interesting, found on this page on the CAP website.

“Marketers may not use testimonials to circumvent the Code by making claims in a consumer review that they would not otherwise be permitted to make. For example, if a marketer doesn’t hold the evidence to substantiate an efficacy claim, they cannot use a testimonial which makes that claim.

Testimonials alone do not constitute substantiation so marketers should not rely on testimonials as support for any direct or implied claims made in the marketing communication.”

What claims are Juice Plus allowed to make?

I asked the MHRA who regulate medicines and supplements in the UK if any health claims are allowed to be made by Juice Plus (and Ariix and Herbalife). This is their reply

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Essentially, this means no health claims can be made for products from Juice Plus.

I told them about the Juice Plus Testimonials page and one of their investigators joined and had a look. They were very concerned about the sort of posts there and wanted to inform Trading Standards about the group. Unfortunately though, they realised the page originated in America so they could not do anything about it.

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I never heard back about anything Facebook said. The page still exists so I am assuming they took no notice.

 

Conclusions

If you can’t make a claim for a product legally, you cannot get around it by using a testimony.

Making health claims that are not proven or allowed could lead people to believing it and ditching their medicines/ treatment. This could lead to significant harm.

If you sell a product, you cannot make your own testimonies when advertising it.

The strict rules around allowable claims are there for a reason, do not break them just so you can make a bit of money. Especially if you are taking advantage of ill people, this is despicable.

 

The scandal of ‘cancer care kits’

These ‘cancer kits’ or ‘positivity packs’ are appearing all over the internet at the moment, and on the face of it, look harmless. Helpful, and charitable even. Increasingly though, it is making people feel very uncomfortable. I will attempt to explain why.

I think the biggest element that makes people feel uncomfortable is that it is hard to criticise someone when they are helping to raise money for a good cause, especially if they are doing it without making any money. Who wants to stop people raising money for cancer patients?

Part of my job brings me into contact with people who have cancer. I want to help them, not stop them from having nice things. I also want to protect them from being exploited, especially if a massive multi national company in America is going to profit from the sales, as well as people in a multi level marketing scheme. The people selling these kits are being less than truthful and I feel a lot of people are being taken advantage of.

Let’s have a look at some of the calls for help to make these kits and see if we can analyse what is going on.

This one was spotted on Facebook on Thursday 9th November 2017, and the packs were due to be dropped off on Friday 10th November.

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Her friends and family have bought these products from her. Forever Living will make a profit, the woman selling the products will be closer to earning her bonus, and her uplines will get a percentage.

 

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The person writing the post says she ‘told her story’. Telling of a story is a common occurrence in MLMs. People stand up in front of a group and explain to them some health problem they had or some dreadful problem with a job, or something else that was bad in their lives. Then they explain how their MLM came along and everything changed. Their health problems went away, they left heir job, they found a ‘new family’ etc etc. Then they explain how they are so thankful for the amazing opportunity and then they subtly/ or not so subtly (depending on their audience) try and recruit people. The people in the above picture could be being subjected to a recruitment attempt.

The post claims that the products can ‘help with certain side effects’. It is very common for sellers of these products to make false health claims.

 

Have a look at this attempt to make sales and false health claims. This person has set up a Just Giving page where she can appeal to people to send her money so she can purchase products from Forever Living and give them to cancer patients. She wants to raise £1500 to make 100 packs. (Not sure why she says £300 when she says each pack costs £15 to make).

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She claims that the aloe vera toothgel helps with mouth ulcers. This is an illegal health claim. Aloe Vera cannot be claimed to help with mouth ulcers.

She claims that aloe gelly can help with hair loss and dry skin. Again, this is an illegal health claim.

She recommends taking the gelly internally. This is not actually recommended by the scientific bodies that regulate medicines and herbal remedies. There is no evidence it is good for people, and some evidence it can cause harm.

She claims that aluminium is linked to breast cancer. It is not. She is scaremongering people into buying her products. Cancer Research UK are among many websites that debunk the myth that aluminium and cancer are linked.

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She claims here that the packs are ‘none profit’ (sic). This makes it look like she is doing this out of the goodness of her heart and not making any money. In reality, she has to sell these products in order to earn her bonus, and her upline will be getting a cut of the profits, as will their upline. By selling these packs, she is losing nothing, whilst gaining financially and making herself look good.

So what is being bought for £1500? A deodorant stick, lip balm, nail varnish and a card. I can’t help but wonder what else this amount of money could be spent on that would actually be useful.

 

This person is trying to raise £898 to purchase products from her team. She will benefit from all sales from people below her in her team.

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It’s not just Forever Living that use this tactic, Modere are at it as well.

They use the exact same techniques- cancer patients, bogus health claims, aluminium free deodorant, being kind to needy people.

Here is a NuSkin rep raiding money for her kits. She omits to mention the NuSkin element in her Go Fund Me page. You have to go to her Face Book page to see that is what she is actually selling.

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Some reps have been more creative with their links to charities when getting people to buy their products.  This one seems to have swapped a proportion of her proceeds to a hospice, gaining sales and contact details of customers/ potential recruits.

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This one managed to persuade at least four people to buy C9s from her for a hospice fundraising activity.

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C9s cost £108.95 each. That’s £435.80 if only 4 people bought them. This effort raised £100 in total for the charity, costing the ‘customers’ £485.80. It earned the FL rep some great sales, enough to qualify for her bonus, new customers and some publicity.

 

This Consumer Reports article examines the phenomenon of ’cause marketing’ where product sales are related to a charitable cause. There are many negative aspects to it.  Here are a few  interesting quotes from the article.

After all, companies don’t do cause marketing solely to give, but also to get more of your business. Surveys show that almost 90 percent of consumers say that given similar price and quality, they’re likely to switch to a brand associated with a good cause. (Case studies suggest that is actually what happens in stores.) And businesses get to bask in the warm glow of good PR. “Nonprofits are lending their good name to the business, and consumers are well aware of that,” Irvin said.”

Think before using a product as a go-between, Krishna says. “Are you buying a $30 T-shirt from which $2 will go to the charity?” she said. “Or could you give $30 to the charity and do without the T-shirt?”

If you see someone selling some expensive products that they and their company will benefit from, think hard. Would it be better to donate the £10 directly to a charity? Where they can directly benefit, spending it where it needs to go? Would the cancer patients benefit from being given some toiletries and used as a sales prop, handed false health claims that could harm them, or would they be better served by their ward being given £1500?

I think cancer patients would be better served with direct donations to charity. I think friends and family of the reps would prefer not to be tricked into thinking they are doing a good thing. Many people find it hard to decline making a purchase to MLM reps at the best of times. People want to help their friends out and are often guilted into supporting them. If the donor is told their purchase will help someone fighting cancer, they will find it even more difficult to resist purchasing.  This is a very manipulative tactic.

Summary

Friends, family, social media contacts and the wider public are not told the whole truth about who will benefit from their purchase.

Cancer patients are given expensive packs of toiletries with false health claims.

Cancer patients are used to persuade people to help them. Sometimes their photos are used. All with the aim of making more sales.

Opponents of these schemes are reluctant to speak up, because who wants to be seen denying nice things to ill people?

 

 

 

 

 

MLM meets quackery

Most Multi Level Marketing companies (MLMs) have some element of quackery in them. Just take a look at the bogus health claims attributed to Ariix, Juice Plus and Forever Living products to name but a few. When Cleanshield came to my attention, I was horrified at the sheer amount of idiocy that I felt compelled to write about why it is so wrong.

Here is their product

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Wow, some bold claims there!

What is in this amazing product I hear you cry? How on earth can it ‘resist and correct’ these many conditions?

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Sodium carbonate.

There is a website dedicated to this ingredient. This ingredient used to be a key ingredient in household cleaners and washing powders. It is an irritant.

Sodium phosphate

This is a strong laxative and features on Medline plus, a medication information website.  There is a serious risk of kidney damage or death with this drug, especially if certain other drugs are taken or if there are some other underlying health conditions.

 

The pH of this liquid is 11-11.3.  pH is measured on a 0-14 scale where 0 is extremely acid and 14 is extremely alkaline. What else is pH 11, for comparison?

I’ll tell you what is-

Ammonia.

How would drinking a highly alkaline solution cure all those conditions in the advert above?

It won’t.

For some reason there is an idea being touted by quacks that all illnesses are caused by the body being too acidic and this can be cured by ingesting alkaline things. Here is what Cleanshield have to at about the process-

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This shows a gross misunderstanding of how the body works. If the stomach’s acid is diluted, it will no doubt make more acid, but this will not affect the rest of the body! Cleanshield think that the body’s water is an ocean and the whole ‘ocean’s’ pH will alter. Different parts of the body have a different pH and the body is very good at keeping them where they should be. Drinking an alkaline solution will not trick the whole body into being more alkaline. If it did, you would die really easily.

That bit at the end- ‘No known harmful pathogens can survive in the human body with a pH near 7.0’ !!! No human bodies can survive for long at a pH of near 7!

Blood’s pH should be between 7.35-7.45 and it is kept this way by the kidneys and lungs. If it goes much out of this range, you become very ill. If it goes under 7 and over 8 you will most likely die. It is very difficult to artificially change the pH of blood, and you would be foolish to try. To think that you can change it with a drink is laughable and ridiculous.

Where are the scientific papers showing any evidence at all of these claims of Cleanshield? How do we know what their drink does to their body? Where is the evidence this supposed change of pH will affect the immune system and that this can help with the list of conditions? There is none.

There is no evidence at all.

Cleanshield are not the only quackery MLM that are peddling alkaline water. Enagic are another MLM company at it. They sell expensive machines that make alkaline or acidic water to help with health.

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Kangen water comes in 5 different strengths of pH. They have a pH11 water just like Cleanshield. Interestingly, they say not to drink this.

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They subscribe to pseudoscientific mumbo jumbo of changing the body’s pH though.

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Please, if you are going to believe in the idea that drinking products can change your pH level and this can change your health, despite there being no evidence or any credible scientific reasoning behind it, do not do it within an MLM company.