Earnings Claims and Disclaimers in Multilevel Marketing: Testing the Impact of Self-Regulatory Guidance

Abstract

This research assesses the adoption of self-regulatory guidance in the multilevel marketing (MLM) industry as it relates to earnings claims and disclaimers and studies the impact of disclaimers embedded in MLM promotional material. Based on a review of over 2,000 MLM marketing materials with atypical claims, Study 1 finds that the industry's own self-regulatory disclaimer guidance has not been adopted by MLM firms. Instead, MLM firms overwhelmingly use no disclaimers or vague, nonprominent disclaimers. Study 2 tests the impact of disclaimers that align with actual MLM industry practice against disclaimers aligned with self-regulatory guidance, both to assess the impact of current practice and to evaluate the “what if” scenario of guidance adoption. Results indicate that actual disclaimers have no impact, while guidance-aligned disclaimers do impact consumer judgments and interest. As there are multiple differences between actual disclaimers and those aligned with self-regulatory guidance, Study 3 tests the relative importance of disclaimer content and prominence. Results indicate that both content and prominence are tied to disclaimer impact. Findings inform the self-regulatory and regulatory framework for the MLM industry and disclaimer design and content.