When is Viral Marketing Very Very Bad?
By coincidence, I purchased 60 Minutes' book "Con Men" just a day before the tawdry ending of one of the largest pyramid U.S. based pyramid scheme International Heritage and Stan Van Etten.
As announced yesterday,
"United States Attorney George E. B. Holding announced that Stanley H. Van Etten, 45, of Windemere, Florida, has been sentenced to ten years in federal prison for bilking thousands of investors out of over $165 million dollars. On Tuesday, November 21, 2006, United States District Judge Terrence W. Boyle ordered Van Etten to serve two 60-month terms in prison and to make restitution in the amount of $14,339,820 to the victims of the now defunct Mayflower Venture Capital Fund III.""The prosecution involved two schemes. The first scheme was the multi-level marketing company International Heritage (IHI), involving over 150,000 individuals and gross receipts of over $150,000,000 at its peak. The second scheme, Mayflower Fund III, a Raleigh-based capital venture fund was supposed to invest in the BuildNet IPO. It was discovered that 120 investors were defrauded of over $15,000,000 when Mayflower funds were used for other purposes without the investors knowledge. United States Attorney Holding said of the convictions, "Stanley Van Etten's Raleigh-based pyramid scheme, International Heritage, and his other frauds have finally come to an end with a 10-year sentence in federal prison. Federal regulators previously called International Heritage one of the biggest pyramid schemes they'd ever seen. Today's sentence is a just end for the man who, with the help of his co-conspirators, built his pyramid and investment schemes on the backs of over 150,000 victims."
Stan Van Etten was prominently covered in "Con Men", a term which should be replaced by "Con Criminal". I had planned on doing some research about him, just prior to reading the SEC's news release.
Although Van Etten had reached a settlement agreement in the civil action by the SEC, in which he was ordered, " barred from association with any broker or dealer" for two years, the criminal action dragged on for nearly ten years; here is the original SEC complaint against International Heritage and Stan Van Etten.
Now, why does a pyramid scheme attract participants? Evidence against the viability of this scheme seemed overwhelming, according to this list from the http://www.cageyconsumer.com/ihilinks.html. So how in the face of this overwhelming evidence, could Van Etten and his chums continue to recruit?
I believe that the answer lies in Leon Festinger's concept of cognitive dissonance. Roughly, we can expect social proof -usually in the form of cheering, emotional testimonial revivals - to overwhelm an individual's gut feeling of wrongness, when:
- The individual has committed irrevocable actions consistent with his/her belief in the pyramid scheme. The more irrevocable, the deeper the commitment.
- The individual perceives and is aware of real world events which disconfirm his/her belief. This induces uncertainty in the individual.
- The individuals in the scheme deal with the dissonance produced by real world events by trying to rally more people to their side, since as Cialdini put it, "The principle of social proof says: The greater the number of people who find any idea correct, the more the idea will be correct." If the facts on the ground cannot be ignored, then look to facts in the air.
If Cialdini is correct, then we may be able to contain the viral outbreak of cancerous pyramid schemes, not by educating the irrational consumer, but by breaking down their irrevocable actions which lead to commitment. How can we do this?
Noah Goldstein, www.influenceatwork.com, has an intriguing observation. In discussing advertising, Noah notes that cigarette advertising was banned from the airwaves about 30 years ago, a ban enthusiastically supported by the cigarette companies. Why?
Prior to the ban, "The Federal Communications Commission had enacted the "fairness doctrine," which ordered radio stations and television networks that broadcasted controversial messages of public importance to also provide free air time to those with opposing views. Anti-tobacco groups capitalized on this ruling by initiating an ad campaign that provided viewers with effective counterarguments that refuted each purported benefit of cigarettes "demonstrated" in Big Tobacco's commercials. The anti-tobacco commercials' potency was further enhanced by the ads' inclusion of mnemonic links to easily recognizable characters, settings, themes, and narrations that were appearing in cigarette ads at the time. The counter-advertisements proved to be enormously successful; per capita cigarette consumption dropped almost 10 percent in the following three years, most of which has been attributed to the counter-ads."
One clever example cited is the counter ad in which, "one Marlboro Man-type saying to another, "Bob, I've got emphysema." The next time individuals see a real life ad for Marlboros, they are more likely to automatically conjure up the counterargument and therefore become more resistant to the cigarette ad's message."
To effectively combat pyramid schemes we need more "Poison Parasite" advertising. We do not need educate individuals about the mathematics of pyramid schemes because although the math is correct, math challenged consumers are not problem. Unchecked deceit is the problem.
