10 Deceptive Business Models That Work

The 2008 subprime crisis was characterized by deception. Optimistic homebuyers received mortgages that were then rebundled as assets and sold for profit. Nobody knew the practice would cause the economy to implode, but the fact remains that the process was deceptive.

Many other deceptive business models thrive in our country. Some are subtle, but most are downright dirty. Here are ten deceptive business models that work:

1. Oil Speculation/Manipulation

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There is a legitimate way to hedge against or above the futures contracts on oil. However, speculation turns to manipulation when traders “bang the close” by amassing large positions just before markets close. This forces prices up, at which point traders quickly sell their positions to drive prices back down–and pocket the difference. Some of these traders will have a ‘put’ (basically a short-term insurance bet on whether the price of a commodity or equity will rise or drop extremely) on both the high price and the lower price, effectively making money on both ends of the trade. Realize that ‘oil’ is a misnomer; there are no less than 161 different internationally traded crude oils and every one of them is probably a little crooked.


2. Unnecessary Insurance Policies

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May I interest you in some volcano insurance in Vermont? How about an earthquake policy in Chicago? Most single-purpose insurance policies, including auto collision insurance, auto medical, and cancer insurance, are a bad deal financially. In some cases, they are downright fraudulent. However, it is still not illegal to sell someone “peace of mind,” even it if is written on a worthless piece of paper.

3. Light or Mild Cigarettes

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They don’t contain less nicotine, carcinogens or additives, but the packaging sure is pretty. Even though this myth has been pointed out countless times, “Light” and “Mild” cigarettes continue to sell. Worse yet, as many as 62% of smokers believe they are “a reduced risk and better for you.”

4. Columbia House’s Negative Option

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Remember the glory days of music buying, when you taped a penny onto a postcard and marked the 10 albums you wanted Columbia House to send you? And after that, they’d send you another junky album, complete with a bill if you didn’t ship it back in time? While the practice itself may not be illegal, the lack of disclosure indicating that you must say no (take a Negative Option) to stop them from billing you is.

5. Bottled Water

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It certainly is convenient to have a closed container of water to throw in the minivan or carry while walking. Just note that it is probably well-packaged, overpriced tap water. If you can’t stand to be without water and don’t mind the prospect of landfills overflowing with Aquafina containers, just make to avoid claiming it’s “healthier” or “safer” than tap water.

6. Pyramid Schemes

SEE ALSO:
10 Businesses You Can Start Online Today with No Cash

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Multilevel pyramid schemes actually work–for the people at the top. Those who ‘get in’ late pay the bulk of the fees and make the fewest profits, but, just like in a Ponzi scheme, the early birds actually do get a return on their investment. The trick is to know a lot of people who a) want to buy stuff and b) want to sell stuff and c) be good enough at it for you to make a living, not just an extra $40 a month.

7. Click Fraud

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There are two flavors of “click fraud”: Vanilla Ice Cream and Sour Grapes. The first happens when you place a revenue-shared ad on your website, then hire someone to click on that ad over and over. The advertiser pays a blind bill from Google and you get your free money.

The latter happens when you get your people to bombard a competitor’s pay-per-click ads with clicks until it stops showing up. Google sends them a bill either so high that your competitor has to pull his ad, or that he cannot afford any more advertising based on the inflated cost.

8. Funeral Services

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Image: ScareFX

There you are, sitting in a plush, quiet room, facing a funeral director who smells like an Italian cologne maker and looks like a Wall Street stockbroker. As you leaf through brochure after brochure, you can’t help but wonder why the cost of a casket for your uncle–who will be cremated–is so expensive, or even necessary. The truth: It isn’t necessary at all, but smarmy funeral directors frequently try to illegally upsell unnecessary items.

9. Extended Service Contracts

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Auto Warranty Processing Services” sound legit, but are anything but. Direct mailers and telemarketers contact anyone who has ever owned an auto warranty and try to scare them into purchasing a new one. Their favorite tag line is that “your warranty has expired (or is about to expire).” Older people who take good care of their vehicles often fall pray to this scam.

10. Cell Phone Services

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Cell phone complaints ranked as the most popular grievance to the Better Business Bureau in 2008. Rate plans, mysterious fees, long-term contracts, number transfer delays, early termination charges, and horrible customer service make the cell phone industry downright shameful. Yet they manage to keep up the shady service, because nobody can survive without a cell phone.

Extra Credit:

Cable companies: By rights, if the cable goes out or the picture isn’t pristine and digitally clear, your purchase contract states that your cable company has not fulfilled their end of the agreement. Just try to get your money back.

Pay only shipping and handling claims: Free products are rarely free–because of exorbitant, non-refundable S&H charges. Often the “handling” far exceeds the cost of the product itself.

  • Shahid

    I would add real estate brokers and Job consultants to be next in this list.

  • it is very good list for despective businesses.