Remember the game where one player comes up with a word and another has to respond with what comes immediately to her mind? Well, today, the word ‘multi-level-marketing’ would likely be the cue for ‘controversy’. With many firms misusing this business model to make a quick buck, multi-level marketing (MLM) has been in the eye of a storm.
The most recent event, which had ardent proponents of MLM in a slanging match with sceptics all over the social media, was the arrest of William Pinckney, MD and CEO of Amway India, by the Andhra Pradesh police. He was arrested on allegations that Amway was an illegal ‘money circulation’ scheme under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The company, however, says it has fallen victim to a misinterpretation of archaic Indian laws that do not differentiate between genuine and fraudulent schemes.
What is it?
If you often run into that annoying aunt, uncle or neighbour who never lets go of a chance to coax you into buying a Tupperware, Amway or Avon product, then you’ve already had your brush with MLM. MLM is, in truth, just an alternative distribution model that some companies use to sell products. While a Hindustan Unilever or a Colgate market their products through a long chain of super stockists and stockists who supply soaps or toothpaste to your neighbourhood kirana store, an MLM company enrols laymen as direct selling agents, with housewives and retired people being prime targets. These people are asked to buy a stock of the company’s products (starter kit), which they sell to others for a commission. Besides, they are also asked to rope in more people as distributors. The incentive for signing up is your commission on the kits sold to new recruits, as also the sales made by them.
As long as the company is making money selling its products through its distributors, there’s nothing shady about this model. But the line between MLM and illegal pyramid schemes blurs when much of the moolah flows in from enrolling new recruits, rather than actual product sales.
Why is it important?
Most of us have been at the receiving end of an aggressive marketing pitch for an MLM at one time or another. If you’re tempted to sign up, knowing how the scheme works can help you decide if it is legal and or not.
Why should I care?
If a company is running an illegal pyramid scheme, and you join it, you can be penalised for enrolling new recruits into an illegal ‘money circulation’ scheme. For there’s no way everybody in the pyramid down to bottom will make money. With no actual sales, those at the top make money only by sponging on those at the bottom.
Even where you believe the scheme is genuine and the MLM firm is all out to entice you into making lots of moolah from the comfort of your home, don’t get carried away. With scores of direct selling agents already in the fray in every neighbourhood, this is an extremely competitive business. Your ability to earn the promised big bucks depends wholly on your marketing savvy.
Running a business, even when someone conveniently supplies you with a start-up kit, isn’t everybody’s cup of tea. Keep that in mind when your friendly neighbour-hood MLM agent gives you her sales pitch.
Source:Hindu Business Line