From all the stories of losing hard-earned money in fraud Multi-Level Marketing (MLM) companies to the hardcore promotions by those who work for it, we all know that this terminology has failed many times. What must be the reason for it? Why these fraudsters are still able to loot the innocent lower middle class teenagers’ money? Why any of the those company has never succeeded using MLM strategies?
Table of Contents
What is Network Marketing and how does it work?
Started off in the early 20th century, California Vitamin Company (Today’s Nutrilite) and California Perfume Company used such techniques in their marketing. The history is, to be precise, disputed in this regard. But if we go after the present-day structure of MLMs, it is quite obvious that this must belong to the era when there’s no other media to market but people and their ‘word of mouth’.
So basically in an MLM, there’s a chain of salespersons between the company and the consumers. All these people in chain do not get a single penny as a salary, they’re rather subject to binary commission. That means a salesperson or a distributor can add up to 2 or 3 sub-distributors down his line and he can charge a commission on all of their sales.
Checkout the following diagram:
Like a tree diagram, distributors can keep on adding the sub-distributors and they can also add some more sub-distributors to make it a larger a network, to reach more and more end consumers. Eventually, everyone will keep paying to their upstreams or upper line distributors and the upper line distributors will do the same with their upper line distributors. Company will earn huge profits and so will the distributors. A larger customer base and a motivated team of distributors or salespersons is one of the biggest advantages of MLM from the company’s point of view. From a distributor’s point of view, he’ll have to invest a lot of his efforts, time and skills in reaching more number of customers and adding new distributors to the chain. The results will compound the effect. Checkout the following video by the founder of Badabusiness.com and motivational speaker Dr. Vivek Bindra.
Network Marketing Companies in India and around the world
Some of the prominent global MLM Companies are Amway, Oriflamme, Herbalife, Forever Living etc. An MLM company may deal in any kind of product. Predominantly they deal in nutritional products, cosmetics, travel agencies and even stationeries. The famous network marketing companies in India are Ebiz, Naswiz, Herbalife, Amway etc.
The truth about Network Marketing
Now let’s come to the main subject. Though this marketing technique is as per what explained above, it does not go straight that way. Most of these companies are straightaway fraudsters. They do not have a good product. Forget about a good product, it is questionable if they really have a product, a production department, a factory or an outsourcing of production for that matter. The answer is a big no. They do not care for production. Their main aim is to loot poor teenagers’ money. They hire some so called motivational speakers who would go to the colleges, call for motivational sessions etc and these speakers brainwash the innocent college students and unemployed youth. They ask them to dream big. They insert funny and illogical measurements of achievement into these college going kids. For example, they’ll ask anyone of the attendees what is their favourite car. Obviously these college going kids will answer with Audi or Mercedes. They further ask what if you own it someday? Now here is the catch. This middle class teenager has never actually thought of owing a car of his dream anytime sooner. Now that he has been incepted with the idea of actually owing a car and getting rich, he falls for the trap. Now they ask to pay anything between ₹ 10000 to ₹ 15000. They say if you add two or three more people, you get your money with profit. More they add to the network, more profit they earn. Once they pay the amount, they only get back if they add two more people. Most of the times they don’t even get their money back at all. Now these victims realise that they have been defrauded, they try to mitigate their loss by adding more people to the chain. So what people they try to add? Their own friends, family members, cousins etc. All of them suffer major losses under these fraudulent schemes. Checkout this discussion by CA Neeraj Arora with Prakhar Gupta.
Why is Network Marketing dangerous?
This is indeed not a question after all the explanations given above, but we need to understand the patterns of these frauds. Many of these fraud companies don’t even offer a job, they just run away with the money. Some of them do offer a job but they don’t get paid enough. They also do unpaid jobs just to recover the money they have invested initially. We know that terrorists are brainwashed in their camps before they’re sent to their missions. Same goes with Network Marketing, the only difference is you don’t kill anyone, you kill your precious time, money and friendships. In 2019, the CEO of Ebiz, Mr. Pawan Malhan has been arrested for a fraud of ₹ 5000 crores. That’s nowhere a small amount. Just imagine how much money has been defrauded by all such fraudulent companies over the period of time? Collectively it makes a huge difference. Let’s assume at least 10000 crores. Now imagine how much does it cost to build a new world class University or a Research Center in the country? That’d have helped our country get ahead in education and would have saved many people from being looted. That’s how these companies are making a negative impact on our economy and playing with the lives of our youth.
How to stop these fraud MLM companies?
The only cure for this, is to say No. They’ll ask you to decide in few minutes, say no. They’ll do everything in their capacity to persuade you, straightaway reject them. As well as, spread this message to all the college students, teenagers and unemployed people out there. Ask colleges and function halls not to allow the seminars of these companies and ask government to impose strict action against all of them.
Despite the fact that MLM is a legal way to increase business, the frequency of companies being fraudulent in it, is at least 90% and thus, in my opinion, MLM should altogether be banned in India. Such fraud companies should be heavily fined and their CEO’s and promoters should be severely punished after a thorough investigation.
Dnyanesh Make “the DPM”