Preet Singh, a housewife living in the small town of Panchkula dreams of becoming financially independent and providing financial support to her family. Unable to get a regular job, he applied for membership in a direct selling firm that does not require any educational qualification or degree. “All we need is good marketing skills, and my neighbor has already managed to buy a car by selling the product to her connection. You see, the commission is good if you can manage regular sales,” she quips. Is.
However, she is not alone as thousands of people, especially women, sign up for direct selling companies every year. While some people have earned money from this industry, some people have fallen prey to fraudulent schemes. In the past, a company like Ebiz.com has duped thousands of gullible savers by running pyramid fraud under the guise of direct selling.
But there are many companies that work on the direct selling model and Amway is the most famous example, with the brand present in the Indian markets for almost 25 years. Other direct selling companies include Modicare, Avon, Tupperware, Oriflame, and Herbalife Nutrition.
Recently, the Enforcement Directorate (ED) attached assets worth over Rs 757.77 crore of Amway India for running the pyramid fraud under the guise of direct selling. But Amway said that “the actions of the authorities are in relation to the 2011 investigation and since then, we have been cooperating with the department and have shared all information sought from time to time”.
How do you differentiate between a real direct selling firm and Ponzi schemes?
According to Rajat Banerjee, Director, Indian Direct Selling Association (IDSA), “Direct Selling is the operation or sale of a product through a network of sellers”. Describing it as a chain of human networks, Banerjee said that the sole purpose of the industry is to provide a livelihood to the people from their homes. “Direct selling companies are almost similar to FMCG firms like Colgate-Palmolive, Unilever, and ITC with common departments like manufacturing, accounts, finance, sales, marketing, legal, and communications. The difference between the two is the distribution process to consumers,” They said.
Explaining the pyramid scheme, Banerjee said, it is a Ponzi scheme that focuses on enrolling newcomers and collecting money from them. Banerjee said, “In the pyramid scheme, an early entrant can earn a good amount, but as the network of distributors grows, it becomes difficult for late entrants to recover their initial amount and the marketing model collapses. goes.”
On the other hand, a direct selling firm’s focus is on selling products and does not offer any reward for recruitment, said the IDSA director.
Major direct selling companies in India such as Amway and Modicare shared MLM data about their working model. Amway claimed, “We have no joining fee, and we never pay on recruitment,” adding, “Bonuses are paid only on product sales”. In addition, Amway said they also have an exit policy, under which, “participants can terminate the agreement without breach of contract or incurring penalty”.
When asked about the practice of enticing people to join the membership program, Amway said they take strict action against grifters, including termination of the contract.
According to a report released by IDSA, the direct selling industry grew by 7.7% to cross the ₹18,000 crore mark during the financial year 2021. In addition, employment in the industry also increased during the time of covid. In FY21, the total number of direct sellers grew by 6.32% to nearly eight million as compared to FY 2019-20, when around 7.4 million had joined direct selling schemes. Globally, the direct selling industry is $190 billion, and in India, it is around $3 billion.
Anamika Mehra, a top-ranked distributor in a direct selling company, claims that she has recruited several unemployed women, a widow who lost her husband due to coronavirus, and several housewives who were affected due to their income sources. Later she wanted to support her family. Epidemic. Presently there is a network of more than 5,000 people under Mehra. Endorsing the direct selling industry, Mehra said, “This industry is a boon for vulnerable populations as there is no investment involved, and it is okay if you do not have formal education. All you need is marketing techniques and the ability to create is needed. New people join the business”. He claims that he has managed to buy three cars and own a house in Chandigarh by working in a multi-level marketing (MLM) company for more than 22 years. However, he declined to comment on the quality of the products sold by his company and the market reaction.
On the other hand, Renuka Joshi from Dehradun, who has worked at Modicare India, expressed her disappointment with the business model of this industry. Teaching in a convent school, Joshi said that the industry is slowly entering educational institutions. She said her co-workers are selling products to parents despite disagreements. “Parents say we care about our kids so sometimes we reluctantly buy those expensive products,” she said.
According to Joshi, exorbitant prices of products, recruitment of an uneducated workforce in the industry, and selling of low-quality products are some of the practices followed by direct selling companies which they find very annoying.
“Sometimes companies give us products which are not of good quality, so I don’t give such products in my small network”. Referring to Modicare’s Noni tablet, Joshi claimed that the supplement has caused sugar problems in three of his colleagues. Joshi is now planning to leave the industry.
MLM Data spoke to Modicare and the company in its response said, “Noni is extracted from the fruit of Morinda citrifolia tree, and as per various research reports, Noni provides many health benefits and helps in maintaining overall health.”. The company said that all of its products are “manufactured after extensive research at world-class facilities and of high quality. All of our products come with a 100% satisfaction guarantee and can be returned within 30 days”.
Direct selling through e-commerce
Direct selling companies have warned customers not to buy products from e-commerce platforms due to fraudulent offers. The company recommends purchasing the product directly from a distributor or their website. IDSA’s Banerjee said, “There are around 8 million people in India associated with this industry. If we enter e-commerce, the income of the direct sellers will be destroyed.” He said that the products of direct selling companies which are available on e-commerce sites are unauthorized sales.
Modicare shared similar sentiments regarding the sale and purchase of its company’s products on the online platform. In a written statement, the company said, “We do not endorse listing and selling our products on online marketplaces as this directly affects the earning opportunity of our consultants. Furthermore, we have no way of tracking the products being sold online, making it a challenge to protect consumers from counterfeit or expired products.”
How to protect yourself from Ponzi schemes?
To protect yourself from Ponzi scheme fraud, analyze marketing strategy, look online to see if there are any reports of scams about that company, and get people’s reviews about the product. Direct selling consultancy strategyindia.com is also making a difference through its scam alerts, which list pyramid operations after scrutiny. It has currently blacklisted 3,565 companies on its website.
What is the government doing to curb corruption?
The Center had last year amended the Consumer Protection (Direct Selling) Rules, 2021 to protect consumers from promoting pyramids or money circulation schemes from direct selling companies. The government clearly stated, “Direct selling entities and direct sellers shall be prohibited from promoting a pyramid scheme or enrolling any person in such scheme or participating in such arrangement in any manner under the guise of carrying on direct selling business.” is prohibited”. The Rules direct that every direct selling company must ensure that the goods and services offered by their direct sellers conform to applicable laws.
It now remains to be seen whether the Centre’s guidelines have any major impact on Ponzi schemes, which operate without any exemptions.