Many people would like to know how to know if an Multi-level Marketing (MLM) company is a pyramid scheme / Ponzi scheme or not. We can use the Direct Selling Association of the Philippines (DSAP) 8 point test to determine which are probably pyramid schemes or ponzi schemes.
Summary:
Ang DSAP 8 point test ay makakatulong lamang makapagidentify kung ano ang companies na maaaring under sa isang Pyramiding Scheme or Ponzi Scheme pero hindi nito sinasabi na lahat ng bumagsak sa 8 point test ay pyramidding or ponzi. Kailangan iverify ang lahat ng information sa 8 point test para makita kung paano ba nagkakaroon ng funds ang company, kung ito ba talaga ay nanggagaling sa product sales or sa number of distributors na pumapasok.
Let's identify each item one by one and I will explain all the aspects encompassing that question.
1. Is there a product?
This means that the company must provide a product for sale. By become a distributor of a company, you need to distribute something or provide movement of sales for the company right? And that will be the product that you will get from joining the company. The question here now is what do you mean by "product"? A product in a direct selling company and Network Marketing company or MLM is a tangible product that can be consumed, used or sold to other people. If a product is intangible, not fit for resale and actually free or accessible to everyone, it is not considered a "product" in this industry.
The reason behind this rule is that you joined the company because you want the product or you believe that this product can be sold to people and from those sales, you can earn money.
2. Are commissions paid on sale of products and not on registration/entry fees?
What this question is trying to say is that the cash flow of the company should come from sales of products and not by the number of incoming distributors.
MLM companies provide incentives for those distributors who are advertising the companies products. When prospect distributors or product enthusiasts decide to join the company because they want to purchase the product repeatedly with a discount or they believe the they can sell the product and that they can earn money from doing it, then they earn commission through the company's incentive program which is what most people call the compensation plan.
I know your question will be "Isn't it that the distributors are buying the products when they join a company? Is this also considered sale of products?", and to answer this question bluntly, I'd say yes but we have to know first the distributor's purpose for joining the company. If the distributor wanted to join the company just because of its compensation plan and not because of the product, then that distributor will probably promote the company as a pyramid or ponzi scheme because he is only interested on the incentives, and not on sales of products. If the distributor is interested to sell the products, use them, or train other people to sell the products like how they sell them, then they will be conducting the business properly.
When people are paying to become a distributor of a company, they are not actually paying for a registration fee. It should always be that they are paying for the products that they will be selling or using. If they are paying P5000 to become a distributor, then they should get P5000 worth of products (discounted price). When these new distributors join, that person who invited the distributor shall receive commissions because of 2 things:
1. He widened the network of the company's product movement because another seller or marketer will sell the product for them. (Commission through advertising)
2. He conducted a sale of products.
If a company has a registration fee and the products given to the distributor are worth the Standard Retail Price (SRP) price and not the discounted price, most likely that company is using products as a loophole in order to say that the MLM company is a Direct Selling Company and not a pyramid scheme or a ponzi scheme.
3. Is the intent to sell a product not a position?
If the company is selling a position stating that if you joined early, you can get a lot of money, then that company is most likely a pyramid scheme. Actually, there are so few companies selling positions unlike 10 years ago when there were a lot of budding companies who are really just selling positions. These days, it's the distributors who are doing this, promising people that if they join now, they will earn a lot of money easily. These distributors (recruitment type) are generating the negative impact we have today in our industry. It's because of them that many companies are being branded as a "scam" because of their marketing strategy of selling the opportunity instead of selling the product. If you are going to sell the opportunity, make sure that you will train these people to sell the product that they will receive or you will sell their products if you can handle that job. Earning from Network Marketing is based on product sales and not on recruitment so if you're not going to train people on how to sell their products or handle the job of selling their products, then this opportunity is not for you.
There are some companies who are using products as loopholes to say that they are legitimate direct selling companies due to the products they sell but in reality, what they are selling is the opportunity to earn. These kinds of companies are really pyramid schemes and should clearly be avoided. Companies who do not provide a tangible product after registration are just one of them.
4. Is there no direct correlation between the number of recruits and compensation?
To make it simple, this just says if distributors join, will you be compensated because they joined or because of the products they bought? If a company states that you gain P1000 when 2 people join your organization, that is the perfect explanation of this statement: "direct correlation between the number of recruits and compensation". Compensation should always be product volume based, meaning that distributors are getting paid because of the sales the company received because of your effort and not because of the number of people you invited into the company.
5. If recruitment were to be stopped today, will the participants still make money?
This is the rule that everyone should observe. If there are no people joining as distributors, will the company saturate and close down?
These distributors should be able to make money through 2 means, selling the product and earning from incentives which is the compensation plan. Through the compensation plan, distributors will earn from the sales they generate from both distributors and non-distributors buying the products of the company. If the MLM company does not provide a way for the participant to earn money without the use of the compensation plan, then that means that the company is surely a pyramid scheme or ponzi scheme.
6. Is there a reasonable product return policy?
This is mostly what most network marketing companies do not have. They say that if they apply this rule, most likely, the company will incur loss of profit. This is due to the fact that when a distributor gets encoded to the organizational structure of the company as an independent distributor, they will be providing income for other distributors through the compensation plan. This is why most Network Marketing companies do not have this and it's simply because of that. In my opinion, I do believe that all Multi-Level Marketing companies should have a reasonable product return policy because when a product is bought and not used or damaged, there should be an option to return it since nothing happened to the product.
We should remember that distributors are joining because of the products and not because of the opportunity to earn through the compensation plan. Network marketing companies stating that they will incur loss because of refunds and product returns should not use that as an excuse to disregard this rule. If products are in good condition and are not used, they should allow distributors to return the products.
I can say that a lot of Network Marketing Companies fail to comply with this rule because of the statement "occurrence of loss of profits due to refunds". If that's their excuse, what about the distributors who lost money because they are not able to sell the products? But to be fair, the product return policy should be reasonable enough for both the company and the distributor.
7. Do products have fair market value?
What this simply means is that the products should be marketable and should be reasonably priced. A lot of people are always asking this question "Why are network marketing products so expensive compared to other products sold in stores?" Here are the answers to that question:
1. The company promotes exclusivity where distributors are the one's enjoying the benefits of discounts.
2. To buy these products at low costs, you should become a member of the company.
3. Most of the components used to create the product are quite expensive.
4. Network marketing companies are not like big companies that can provide massive amounts of products and due to that, production and manufacturing costs are very low compared to Network Marketing companies.
If a company sells a product at unreasonable prices and those products are really not worth it's value, then that company is most likely using products as a loophole to declare themselves a Network Marketing company even though their main goal is to promote their pyramid scheme.
8. Is there a compelling reason to buy?
Is the product something that you really need to buy? something you can really sell? something that you can consume or use? If it is not something that people need or something that's fit for reselling, then that company failed in this item.
I will be explaining the seventh item on another post because there are a lot of things we need to know regarding the term "fair market value".
0 comments:
Post a Comment