This question has always been asked by those people who are reluctant to start with Network Marketing or Multi-Level Marketing (MLM) because of the negative views of other individuals regarding this industry especially here in the Philippines. When people ask "networking ba yan? networker ka ba?", and when we answer "yes networking ito" or "yes networker ako", they will say "Scam yan eh" or "Scammer ka pala". This kind of thinking was brought about due to the number of scams that arose for the past few years due to Network Marketing companies who have stopped paying its members. When I ask these people why they think Network Marketing is a scam, they always say because it's just a pyramid scheme or it's recruitment based earning. In this post, I will differentiate these two to provide a clear view whether a company provide a pyramid scheme opportunity or not.
Summary:
Para sa akin, hindi lahat ng network marketing companies ay pyramid scheme or ponzi scheme. Nasa member manggagaling kung paano ba nila winowork out ang business pero kung ang company ay walang tangible product na inoffer at hindi pwedeng maibenta ito, ang company ay sure na pyramid or ponzi scheme.
Network Marketing or Multi-Level Marketing (MLM)
Network Marketing or Multi-Level Marketing is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of the other salespeople that they recruit. This means that when you join an MLM company, you will be given products to sell and if you can get other people to sell your products, you will also earn as an incentive for advertising the company. There are 3 roles a network marketer can take part of:
1. Seller / User - Focused on product sales or usage of products.
2. Recruiter / Advertiser - Using the incentive as an earning opportunity, these people will just recruit and advertise in order for them to earn money.
3. Leader / Trainer - This person creates an organization that he will manage. He will train the people he invites into his organization on how to conduct the business, sell the products and guide them towards attaining their goals in Network Marketing.
The negative aspect here in these roles is if you are a recruiter / advertiser because you don't care about the products and your invites. You just joined the company to take advantage of the referral commissions you will get for advertising and inviting people to join the company. If you are this kind of Network Marketer, then any company you are promoting will be considered a Pyramid Scheme because you are not focused on product sales and you are only promoting the incentive of earning money through recruitment.
A leader is different from a recruiter because of how they manage their organization. A leader focuses on building his team of professional networkers and this is done by teaching, training and guiding them towards how to conduct the business properly. It won't be about recruitment only which a recruiter will mainly focus on.
Recruiters will just say that you can get a lot of money in joining the company. They will not explain what they need to do and how easy or hard the task will be because they just want them to join in order to earn.
Pyramid Scheme / Ponzi Scheme
A pyramid scheme is an unsustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public. This means that when you join a company and it focuses mainly on getting people to join the company without any products in return, this is a sure Ponzi scheme. If ever the company has products, it needs to be tangible and these products should be fit for resale.
Why are most network marketing companies considered a Pyramid Scheme / Ponzi scheme?
This is mainly because of how its distributors advertise the company and its opportunities. If a company is filled with recruiters instead of sellers and leaders, the image of the company and its opportunities provided then becomes that of a Pyramid Scheme / Ponzi scheme. This is because people will view it as a recruitment scheme in which people won't need to sell the products and that they need to invite in order to earn.
Why do most people say that Network Marketing is a scam?
This is what most think about the MLM industry due to the following reasons:
1. They have been scammed by a Network Marketing company because the company stopped providing payouts or they are not delivering products bought by the distributor.
2. They have been tricked by a distributor who invited them and promised them that they will earn big easily through the opportunities provided by the company.
3. They have read a lot of scams and negative views about Network Marketing and since a lot of people are saying negative things about the industry, they believe that it's true.
4. They think that they know everything about Network Marketing because they are professionals and that they say that it's common sense that if a company pays a distributor due to recruitment of another distributor, then it is most likely a pyramiding scheme
5. They say that the companies have not passed the Direct Selling Association of The Philippines 8-point test.
6. They think that people who are not educated and ignorant are mostly the people gaining profits in Network Marketing due to fake promises, duping and trickery.
This is the DSAP 8-point Test
How to differentiate a legitimate direct selling company from pyramiding using the 8-point Test
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1. Is there a product?
2. Are commissions paid on sale of products and not on registration/entry fees?
3. Is the intent to sell a product not a position?
4. Is there no direct correlation between the number of recruits and compensation?
5. If recruitment were to be stopped today, will the participants still make money?
6. Is there a reasonable product return policy?
7. Do products have fair market value?
8. Is there a compelling reason to buy?
If the answer to all the questions is YES, then the company being evaluated is a legitimate company. But if the answer is NO, then there is a high probability that it is a pyramid scam.
As what they have stated, it says that if a company does not pass this, it has a HIGH PROBABILITY that it is a pyramiding scheme or a ponzi scheme but it does not state that ALL companies that don't pass this are ALL pyramiding schemes or a ponzi schemes.
I will be posting something about the DSAP 8 point test on how to identify if a company is really a pyramiding scheme or not.
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