Remember the game where one player comes up with a word and another has to respond with what immediately comes to mind? Well, today, the term ‘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, in the last year, been in the eye of a storm.
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. This is just an alternative distribution model that some companies use to sell products.
While a Hindustan Unilever or a Colgate may market 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 set of the company’s products (starter kit), which they sell to others for a commission. Besides, they are 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 products sold by them.
As long as the company is making money selling its products through 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 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.
Bottomline
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 neighbourhood MLM agent gives you her sales pitch.