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All that glitters is not gold in network marketing


Parul Malik,CNN-IBN
Feb 26, 2008 at 11:35am IST

Software professional A V S Satyanarayana changed gears to become an Amway distributor only to realise he could not steer his life anymore. “What they publicise and talk inside are completely different. It is very much illegal. You can’t force your consumer to buy certain things and you can't force another consumer to utilise these things,” says Satyanarayana.

When his family life started to come apart Satyanarayana opted out but not before filing a FIR against Amway India Enterprises with the CID in Hyderabad. “I expressed my unwillingness to continue in the scheme and inability to enroll other member. They approached my family members and office subordinates and started to harass them to join in the scheme on my behalf,” says Satyanarayana.

“Amway confuses distributor as consumer, consumer as distributor. If consumer raises his voice and says this product is costly and suddenly they say you are a distributor you can't talk and if you go as a distributor say you need low prices,” Satyanarayana.

Loss or gain

A CNN-IBN investigation sought to find out the truth about multi-level marketing. It met a couple whose children sank their retirement benefits into network marketing. Dr Umamaheshwar Rao, a retired scientist, and his wife were initially supportive of their children's venture.

“For over five or six years they were into the business. I went along with them supported them in every way financially, physically and morally, but in the end it was found to be a losing game by themselves,” says Rao.

The expenditure was guaranteed but not the income. “The net result is a loss. The sales were less and the money spent in the game was more.” The family lost several lakh rupees even as their children drifted away.

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“It ruined our inter-personal relationships. People were cult controlled in immeasurable ways,” says Rao, who has filed a public interest litigation (PIL) for action against Amway.

In Percherla village, in Andhra Pradesh's Guntur district, the CNN-IBN investigation met more families who accuse network marketing companies of exploiting their ignorance and illiteracy.

Anasuya is a tailor. She has been dealing with angry neighbours ever since she got them to join the network-marketing scheme of Pearls Agrotech Corporation. “They told me pay Rs 1,365 per annum and after five and half year you will get Rs 10,900,” says Anasuya.

“The agent pursued me and said if I get 10 members I will be paid more commission. They were even promised plots of land as payment. They gave bonds in which there is no money but a plot I don't know where this plot is,” alleges Anasuya.

People from Percherla have been duped into shelling out almost Rs 20 lakh for land that only exists on paper. In Ramadevi's case after this dud investment, her husband just walked out on her.

“The money I paid was without the consent of my husband that led to problems. My husband left home,” says Ramadevi.

When contacted Pearls Agrotech refused to comment.

The recipe for success

Like Indian companies, Amway has also found its way into the villages of Andhra Pradesh. Brammiah Addanki wanted to do better in life, and was told that by joining Amway he could achieve his dream of owning a concrete house.

Brahmiah and his wife earned just Rs 4,000 a month and they poured all of that to become Amway distributors. “They promised my wife air tickets. She was told to enroll more persons to earn her commission. We were also told these products would earn us a lot of money,” says Brahmiah.

They spent thousands on enrolling members and stockpiling products… including items they didn't even need. Till they realised that buying was easier than selling.

“Out of Rs 20,000 I only recovered Rs 5,000. We had to consume most of it ourselves because these items are too expensive for others in the village. We put our savings into this. We borrowed money, now we are in debt,” says Brammiah.

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Gajulapeta in Ibrahimpatnam is full of families who have lost money chasing the promises held out by network marketing firms.

Baali, a daily labourer earning Rs 50 a day, mortgaged her house hoping to become a successful Amway Business Owner. “When they met me, they said it's a great opportunity to earn money. I didn't have spare money then, so I raised it by mortgaging my house,” says Baali.

“First I paid Rs 5,000, then Rs 2000 and then Rs 2000 again. Like this I paid Rs 50,000 borrowing on interest,” says Baali.

“Companies create a rosy picture saying you should become a member of multi-level marketing and you will get many things. They say you will get health as well as wealth,” says Divakar Babu, of the Consumer Guidance Society.

Baali, like most women in Gajulapeta, got none. She curses herself for not being able to look beyond the gloss. CNN-IBN then approached the woman who introduced Amway and roped in all her neighbors to do network marketing in this small village.

B Lakshmi didn’t know about the risks of network marketing and enthusiastically made a down line of 30 people. “They said it depends upon the number of people I can convince to join. I was told I could earn up to Rs 50,000 a month. I would start with Rs 5000 and by the end of one year it would be Rs 50,000,” says Lakshmi

To sail the seven seas, she even borrowed from micro finance schemes. Lakshmi and her husband's story will never make it to these brochures her husband is livid and the neighbors unforgiving…

When asked how they chose their distributors, in a written response, Amway admitted that no minimum educational qualifications were required. Self-belief and a strong desire to succeed in the long term was needed in the business, the company said.

Amway Response:

"The Direct Selling Industry does not "impose" any minimum desirable educational qualification"

"For distributors, self belief and a strong desire to succeed with a long term business perspective is needed"

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