ibnlive » Business

Feb 26, 2008 at 11:36am IST

Multi-Level Marketing means multitude of woes

New Delhi: Multi-Level Marketing (MLM) comes to your locality selling Product X. You join as a distributor. So does you neighbour and your neighbour's neighbour.

What happens next? The area is soon flooded with Product X. You run out of buyers, and are stuck with a pile of unsold goods. In multi-level marketing a few people do make money, but only at the expense of many who do not.

Today, Shivaiah watches marketing opportunities with skepticism. He has been in and out of many Multi-Level Marketing companies.

"I joined Quantum. After that it was Amway, after that Free-India, then Mother India and Modicare India," he counts off his fingers.

The sales pitch had him hooked he says.

Shivaiah says, "Aap kahreed lo, bas woh business ho jaata. Aap member bano baad me, aap paanch member ko, dus member ko, waisa mein mahina ka ek enroll kerte hue to, aapka net failta rehta hai, aapka income aate rehta hai, bolke bol diya." ("Keep buying and keep making business. You become a member and then enroll five to ten more members a month. That way the net keeps spreading and your income keeps coming in. That's what they told me.")

Many memberships and seminars later, all Shivaiah managed was to lose Rs 3 lakh. Soon the people he enrolled were competing with him.

He says, "Mera downline poora ismein ghus gaya. Mujhko maloom nahin. Koi khareed rahe hain, koi join, enroll nahin ker rahe hain. Kya bole. Mujhe to baad me mujhko samajh mein aaya." ("My entire downline jumped into this. I realised this far too late.")

Today, Shivaiah publishes pamphlets to expose the flaws in network marketing. He wants people to learn from his mistakes.

In theory this is how the popular 9-6-3 formula of Multi-Level-Marketing is supposed to work.

First you enroll as a distributor. Then you enroll nine members. They then sign up six people each. These 54 persons then enroll three persons each, resulting in a chain or pyramid of 226 people.


The incentive are the commissions from the sales generated by those you recruit. But what really happens? With everyone trying to enroll members, the market is soon saturated.

Retired Scientist, Dr R Umamaheswara Rao says, "The whole country is not my market so my circle is through my friends and more friends. How far can this circle continue? So if somebody is also operating, don't these circles interfere?

And you still have to shop for at least Rs 1,500 to 2,000 every month to stay alive in the chain. So even as you struggle to enroll members and earn commissions, the MLM Company has ensured that you do remain a captive buyer!

Often, consumers are only given invoices instead of bills for their purchases, making it harder to seek redressal.

Lawyer Consumer Guidance Society, Divakar Babu says, "Without a bill, you cannot address your grievance in the court."

In fact, those who buy network marketing products cannot even appeal to the Consumer Forum because chain selling actually turns him into a distributor.

A lab analysis of some Amway products has thrown up damning results. A report from the Andhra State Food Laboratory shows that these dietary supplements do not contain all that they promise.

Divakar Babu says, "This tiny bottle contains 100 tablets, which the company is selling for Rs 2,369. This product was found to be misbranded in analysis in the state food laboratory."

Calling them dietary supplements saves the company from tough regulation laws.

Divaker Babu says, "When a product is labeled as a dietary supplement then it neither comes under the category of food nor under the category of drugs and that is how they are evading the regulatory mechanism."

What do these dietary supplements contain? The consumer doesn't know. What do these complex payout plans mean? Most distributors don't know. How many hopefuls recover their investment, let alone make a profit? And how accountable is the networking firm? No one is sure!

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