You surely heard about the MLM or Network Marketing Companies during your school, college or Job. Many of you even were or are part of such companies. And they also shown you dreams of big cars, Self-reliance, luxury lifestyle. But do you know most of these companies are fraud. And they target you to just earn money from you.
So, MLM stands for Multi Level Marketing. MLM also known as Referral Marketing, Network Marketing.
Even I was approached to join a MLM company name eBiz. In 2019, Police registered a case against it’s owners for cheating 17 lakh members and siphoning 5,000 crore.
Let’s know about MLM companies and how they work and fool people to earn money from them! Also know about Pyramid Scheme!
MLM or Network Marketing!
In a normal company, business work as, sellers to distributors and then distributors to consumers. But in fraud MLM companies, distributors are consumers. These companies fool the consumers by giving them title of distributors, but in reality they are consumers.
MLM company focus on recruiting more and more people rather than focusing on their products. These companies give temptations of commissions to distributors in exchange of adding more distributors to the company.
In MLM company, a person adds 2 people, and those two people add more two people and that carry on. This result into a pyramid type form in which owner is on the top with highest earning.
Who’s the real consumer? Answer for this is, the distributor who joins the company by purchasing some starter pack of the company or some services.
Strategy of MLMs to Earn Money!
All the MLM companies ask for some investment to become a distributor. And investment means to buying some starter pack of company or some services of company in the beginning. In this way sales happen normally and company earns without the expenses of Advertising etc. That’s how company converts its Distributors into Customers.
Distributors = Consumers
Target Groups of MLMs
Usually MLMs target unemployed people, college and school students, housewives. Unrealistic promises are made to these people, big dreams like cars, luxury lifestyle are woven to these people.
They manage to add more people through organizing seminars through which motivational speeches, life stories are told by high level distributors. People are asked to join earliest to earn commission through others. Due to peer pressure, many people join and get trapped in these companies.
Like MLM, pyramid schemes also work on the basis of adding more and more people with the company but the difference here is you need to pay some amount to become distributor. There is no products sale purchase in pyramid schemes. These schemes work on the basis of just adding people.
Basically, person need to recruit 2 or 3 people in pyramid schemes and he will get 10% commission per person. When these 2-3 persons will add more people, you will get 2% commission.
But problem in such schemes is you feel you are on top of pyramid but you are not! Around 95% persons lose money in such schemes.
Pyramid Schemes are illegal in India but MLMs are legal as product and services are involved in this.
Mostly MLM companies in India are running Pyramid schemes but they use product as disguise and to stay legal.
Fraudulent Features of MLM!
- In MLMs there is no need of education qualification, skills or screening process. On can join by just purchasing memberships or Starter packs.
- In MLM you get paid only when you recruit more people or sell company’s products.
- MLM’s products are overpriced most of the times as they need to pay commissions to their agents from selling products.
- Normal company earn its majority of money through selling products but MLMs earn through recruiting more & more people/distributors with the company.
- Participants of MLM usually distanced from family & friends and lose credibility in their friends.
- MLM Distributors usually lose their primary goal and stay behind in long run of life.
Due to MLMs many people went into debts, many unable to pay loans and most of them lose their investment money.
So all MLM companies are fraud? Almost every MLM company is fraud but some of them are also providing value to their customers. Examples of these are Tupperware, Amway etc.
So in simple words, Stay away from fraud MLMs!
Thank you for reading!