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Sep, 07 2011

Beware of Predators!

Earning from the comfort of home is enough to attract any entrepreneur to invest in a reliable direct selling company through MLM (multi-level marketing model). However, this concept is not free from challenges, but they can be tamed with precautionary st

Multi-level marketing (MLM), comparatively a new concept, has shown tremendous development in the past few years with the foray of many international direct selling companies in India. Let's first dwell upon the need of direct sellers in India.

The concept of selling directly to consumers without the assistance of middlemen and retail outlets is called direct selling. According to a recent survey by Ernst & Young and an ICRIER report, direct selling industry, which entered India in the early 1990s, is now a thriving industry of over Rs 4,120 crore. As shared by Chavi Hemanth, Secretary General, IDSA: “Direct selling, a 14-year-old industry in India, has a potential to become the key driver of entrepreneurial opportunity in the country, given the low-cost of entry and the potential for high return on investment.”

On the other hand as informed by Hina Nagarajan, Country Manager, Mary Kay India: “There have been many fly-by-night direct selling companies in the past that have spread negativity about MLM in India. This affects the smooth operations of ethical direct selling companies like us, but the impact doesn't really lasts long.” Let us have a look at various shortcomings in the MLM model.

Shortcomings of MLM model

The concept of MLM has proved to be quite beneficial in the direct selling industry. It has helped many to attain a lot of success and money. Nevertheless, many entrepreneurs have also tasted failure and loss with this model. Like any other business opportunity, MLM model, too, has its own flaws. Most distributors enter the field of direct selling with enthusiasm and dreams to become rich and successful. However, it is seldom that these dreamy distributors reach to the apex that was shared with them by their recruiters. Let us have a look at various shortcomings in MLM model of direct selling:

Concept based on others' success: MLM model in direct selling is based on the success of others. It includes duplicating the same activities in his network, in which every individual shares the income as per the strength of his network. If a distributor has 10 persons working for him then he will make profit from the earnings of all of them. Therefore, as a person goes up the ladder, his inputs in the company lessen, as he makes money from the hardwork of his downlines.

Taking it easy: Many distributors take the package and become downlines, believing that there is no hard work needed to make money. This is wrong. In MLM model, recruiters try to draw more people to work for them by giving false hopes and high aspirations. If any presenter claims that the product sells itself or that money will come overnight simply by purchasing a starter kit, he is surely luring others to take the plan. Any work that promises money needs a lot of dedication and time.

Earn as per the structure: Early beginners are most favoured in this structure. Mostly in MLM, a downline of people is created that appears in the shape of a pyramid. These distributors get paid according to the multi-level structure, in which heavy rewards are always for agents, who are at the top of the pyramid. The payments become less for those who are at the bottom of this pyramid.

Sell idea rather than products: Due to its pyramid structure, MLM lays more stress on selling a plan or an idea to others rather than selling company products. The distributors also aim to recruit more people to work for them. Therefore, at times it may happen that the quality of products may deteriorate due to its secondary place in the company. However, a good MLM programme always focuses on product sales. It is good to develop a large group of recruits, but the aim is selling products, not recruitments. Regarding this,

William S Pinckney, Managing Director and CEO, Amway India shares: “Fraud companies have no commercially viable products to offer. They thrive only on recruitment of new members.”

High saturation:  Any MLM scheme has a limited popularity time. It reaches its saturation more rapidly than other businesses. The aim of making a long chain of sponsors, who in turn look for their growth by adding more to this chain leads to saturation of the market. In MLM, the supply becomes more than the demand for products of the direct selling company. However, Marcus Sandstorm, MD, Oriflame India opines: “As far as Oriflame is concerned, we have had a fantastic journey in India. Recently, we completed 15 successful years and look forward to many more. Oriflame was the first direct selling company to enter India. We have grown with high double digits year–on-year.”

Personal relationships at stake: MLM, also known as relationship marketing, may hamper personal relationships. The reason being agent of the MLM direct selling brand always looks at other people as his potential downlines. The agent always has business on his mind, whether guests come to his house or he visits any relatives. In the initial stages, relatives may listen patiently, but later it may lead to one-track conversation about luring relatives/friends to join the scheme.

Loss of credibility: MLM schemes are based on high hopes and big dreams, which seldom turn to reality for most distributors. A distributor/agent may make promises of great wealth, freedom from hard work etc, to his potential clients, but if these are not met then he may loose his credibility with relatives, friends or colleagues.

Eye-opener

Despite the challenges, MLM concept in direct selling industry has surely benefited a large number of investors. Any individual who wants to work from home by investing in direct selling company needs to keep his eyes open and research well about the brand before joining. As shared by Pinckney: “Direct selling is growing in leaps and bounds and this has brought its own baggage in the form of unscrupulous and fraud money circulation schemes.”

Therefore, any aspiring distributor needs to know the history of the direct selling brand first. Instead of investing in a new company that promises big money in short duration, distributors should always go for well-established companies with a good-track record. Moreover, it's important to gather knowledge about products being offered by the brand. A few companies thrive only on recruiting people, but have nothing to offer in their products. Besides, fraud companies keep over-priced products, which don't match their value or use. Where as, reputed brands always encourage product selling, priced as per the value of products. Another major difference between a reputed and a fraud company is in the initial cost of taking its membership. Genuine brands always have low initial investment, however, fraud companies keep their initial cost high. Nagarajan informs: “Starting a Mary Kay independent business as an independent beauty consultant costs Rs 750 for a starter kit, which has basic products and educational material.” She further adds:  To sum up, it can be said that aspirants, who wish to take up the direct selling MLM opportunity should check a few differentiators between genuine opportunities and the “me too” companies, to safeguard their own interest and to make sure they are getting into a genuine opportunity.

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