Two Sides Of A Coin: All You Need To Know About Multi-Level Marketing In India

India is a country of more than 1.21 billion people, and therefore, it is difficult for governments to monitor and track the movement and preferences of every individual. Similarly, both public and private companies face a hard time understanding the customer's preferences, primarily because of the diversity in India's population. Therefore, companies run several brand and marketing campaigns to customise their products and services to the needs of a selected audience from every region. However, the companies, especially in the last two decades, have opted for different marketing approaches apart from various marketing strategies.

What Is Multi-Level Marketing?

Multi-level Marketing, direct marketing or network marketing is a technique in which individual salespeople directly touch the consumers. Companies lure recruits by baiting them with incentives and overnight wealth. Even though it is not illegal, several companies that adopt MLM methods become fraudulent through their confusing pyramid schemes.

To understand MLM, one must assume that they opened a company and recruited five individuals. Each of those five individuals recruits five new employees, and the cycle continues. It encourages existing members to bring in new members. Moreover, the current members are paid a specific percentage of the sales made by the recruits. Since members at every level receive compensation, if there are more layers, there would be more money. The technique is heavily used by those companies that depend on incurring more revenue through their sales.

The concept of MLM has often been debated because as the number of layers increases, the members on the top get paid irrespective of their work. Therefore, it is often contested that top-level members are earning through the sales of the workers at the base of the hierarchy. Moreover, the company's top management often forced the distributors to hoard the stock in to hope that the demand would increase in the future.

Therefore, one of the critical aspects of an MLM company complying with legal guidelines is the famous 70 per cent rule. The rule states that 70 per cent of all sales must be to non-distributors of the company.

Examples Of MLM Companies

Amway is the most recent example of an MLM company that uses its direct network to earn revenue through sales worldwide. The 'independent business owners' reported revenue of $8.8 billion in 2018 by selling its homecare, beauty and healthcare products. On a similar line, Herbalife Nutrition is yet another example of a high-profile MLM company which sells weight loss and health supplements. However, there have been multiple lawsuits against Herbalife Nutrition for misrepresenting its sales practices, and it had to reach a settlement with Federal Trade Commission and restructure its business.

On the other hand, some might argue that MLM allows flexibility of work to people. The agents and distributors do not have fixed working hours or specific goals to cover, and they could reach out to their customers via any medium. There is no essential business cost required to get started, and those who join the network start with the prospects of getting rich quickly. Employees tend to be self-driven since each person works for themselves and earns the number of sales they can generate. Moreover, in a country like India, which is home to one of the youngest populations in the world, the advent of MLM companies opened doors for employment.

Amway India provided direct and indirect employment to over 2,500 people. As per Fundera, one in 13 people has worked in network marketing globally. However, at least 50 per cent of MLM participants drop out after a year, and 25 per cent of those in distributors can turn around a profit. Wellness, cosmetics and personal care are the top category products that use MLM. However, often customers argue that the products are exorbitantly priced. For instance, hundreds of Amway customers claim that their products are way pricier than those of the competitors, which offer the same quality.

One of the most contended questions concerning network marketing companies is their difference from a Ponzi scheme. Ponzi schemes require fraudulent investing. Early investors can turn a profit only by accepting new investments. Therefore, newer investors would only make money if they widened their networks and pulled more people into the loop. Many people, especially new investors, lose their money when no more people join. In a Ponzi scheme, it's typical for only the original backers and investors to get repaid or reap a profit.

Indian Government's Move To Safeguard Citizens

Therefore, in 2021, the Government of India took the tough call of banning direct selling companies from promoting the pyramid and money circulation schemes, The Economic Times reported. It brought out new rules for the industry to separate legitimate players like Amway, Tupperware and Oriflame from Ponzi scheme operators. According to the Ministry of Consumer Affairs, food and public distribution, "Direct selling entity and a direct seller shall not induce consumers to purchase based upon the representation that they can reduce or recover the price by referring prospective customers to the direct sellers for similar purchases".

While the government took the step to protect its citizens from imminent frauds that might arise due to the controversial nature of marketing, however, is banning the business model the only alternative? India is a growing economy and needs as much revenue generation as possible, especially when the economy is still reviving from the pandemic effect. While some might argue that it provides a safety bubble to the customers, others might contend that it snatches off the possibility of employment.

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