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A dubious marketing idea

A dubious marketing idea
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First Published: Sun, May 29 2011. 09 10 PM IST
Updated: Sun, May 29 2011. 09 10 PM IST
There is a stench of something rotten that refuses to go away from the word multi-level marketing (MLM), however much the firms that work in the space try to spray their expensive air fresheners. The latest controversy breaks over a Singapore-based firm Speak Asia that recruited almost two million Indians and earned $80.5 million (Rs 360 crore) in its first year of collecting money in India. New entrants into the business have to pay Rs 11,000 for a year’s subscription to an E-zine and then can earn half a lakh a year by filling online surveys. They can also earn by getting more members. With no visible client list and the discomfort of dealing with a firm with no legal presence in India, the firm is battling accusations of being a pyramid scheme.
The story has got us to ask the question: is MLM the same as a pyramid scheme and, therefore, a fraud? The question, fortunately, has been answered in courts of law in other countries and the broad view is this: network marketing or getting individuals to sell products for a commission is a legitimate business because there is a product that is being exchanged for money and if some people choose to pay three times the amount for a liquid that cleans bathrooms brighter surely it is their problem. In a pyramid scheme, or fraud, it is opportunity to recruit that is the product itself and the intent is to defraud people of money. This recruitment is often cloaked in absurd pieces of work that a person has to do to earn supernormal wages for it. For example, filling online survey forms. Such schemes need large initial fees to sign up, have income flow that depend on getting new members and have no clear trade-off between good or service offered and price paid.
Though pyramid schemes are frauds and most MLM businesses are not, the lack of regulatory clarity makes both suspect. It would need the coordinated efforts of several regulators and ministries to put a sensible road map in place to deal with the often-amorphous businesses being run in the country. Also it must be remembered that the best regulation in the world cannot build a dam around greed. If some people are willing to believe in glitzy ads and don’t ask basic questions on how filling an online form will make you rich, then surely the problem is theirs for being gullible. And they must suffer the consequences themselves. But the rest of us will have to accept that relatives nudging us at every family do with overpriced washing gels mostly do run a legitimate business, as it is defined today.
MLM and Ponzi schemes: dangerous similarities? Tell us at views@livemint.com
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First Published: Sun, May 29 2011. 09 10 PM IST