We use the following parameters to ascertain whether an entity is carrying on a scam or a genuine direct selling operation:
- Compensation plan - While looking at the kind of compensation plan, whether it is Direct / Single level / Multilevel, the prime concerns that a compensation plan can generate are in terms of:
- Aggregation (Cumulative/Non-Cumulative)
- Pay-out period(As it happens/Daily/Weekly/Monthly)
- Sustainability(Pyramid / Money circulation / Mathematical viability)
- Earning opportunity(Top- Heavy / Equal opportunity)
A compensation plan that promises fixed returns that cannot be met practically, in the long run, would indicate that the entity is carrying on an unviable business.
- Marketing organization - The determination of the number of Front line and generations of the marketing organization vis a vis. the commitment of pay-out distribution via the compensation plan helps in determining the viability of a business operation. Marketing organization based on Frontline can be Single-leg, Binary, Trinary, Matrix or Infinite and based on generations can be direct, single-level or Multilevel.
- Intentions to deceive - Intention to deceive is a reasonably subjective determination and is determined on an in-depth analysis of the activities and/or the information available in the public domain, the kind of the information supplied by it to the participants / investors / independent contractors, prospects, customers, consumers and the public in general, the marketing materials/official website it claims to sell/provide among other factors.
- Products / Service / Commitments - We also look at the products/services it sells/claims to sell and the nature of commitments it makes concerning the products on various levels.
- Adherence to law - Among various laws that a direct selling entity must comply with, we analyse whether the company follows the rules, especially, Direct Selling Guidelines 2016, Consumer Protection Act, 2019 and other allied laws in letter and spirit. This requires an in-depth analysis of their operations, business plans and other documents.
Many sustainable D/SL/MLM operations which do not comply with the direct selling guidelines 2016 are not listed. Many unsustainable D/SL/MLM operations listed on the ministry of consumer affairs website as a compliant to the direct selling guidelines 2016 are listed.