The Pressing Need of Defining the Fundamentals of The Direct Selling Industry
When a new domain emerges in the business world, so do its critiques and supporters. While supporters are knowledgeable about the field and have a positive experience with the new industry, critiques speak based on their negative experience. Facing this exact problem is the direct selling industry.
Majority of people in India and across the world have enlisted with a direct selling company at some point in their life. Of these, an overwhelming majority falls into the critiques camp while a few nimble souls lend their voice in favor of the industry.
Why Is There A Significant Difference Between the Two Camps?
The direct selling industry is over a century old (consider Avon, that was founded in 1886 by a bookseller David McConnell and is still going strong) and has a cumulative worldwide turnover of billions. Indeed, an industry this old and successful can't just be a fluke.
To answer this question for once and all Strategy India, a consultancy, studied multiple sustainable direct selling companies and MLM scams. It arrived at a single conclusion for this confusion - a lack of definitions regarding the fundamentals of the industry.
People who view the industry negatively today were enticed by pyramid schemes that promised them quick returns in a short time. Some of the prevalent scams across India include TVI Express, Speak Asia, The Saradha Group, The Anubhav Plantation Scam and one of the latest to join the list is Social Trade Biz. If people had been aware of what a legit direct selling business is, they would have never listed with pyramid or money circulation schemes in the first place.
Ponzi scams further add to the confusion.
The advocates of pyramid schemes and unviable/unsustainable models justify their businesses by employing the terminologies of sustainable direct selling models. They use them as a shield to hide the illegal activities undertaken by them. Even the attorneys of fraudulent businesses use these terminologies to confuse the Media, the Court, and the plaintiffs and drag the legal proceedings further. Having a well-defined set of definitions that are accepted worldwide will clear the confusion to a great extent and help the public to distinguish between the sustainable and the unstainable business models.
To help with the same, Strategy India has also analyzed and compiled a database that includes legit direct selling companies like Avon , Vestige , Amway, Oriflame, Modicare and Tupperware which deploy the Multilevel marketing compensation plans to compensate the direct sellers arranged in a multilevel generation in their marketing organization as well as more than 5200 entities who too implement the Multilevel Marketing compensation plans to pay the "direct sellers" (not really) arranged in a multilevel generation in their marketing organization.
1900 operations have been listed as Unviable/Unsustainable/ Deceptive operations within the first few months of their existence. It has not only helped as an early warning for the public but also helped sharpen the analytical edge of Strategy India.
These in-depth studies have helped Strategy India develop definitions which are rational.
How Does It Affect People?
However, how do a few definitions help people? Educating people regarding the fundamentals helps them in separating right from wrong.
Consider the definition of direct selling:
"The marketing and retailing of products to people in places other than fixed retail locations." It is primarily a B2C (Business to consumer) model and is also known as Direct sales, Network marketing, Referral marketing or Affiliate marketing.
What it Implies? Direct Selling involves products!
The first thing to determine as per the definition is whether the business is selling any products that bring value to consumers. "Product" refers to anything, goods or services, tangible or intangible that constitutes the subject of an intended direct selling transaction. Legit businesses like Amway, Tupperware, and Avon sell products that are of use to consumers. These may be cosmetics, health supplement, or from another category.
Unviable business models, on the other hand, don't sell anything or sell something which does not have any use in the real world by the people who invest in them. E.g., Speak Asia promoted surveys, and Social Trade Biz promoted fake likes.
Their concept is clear and like a bubble which will sustain till they keep getting new investors so that they can use the inflow to pay off the earlier ones.
Had people been aware regarding the fact that only legit companies offered salable products with good quality, at the right price, and with a satisfaction guarantee, false promises would not have lured them?
Therefore, the need for the RIGHT and ACCURATE definitions was always there.
How does it challenge the sustainable direct selling companies?
Lack of information affects people as well as direct selling companies.
Pessimistic Attitude of People
Once bitten twice shy! Scammed people are not keen on giving direct selling another try. They believe that direct selling and a Ponzi scheme are same, and this brings a bad name for legit direct selling companies and threatens their reputation.
Lack of Awareness among Direct Sellers
A big challenge for direct selling company comes from within - the enrolled direct sellers.
Direct sellers, knowingly or unknowingly, engage in malpractices that bring a bad name to the company. A leading direct selling company in India had to bear the brunt due to malpractices of its direct sellers.
In Andhra Pradesh and Kerala petitions were filed against the company and the individuals associated with it in the years of 2006, 2011, 2013 and 2014 leading to arrests.
Front loading is another issue, wherein the existing direct sellers encourage new direct sellers, termed as prospects, to buy products in bulk. Direct selling company utilizes the services of self-employed individuals known as direct sellers to recommend and retail products.
New direct sellers have surplus products that they cannot sell, leaving them disgruntled and turning them into a critique of the company and the industry. Direct Sellers may use the products, but they are not required to stockpile them.
What most direct sellers and consumers do not know is that the guidelines published by the Ministry of Consumer Affairs in 2016 require every company to guarantee a money-back period for returning products. Being aware of such rules can be beneficial to the direct sellers and the consumers.
Another detrimental practice is promising significant returns while enrolling prospects. The FTC in 1979 had found that one of the direct selling company was exaggerating incomes and was asked to stop misstating facts. The company violated the ruling in 1986 and had to pay $100,000 in fines. Misrepresentation raises the expectations of new direct sellers from the industry. However, when they do not get results as per their expectations, they quit and start criticizing the company and the industry. Direct Selling, like any other business, demands learning, patience, and dedication.
Besides inflating returns, direct sellers also exaggerate products. Moreover, only one company is not the only one suffering. Direct selling companies like Forever living Products, Vemma and Herbalife (also being probed by Federal Trade Commission or FTC) are facing the consequences.
What is the Solution?
The solution to all the above issues - educating all people involved regarding the fundamentals of the industry. The end consumer when made aware of the fundamentals of the industry will know right from wrong and will be harder to mislead. The direct sellers once aware of the difference between ethical practices and wrong ones will manage their businesses better, shining them in a positive light.
Had efforts been made beforehand to outline the defining fundamentals of the direct selling industry, all the scenarios and embarrassment mentioned previously could have been avoided. Hard earned money of millions of people could have been saved and the image of industry established and maintained.
Direct Selling is a legit business and a low-cost entrepreneurship opportunity for every individual. The market has been overwhelmed by a series of scams which charade around as legit direct selling companies and exploit people. The only way to tackle them is to create awareness.
Strategy India has taken up the endeavor and is on a mission to educate the masses so that they can easily distinguish between the ethical and unethical. Going through the guidelines formulated by the government and following the recommendations from Strategy India can make people aware of the truth. The direct selling guidelines have been developed after thorough analysis, using case studies and with inputs from leading analyst is on the board of Strategy India. Formulation alone will not help, making people aware regarding these is what will help dispel the ignorance and desperation. Moreover, Strategy India is striving for that.
After all, education is the only way to preserve the interest of the common man.