Negative / Special Product List – Eye Opener - (Suggested to the government by Strategy India in 2013 / 2014)
The direct selling industry is growing exponentially in India and across the world. Direct selling companies are engaged in a business model wherein they market and sell products manufactured by them or others to the customers via a network of independent contractors commonly known as the "direct sellers".
While direct selling companies may sell most products and services, there are a few items they should not be "selling" or should sell while adhering to a few specified conditions.
Strategy India, a consultancy specializing in direct selling, has developed a negative product list containing items that direct-selling companies should not sell and a list of things that direct-selling companies can promote conditionally.
What prompted the development of a Negative Product List?
Strategy India ardently studies the direct selling industry in India and evaluates 20 new MLM operations every week. Their analysis has shed light on a few interesting facts. Many companies engage in scams under the guise of direct selling. These entities often have unsustainable business models or provide misleading website information.
A comprehensive list of MLM scam alerts can be found on the official website of Strategy India.
The team of Strategy India developed the negative products list in 2013 after a thorough analysis. The research provides a few fascinating insights into the characteristics of the adverse products.
- MLM operations use items on the negative products list to cheat the commoner.
- These products have no intrinsic value. They are useless to the customers and are meant to confuse the common man, media, law enforcement agencies and the court by masquerading as direct selling businesses. The MLM entities promoting the negative products try to evade the law by disguising themselves as Sustainable Direct Selling operations and Deploying MLM Compensation Plans.
The special products list was added by Strategy India in early 2014, considering that many companies were promoting products / services that were worthless tokens for most individuals purchasing them.
An example of this is a farmer's wife who had no access to the internet, computer or mobile but purchased five packages of online training courses that taught Excel and Word. She was misled into the purchase by promises of a commission on every package she bought or promoted to others.
In another incident, a college student from Bengaluru broke down into tears while urging Strategy India's team members to devise a solution that would stop pyramid scams masquerading as ethical direct selling companies. The student in concern was arrested by the police under the PCMC (B) Act 1978 / Prize Chits and Money Circulation (Banning) Act 1978 because he promoted online training programs to multiple individuals. His career was over before it even started.
A company from Chennai was selling holiday coupons at ₹5000 after purchasing them at just ₹120 from an agency. Moreover, the company imposed a preposterous condition that any couple wishing to utilise the coupons had to pay an additional administrative/service fee of ₹750 months in advance and an application listing at least three likely destinations.
The company considered the probability that 99% of people would not avail of the coupons because of unfriendly terms and conditions. It would allow the company to make significant profits and increase its turnover as the payout was higher for holiday coupons and vouchers sold.
Strategy India devised lists to make it easy for ordinary people and direct sellers to identify the pyramid schemes and ensure they were not cheated or misled.
Why should the companies prohibited / restricted from selling a few products / services?
Companies should be prohibited from selling a few products or services for multiple reasons.
- Worthless Products / Services – Some companies sell products at exorbitant prices. Customers might not have bought the products at such high rates if they were not associated with the business opportunity. The overpriced products are used to masquerade as a legitimate direct-selling MLM operation and prevent it from being classified as an investment scheme.
- The Requirement of Specialized Licenses – A company may require specific licenses for selling a few products or services like insurance policies, etc.
- Products / Services Prohibited by Law (except if registered with SEBI as a CIS) – A few products or services companies are prohibited from selling by law. These include deposits or investments in farming (animal and horticulture), real estate, etc.
What is the Negative Product List?
Strategy India defines a "Negative product list," which is the list of products / services not to be promoted by the company deploying a direct/single level / multilevel marketing compensation plan.
The following items are included in the negative product list:
- Deposits / Investments / Offered for free along with other products/services - in/for/in the form of or trading in:
- Initial Public Offering
- Initial coin offerings
- Regulated / Unregulated and regulated Currencies / Tokens including Virtual Digital currencies including but not limited to Crypto tokens (wrongly referred to as "Cryptocurrencies")
- Bullion markets
- Preferential shares
- Infrastructure projects
- Trading in commodities
- Birds (Poultry, Emu, Quail, etc.)
- Livestock (Rabbit, Goat, Sheep, Cow, Buffalo, etc.)
- Media, Car Lease and Real Estate
- Crowdfunding ventures
- Discount coupons / Vouchers / Currency / Tokens
- Betting / Gambling activities
- Non-fungible tokens
- Fantasy games and tokens / in-game currency
- Estate (online / offline)
- Any equipment generating or claiming to generate tokens
- Promote Quiz portals
- Promote Recharge portals as a product.
- Promote Peer-to-peer transactions in any names such as Support, Gift, Help, Assistance, Donations, etc.
- Promote Bid coupons / Vouchers / Tokens.
- Promote Websites / Web space / Bidding portals.
- Promote the concept of buy-in to get paid - to click, give surveys, watch advertisements, and receive.
- SMS, to receive emails, and to invest in an advertising medium.
- Promote Any illegal products.
- Promote any online / physical – live / recorded training / coaching / literature for generating tokens / currencies.
- Promote trading signals on any platform, including messaging applications.
What is the Special Product List?
As per Strategy India – "Special product list" is the list of products/services which may be promoted along with the conditions mentioned along with them.
Items belonging to the special product lists include:
- Gift Vouchers / Coupons – Operations deploying the MLM compensation plans should promote gift vouchers and coupons with the condition that the participants should only be compensated when the customer utilizes the coupons (fully) and not when they are sold.
- Discount Vouchers / Promissory notes – The participants who have sold the discount vouchers or coupons should be compensated only after the buyer(fully) utilizes them.
- Insurance – The operations and the participants should obtain special licenses from IRDAI if they promote insurance or insurance-related products or services.
- Online Products, including training (live and pre-recorded) – Direct selling companies should only promote products and services online if they have a money-back guarantee of a minimum of 30 days from the date of activation by the customer.
- Holiday / Timeshares Coupons / Vouchers / Packages – The operations should market and sell Holiday packages and vouchers if participants receive compensation once the buyer has fully redeemed the same.
What if the companies deploying the MLM compensation plans sell prohibited products?
Any operation deploying the MLM compensation plan selling prohibited products or services should be booked under the PCMC (B)Act, 1978, BUDSA, 2019 or relevant laws in force.