Negative / Special Product List – Eye Opener
Direct selling industry is growing exponentially in India and across the world. The direct selling companies are engaged in a business model wherein they market and sell products manufactured by them or another company to the customers via direct sellers.
While most products and services may be sold by direct selling companies, there are a few items that they should not be “selling” or should sell while adhering to a few conditions specified.
Strategy India, a consultancy specializing in direct selling, has developed negative product list that contains items that should not be sold by direct selling companies and a select product list with things that direct selling companies can promote conditionally.
What Prompted the Development of Negative Product List?
Strategy India ardently studies the direct selling industry in India and evaluates 20 to 25 new MLM operations every week. Their analysis has shed light on a few interesting facts. Many companies engage in scams under the façade of direct selling.
These companies are either pyramid schemes whose business models fail sustainability checks or entities that have misleading information on their websites.
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 thorough analysis. The research conducted provides a few fascinating insights into the characteristics of the negative products.
- Items on the negative products list are used by MLM operations to cheat the common man.
- These products have no intrinsic value. They are of no use to the customers and are meant to confuse the common man, media, law enforcement agencies and the court by masquerading the pyramid scheme as a direct selling business.
- 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 which were worthless tokens for the majority of 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 team members of Strategy India to come up with a solution that would stop pyramid scams masquerading as ethical direct selling companies. The student in concern was arrested by the police under the P.C.M.C. (B) Act 1978 / Prize Chits and Money Circulation (Banning) Act 1978 because he was promoting the 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 utilize the coupons had to pay an additional administrative/service fee of ₹750 months in advance along with an application listing at least three likely destinations.
The company was considering the probability that 99% of people will not avail the coupons because of unfriendly terms and conditions. It would allow the company to make significant profits and increase their turnover as the payout was higher for holiday coupons and vouchers sold.
Strategy India devised the lists to make it easy for ordinary people and direct sellers to identify the pyramid schemes and ensure that they were not cheated or misled.
Why should the companies prohibited/restricted from selling a few products/services?
Companies should be prohibited or restricted from selling a few products or services because of 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 the company as a marketing organization 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 – There are a few products or services that companies are prohibited from selling by law. These include deposits or investments in farming (animal and horticulture), real estate, crowdfunding, etc.
What is the Negative Product List?
Strategy India defines – "Negative product list" is the list of products/services which are not to be promoted by the company deploying a Direct / Single level / Multilevel marketing compensation plan.
The following items are included in negative product list:
- Deposits/Investments – Direct selling companies are not financial institutions, and they should not hold deposits or investments on behalf of their customers or direct sellers.
- Crowdfunding ventures – Direct Selling companies should not engage in crowdfunding due to the risk of misappropriation of funds and lack of transparency.
- Discount coupons / Vouchers / Currency – Companies should not sell or promote discount coupons, vouchers, or currencies printed or generated by themselves since these have no real market value.
- Betting / Gambling activities – Companies should avoid betting and gambling activities due to lack of proper laws on gambling in India.
- Quiz portals – Quiz portals have no intrinsic value for the customers, and they might be coerced to purchase credits for such portals.
- Recharge portals – Recharge portals do not have real market value as they are free of charge applications that facilitate airtime recharges for prepaid mobiles, direct to home TV connections, etc.
- Peer to Peer transactions in any name such as Support, Gift, Help, Assistance, Donations, etc. should not be undertaken by companies as they are exploited to benefit the individuals running the show.
- Bid coupons/Vouchers – Bid coupons or vouchers carrying monetary value are equivalent to currency and therefore should not be promoted.
- Websites/Web space/Bidding portals – Promotion of websites and bidding portals should be discouraged as there is only a minuscule percentage of buyers who will benefit from these services in the age of Facebook, LinkedIn, etc.
- Buy in to get paid - to click, to give surveys, to watch advertisements, to receive SMS and to receive emails and to invest in advertising medium are not practical ways to earn money. Why would an advertiser pay a person for watching an advertisement or receiving a message if he is not a prospect?
- Products used for intoxication – Selling or promoting intoxicating products like alcohol via direct selling or other non-authorized channels should be avoided as maintaining a stock of these products requires various licenses and permissions.
- Tobacco based products – Harmful products should not be promoted by a business which is meant to bring people together.
- Any product, which exceeds its validity period/use by date/expiry date should not be sold to the customer as it poses a threat to health and well-being of the customer.
- Illegal Products – Companies including direct selling ones should refrain from selling or promoting illicit products or services.
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 – Direct Selling companies should promote gift vouchers and coupons with the condition that the direct sellers should only be compensated when the coupons are used by the customer and not when sold.
- Discount Vouchers/Coupons/Promissory notes – Direct sellers that have promoted discount vouchers or coupons should be paid the commission only after the buyer of the discount vouchers utilizes them.
- Insurance – The direct selling company and the direct sellers should obtain special licenses from IRDAI if they are going to promote insurance or insurance related products or services.
- Online Products – 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 of the products by the customer.
- Holiday/Timeshares Coupons/Vouchers/Packages – Holiday packages and vouchers should be marketed and sold by a direct selling company if commissions are paid to direct sellers once the coupons have been fully redeemed by the buyer.
What if the companies deploying the MLM compensation plans sell prohibited products?
Any direct selling company or direct sellers that sell prohibited products or services will face action under the P.C.M.C. (B)Act,1978 or relevant laws in force with lawsuits. It may lead to imprisoning of the directors, stakeholders, management and the top promoters (beneficiaries) of the company. The direct sellers and individuals associated with the company may face legal actions under relevant laws.