India is a country of over 1.21 billion people and hence it is difficult for governments to monitor and track every individual’s movements and preferences. Similarly, public and private companies find it difficult to understand customer preferences, mainly due to the diversity of Indian population. Therefore, companies launch several branding and marketing campaigns to personalize their products and services according to the needs of a selected audience in each region. However, companies, especially in the last two decades, have opted for different marketing approaches apart from various marketing strategies.

What is Multilevel Marketing?

Multilevel marketing, direct marketing or network marketing is a technique in which individual sellers directly reach consumers. Companies entice recruits by luring them with incentives and overnight riches. Although it is not illegal, many companies that adopt MLM methods become fraudulent thanks to their confusing pyramid schemes.

To understand MLM, assume they opened a business and recruited five people. Each of those five recruits five new employees, and the cycle continues. It encourages existing members to recruit new members. In addition, current members receive a specific percentage of sales made by recruits. Since members at all levels receive compensation, if there are more levels, there will be more money. The technique is widely used by businesses that depend on generating more revenue through their sales.

The concept of MLM has often been debated because as the number of layers increases, the members at the top get paid regardless of their work. Therefore, it is often disputed that top-level members earn through sales from workers at the bottom of the hierarchy. Additionally, the company’s senior management often forced distributors to hoard stock in the hope that demand would increase in the future.

Therefore, one of the critical aspects of an MLM business complying with legal guidelines is the famous 70% rule. The rule states that 70% of all sales must be made to non-distributors of the company.

Examples of MLM Businesses

Amway is the most recent example of an MLM company using its direct network to generate revenue through worldwide sales. “Independent business owners” reported $8.8 billion in sales in 2018 selling their home care, beauty and health care products. Along the same lines, Herbalife Nutrition is another example of a high profile MLM company that sells weight loss and health supplements. However, there were several lawsuits against Herbalife Nutrition for misrepresenting its sales practices, and it had to reach a settlement with the Federal Trade Commission and restructure its business.

On the other hand, some might argue that MLM allows people job flexibility. Agents and distributors don’t have fixed working hours or specific goals to cover, and they can contact their customers through any medium. No essential business costs are required to get started, and those who join the network start out with the prospect of getting rich quick. Employees tend to be self-sufficient since each person works for themselves and earns as many sales as they can generate. Moreover, in a country like India, which is home to one of the youngest populations in the world, the advent of MLM businesses has opened doors for employment.

Amway India has provided direct and indirect employment to over 2,500 people. According to Fundera, one in 13 people have worked in network marketing globally. However, at least 50% of MLM participants drop out after a year, and 25% of those in distributors can make a profit. Wellness, cosmetics, and personal care are the top-tier products that use MLM. However, customers often claim that the products are exorbitantly priced. For example, hundreds of Amway customers claim that their products are much more expensive than competitors’ products, which offer the same quality.

One of the most controversial issues regarding network marketing companies is how they differ from a Ponzi scheme. Ponzi schemes require fraudulent investments. Early investors can only make a profit by accepting new investments. Therefore, new investors would only make money if they expanded their networks and brought more people into the loop. Many people, especially new investors, lose their money when no one else joins. In a Ponzi scheme, it is typical that only the original backers and investors are reimbursed or make a profit.

The decision of the Indian government to protect the citizens

Therefore, in 2021, the Indian government made the difficult decision to ban direct selling companies from promoting pyramid and money circulation schemes, The Economic Times reported. He put in place new rules for the industry to separate legitimate players like Amway, Tupperware and Oriflame from Ponzi scheme operators. According to the Department of Consumer Affairs, Food and Public Distribution, “The direct selling entity and a direct seller must not induce consumers to purchase based on the representation that they can reduce or recover the price by referring potential customers to direct sellers for similar purchases”.

As the government has made the decision to protect its citizens from impending fraud that may arise due to the controversial nature of marketing, is banning the business model the only alternative? India is a growing economy and needs as much revenue as possible, especially when the economy is still recovering from the effect of the pandemic. While some might argue that it provides a safety bubble for clients, others might argue that it snatches away the job opportunity.

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