A flawed concept - MLMs

It has been over a decade now that what is known as MLMs – Multi level Marketing – appeared on the Indian shores. I had been invited through known circles to a presentation by a person who had migrated to the US and had reverse-migrated back to bring this innovative concept to us Indians who had not learnt how to dream! He began his presentation with how the new marketing method differs from the old traditional way of selling consumer products –"There will be no distributors, wholesalers and retailers – they add no value but only act as “middlemen” in the supply chain!”, he proclaimed. “The product will also not be advertised - advertising costs also constitute a large part of the price of the product in the market”, he continued. So one would now get products closer to its true cost price and not at ridiculously inflated prices – all due to the middlemen who were just lousy parasites in the conventional marketplaces. It sounded great – our prayers have been heard!

The presenter then went on to ask us what our dreams were. Would we not want to go on some Foreign trips? Live in palatial houses? Get rich? Retire early? Of course, we did – just tell us how! We could now to it, we learnt from the sorcerer of the marketplace – all we had to do was to enroll as a member and get more members to join in!

Wouldn’t we have to work for the money? Of course, initially we would have to get in as many friends and relative to get onto the bandwagon and then they will be the ones working for you! You enjoy the riches – play golf, go on the vacations you’ve been dreaming of, buy your luxury sedan and live the high life! Sounded just great! Here was I slogging 10-12 hours for a pittance – what a fool I had been, I told myself - when the world had moved on, learnt how to make money and enjoy the good life. I remembered how I had always wanted to be rich – nay “stinking rich” – but all that I had managed to become was “stinking” – the "rich" part was yet to come! So here it was, I told myself, brought to me by the good Samaritan marketing genius of the 21st Century. I must be lucky – really lucky to have been selected for this presentation!

To get such a great opportunity to make the high riches would be a huge investment, no? I had a nagging doubt if the presenter would then drop the bomb and tell us we need to shell out a fortune to be part of this elite money-making club. “Just about Rs. 5000 for the membership”, he said to my great relief – oh that’s ok, not much – I felt greatly relieved! So my future was made – all for a paltry sum, I was elated. Even if i were to lose it, it was not much, was it?!

“But what are you giving in exchange for the membership?” my wife, who had been quietly sitting alongside me, all this while, piped in. “You will get a product hamper – the entire range of our wonderful consumer products, which are not available anywhere – available exclusively for our members!”, the super-salesman – nay super marketing innovator replied.

On our way back, we got talking – while I was gung-ho about the new concept, my wife had only doubts cropping up in her mind – “Why did they not show the products? Why did they not give a sample sachet? How do we know whether the products are good? How do we know if they are worth the money we pay for?” Although I don’t really like the skeptics who give us the peptics, these questions were indeed worth giving a thought! In fact, she had a point – and it set me thinking too: How was it that the products were not the subject of the presentation, when they should have been the main focus of the discussion? How would I convince my friends and relatives if the products itself are not worth the money? Will they really bless me for having shared with them an offer which benefitted them or not? Or will they curse me for selling products not worth the price they have paid for?

Soon enough, we learnt from a common friend that they had already become members of the MLM and had the hamper of products for their exclusive use. And hold your breath – they felt the products, although good, were not worth the money that was paid for it – in fact very expensive – if they had found the products on the shelf of a consumer store, they would never have bought them! So had they begun enrolling members as explained – how long would it be before they booked their first luxury sedan? “We are not going to do that – because we value our relationship with our friends and relatives” was the prompt reply!

So if we assume our friends and relative – all of about 50 members (hopefully), do join in, we would be collectively paying Rs. 2.5 Lakhs! And all these people would again bring more money to the scheme! Collectively, it is not a small amount of money really - if friends and relatives really mattered!

OK. More questions came to my mind:
“How did a concept that had done away with distributors, wholesalers, retailers, advertisements be costlier than similar products available in the market?”
“Have all the members of the MLM who have already joined them replaced these distributors and retailers and become the parasites and middlemen in the new and innovative marketing chain?”
“Isn’t the entire structure of the MLM more beneficial to the old members who had joined early and bears heavy on the later entrants?”
“What will happen when the chain stops growing like my friend who values relationships more than undue profits?”
More importantly: “Are we being lured into the scheme by the promise of an easy money without much hard work?” “Have we been sold a dream instead of a product?” and “If it is too good to be true, perhaps it is?!”

Needless to say, we decided to give the opportunity a miss!

Many people lost money to vanishing MLMs – many early entrants (read: promoters) made money and then vanished without a trace. The Ponzi schemes, which pay money based on the new money coming in and not from profits earned, lasts only until new folks bite the bait! And when they dry up, they leave a vast trail of people who have lost money rather than have gained from them. Today MLMs have found it difficult to enter the market as MLMs they masquerade as ‘genuine online surveys’, ‘content providers’ ‘work from home schemes’ etc. If they are genuine, why do they want enrollment fee for services to be provided by us? Why do they focus on expansion by bringing members, when the focus should be on how to provide the service for the customers who use the output?

More importantly:
How come MLMs which are basically Ponzi scheme are not illegal?
How come they are not heavily regulated by RBI or SEBI?
How come the promoters are never known to the public?
Could it be that these schemes have the blessing of politicians and perhaps we are opening another can of worms here for yet another scam of humongous proportions?
How come the RBI or SEBI has never come forward to explain this to the lay public inspite of several blogs, columns, issues raised in magazines and periodicals?
Many questions – few answers! It is wise to refrain from joining any scheme which is too good to be true - because that is what they are:

Too Good to be True!

Blogger's Post-script: "I always wanted to be stinking rich - 50% target achieved - i am already stinking - i have yet to become rich!"