Wednesday, May 18, 2011

MLM Schemes are based on Ponzi or Pyramid factor

After reading Srinidhi Hande's post on MLM i am inspired to pen down my own thoughts on MLM.  After having experience of nearly 25 years of sales and marketing in different fields from confectionery to rubberised coir, pencils to sharpners, toughened glass to WC, Edible oil to instant foods, wall clock to handpainted dress material, ball pens to pp folders etc. 

It is imperitive to mention the disclaimer.  This article is not meant for defaming or casting aspersions on any business running in the country or abroad.  It is basically a musing or soliloquy to examine the pitfalls or credential claims of MLM activities. 

Once i was travelling to outstation on assignment, i noticed a guy listening to audio of a motivational speaker.  Suddenly he thought i was an ideal company and started canvassing about his company.  Just imagine paying up for attending a seminar or get together for promoting a company's product or business.  Secondly you are known as a distributor, wherein you are supposed to stock up certain samples, and in case you procure order you have to go and collect the goods from their warehouse, or get it through courier.  All the cds on motivational talk are full of sound and fury, egging you not to give up.

The most ridiculous part of the sales pitch dished out by one engineer who was my neighbour in Mumbai was a lesson how to use their foaming toothpaste.  It was costing Rs 80, when compared to Colgate Rs 20/- for the same grammage.  He asked me to squeeze the paste horizontally instead of vertically, that way you end up using less of toothpaste.  It would last 3 times longer, that was the USP of the toothpaste.  Even than i would have realised Rs 60 worth in terms of cost benefit analysis.  The balance Rs 20/- will be surplus to the company.  The best part of this entire deal is that distributor is supposed to get 20% commission which means he gets paid Rs 16/- per toothpaste.  If i were smart enough i would rather buy in bulk from wholesale Colgate and end up earning at least 15% being difference between wholesale and retail price, for which i need not canvass much, being a brand leader.

When any idea is embedded with a chain or residual income concept, than its flaw crop up.  Except the Insurance business which is based on a sound business model of delivering compensation in case of emergency or death.  Even in insurance business the sales pitch dished out may be too good to believe by some unethical salesmen, so CAVEAT EMPTOR applies.

Recently i was called for a seminar to invest in GOLD TRADING, the speaker eloquently addressed the gathering in a 3 star hotel.  He stated that except on SUNDAY  24x7 the promoter is involved in trading online and investing in Gold buying and selling across the globe.  The returns are 50% per month, which works out to phenomenal 600% per annum.  The office is based in Singapore, and certificate of incorporation is issued by Stan chart bank, virgin island.  This set off an alarm whether it was a genuine certificate of incorporation, secondly the Bangalore office was supposed to based behind the CBI office to ensure authencity.  One was supposed to invest in multiples of 15 k.  At the end of 10 months one would be receiving 30 k.  A phenomenal 100% return.  One need not invest, he or she can cavass for investment which would fetch a 10% commission.  WOW, what a Ponzi scheme, i just walked out despite the offer to share the lunch offered by the organiser in a 3 star hotel.

Another classic trap is laid by promoters of health products particularly herbal ones, the price of each of the formulation dished out is phenomenal.  Why should i go for such product when our own Dabur Chyawanprakash that too sugar free is available ?  I would rather trust this 100 year old company than to rely on new comer for enhancing my health.

One of the most humourous offer was of a mattress which costed 1 lakh plus.  It was supposed to be an imported stuff.  I have heard about water beds costing a fortune, now this contraption cost me a bomb.  After having worked in a mattress company i have realised, that if one needs to have a good sleep, it is the state of mind and fatigue factor that helps one to have a peaceful undisturbed sleep.  But to get conned stating that this particular expensive mattress will be pancea for sleeplessness is far fetched. 

Most of the MLM companies lure their customers because of  fast buck making psychology.  I have realised in my long career there are no short cuts for success.  One has to go through the grind.  The classical method of selling and marketing will never vanish.  If one is asked to invest for promoting others business, than one needs to be wary.  I personally would not like to end up as an unpaid employee of any company.  I would rather focus on my core strength and undertake voluntary activity by joining an NGO. 

Links :  Just check on the maths of  MLM scheme how much it is going to benefit a company if it winds up in the 10th month

No comments: