Thinking of joining a direct-selling or multilevel marketing company? Don't be so quick to jump in. Here are some things to always remember.
In the Philippines, there is a general misconception that multi-level marketing (MLM) or network marketing is equivalent to "pyramiding schemes." MLM is a form of direct selling, where people earn not only from their sales, but also from the sales of the people they recruit to join the selling network.
Two experts in the direct selling and multilevel marketing (MLM) industry share pointers to determine the difference between a legitimate direct-selling or MLM company from pyramiding. Consider the following tips before committing to avoid being scammed or ending up with an unsustainable venture.
1. Make sure they're registered.
"Every company or enterprise must be registered with the Securities and Exchange Commission or the Department of Trade and Industry," says Ador Bonquin, country manager of Amway Philippines. One can simply log on to www.sec.gov.ph or www.dti.gov.ph to check if the company or enterprise is registered.
Also, according to Dr. Ed Cabantog, president and CEO of Alliance In Motion Global Inc., affiliation with respectable direct selling or multi-level marketing associations should also be considered. The Direct Selling Association of the Philippines (DSAP) is the national trade association of direct selling and network marketing companies engaged in the business of person-to-person selling.
Bonquin, who is also the current chairman of DSAP, explains that DSAP follows strict guidelines before accepting companies to be part of the association. While non-membership with DSAP does not mean that the company is not legitimate, membership adds legitimacy to the company.
2. There must be a product and reasonable joining fees.
Both Bonquin and Cabantog emphasize the need for a legitimate MLM or direct-selling company to have a product that is actually being sold. However, it is not simply having a product. The product must be considered as a "value-for-money" product, which simply means that the product in exchange for the registration or joining fee must have equivalent, if not higher, peso value. For example, if you are paying P10,000 for a product valued at around P2,000, do not join that particular MLM company selling the product.
In addition, the product must be unique and innovative. If the company offers products that are readily available in retail stores, walk away. Most often than not, such products are just used to have a semblance of legality and induce potential distributors to join.
3. Check income opportunities, or review the business or marketing plan.
While both experts agree that it is difficult for potential distributors to determine the legality of the company by simply reviewing the marketing plan, a key consideration before joining is to check whether the income is mostly coming from recruitment. If it is, the company is probably engaged in a pyramiding scheme. Bonquin adds that in a legitimate direct selling company, the income should mostly come from selling the products and not from recruiting. Recruitment should just be a part of the income and not its primary source.
Likewise, the payment scheme should be definite and well-defined. According to Cabantog, there used to be many companies that offered huge compensation payout plans to attract membership, only to change their marketing plans and income schemes later on, to prevent overpaying the distributors. These companies eventually shuttered their operations, which had become unsustainable.
4. Check the profile of the founders and owners.
According to Cabantog, potential distributors should check the background or experience of the owners or key managers of the company before joining. It is not enough that the company is owned by a multi-millionaire or endorsed by a celebrity. Experience is the key.
5. The marketing scheme should include a money-back guarantee.
The company or business should have a reasonable product return policy. Bonquin says that members of DSAP allow a 60-day money back guarantee provided the products are in the same condition when purchased.
6. No requirement to buy products.
Bonquin says that the company should not require or demand the distributors to purchase products, even if there are no identified end-users, since the direct-selling business is a person-to-person business. There should be no pressure on the distributors to keep on buying products from the company. The selling activity should be dependent on income objective of the distributor. Bonquin says, “if [the company asks] you to buy more, then something is wrong.”
7. Training and support are provided.
The company should give training and continuous support to their distributors and members to ensure their success in the business. Generally, training sessions or seminars are given free of charge. If companies demand payment for training fees at the start of the recruitment, then think twice before attending. However, reasonable fees may be charged to cover venue expenses and honoraria for industry experts invited to conduct the training.
