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Illegal Pyramid Schemes And Legitimate Direct Sales |
STRUCTURE VERSUS OPERATIONAL
- Almost all organizations,
irrespective of whether they belong to direct-selling, conventional business or
government departments, are pyramidal or hierarchal in structure.
- Almost all organizations,
irrespective of whether they belong to direct-selling, conventional business or
government departments, are pyramidal or hierarchal in structure.
- The important
distinction between pyramid schemes and other organization, however, is in the
operational area. That is to say, does its operations follow a chain letter
principle? In terms of income, do members of the organization derive income from
the mere act of recruiting? Are there actual sales to end consumers in the
company's operations? To join the business, do participants have to pay a high
entry fee? And if one wishes to opt out of the business, is there a provision
for him to recover his money?
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Legitimate Direct Selling Companies |
Pyramid Schemes |
- The start-up fee for all ethical multi-level selling companies is generally low,
primarily to cover training materials, sales aids or demonstration kits.
- Such companies sell a wide range
of quality products to the general public. The bulk of the sales are on repeat
sales form satisfied customers. This is only possible because these companies
spend millions on research and development to develop quality products.
- Many companies have a 100
percent money-back guarantee. Dissatisfied users (and there are relatively few)
could exchange the products back for money or for an equivalent amount in other
products.
- These companies are interested
in long-term business. In every country that they operate, this criterion is
important because the companies have an obligation to their distributors who are
small businessmen in their own rights.
- Recognition of achievement is
based on efforts. This means that a distributor's income is commensurate with
the efforts he/she puts into the business
- Established companies depend on
selling to customers quality products which offer value for money in order to
establish a market.
- These companies build up
networks of independent distributors to sell products.
- They have strict Rules of
Conduct which, among other things, forbids its distributors to load up on
inventory.
- Distributors sell products and
or services.
- Direct selling is a popular
method of retailing which is recognized as a lawful and legitimate business in
many countries including the U.S.
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- Pyramid schemes often disguise high entry fees as part of the price charged for
required purchases of training, product inventory etc. Pyramid schemes make
virtually all their profits from recruiting.
- Pyramid schemes are frequently
disguised to appear as legitimate direct selling companies. Such schemes are not
interested in marketing these products which are of dubious value. Instead,
money is made in typical pyramid fashion, from recruiting, with new distributors
being pushed to purchase high cost/large inventory when they sign up.
- Pyramid schemes will not buy
back unsold inventory. Such schemes will collapse very quickly if there is this
condition for re-purchase of goods.
- Pyramid schemes are get-rich
quick schemes. The nature of the pyramids, in which large numbers of people at
the bottom of the pyramid pay money to a few people at the top, clearly explains
why the scheme cannot sustain itself for long.
- Position could be purchased.
- Pyramid schemes are not
concerned with repeat sales to users of the products. Profits are made on volume
sales to new recruits who buy the products not because they are useful or
attractively priced, but because they must buy them to participate in the
scheme. As a result, new participants are stuck with products that are way below
the market value in relation to the high entry fees paid by them. Should the
pyramid scheme collapse, there is no way for the participants to recover their
"investments".
- Promoters of a pyramid scheme
are engaging in fraud, knowingly deceiving participants in the schemes.
- Participants in a pyramid scheme
have no choice but indulge in inventory loading/high fees to participate.
- Participation is essentially
based on recruiting, not necessarily on the sale of products or services.
- Pyramid schemes have been
outlawed throughout the United States and many countries many countries around
the world.
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Reference:
http://www.dseidubai.com/index.php?option=com_content&task=view&id=19&Itemid=36 |
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