Definition of Direct Selling and MLM vs. Pyramiding
Direct Selling is face-to-face selling to the consumers through independent distributors or sales people. It is a legitimate marketing medium that is used to sell practically anything.
Pyramiding is an illegal money scam often confused with legitimate network marketing plans, where people are convinced to pay money for a chance to profit from the payments of others who might join later.
How to differentiate a legitimate direct selling company from pyramiding using the 8-Point Test
- Is there a product?
- Are commissions paid on sale of products and not on registration/entry fees?
- Is the intent to sell a product not a position?
- Is there no direct correlation between the number of recruits and compensation?
- If recruitment were to be stopped today, will the participants still make money?
- Is there a reasonable product return policy?
- Do products have fair market value?
- Is there a compelling reason to buy?
If the answer to all the questions is YES, then the company being evaluated is a legitimate company. But if the answer is NO, then there is a high probability that it is a pyramid scam.
“Direct Selling necessitates the employment of a considerable number of people to effectively carry out the marketing and production activities of these companies. Consequently, not only will additional sales personnel be hired but factory workers as well. As a result, the direct selling sector has the potential to bring additional revenues to the government.”
– Former Trade Undersecretary Ernesto M. Ordo