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A PROJECT REPORT ON

NETWORK MARKETING
UNIVERSITY OF MUMBAI

ACADEMIC YEAR
2006
2007

SUBMITTED BY
MEHTA NEELKANTH S.
T.Y.B.M.S. [Semester V]
USHA PRAVIN GANDHI COLLEGE OF MANAGEMENT
VILE PARLE (W), MUMBAI - 400 056

PROJECT GUIDE
MEHTA RAJIV A.

A PROJECT REPORT ON

NETWORK MARKETING
UNIVERSITY OF MUMBAI

ACADEMIC YEAR
2006
2007

SUBMITTED BY
MEHTA NEELKANTH S.
T.Y.B.M.S. [Semester V]
USHA PRAVIN GANDHI COLLEGE OF MANAGEMENT
VILE PARLE (W), MUMBAI - 400 056

PROJECT GUIDE
MEHTA RAJIV A.

DECLARATION
I, MEHTA NEELKANTH S. The student of Usha Pravin Gandhi
College of Management of TYBMS [Semester V] hereby declare
that

have

completed

MARKETING

in

the

my

project,

Academic

titled
Year

NETWORK

2006-2007.

The

information submitted herein is true and original to the best of my


knowledge.

________________________
Signature of Student
[MEHTA NEELKANTH S.]

CERTIFICATE
I, (Mr.)

MEHTA RAJIV

A, hereby certify that

Mr.

NEELKANTH S. Mehta of Usha Pravin Gandhi College of


Management of TYBMS [Semester V] has completed his project,
titled NETWORK MARKETING in the academic year 20062007. The information submitted herein is true and original to the
best of my knowledge.

__________________
Signature of the Principal,

___________________
Signature of the Project guide

Coordinator

ACKNOWLEDGEMENT
This project report could not have been prepared, if not for the help
and encouragement from various people. Hence, for the same reason
I would like to thank my guide Mr. Rajiv Mehta. It was for his support
that I got proper guidelines for preparing this project. I would like to
thanks Mr. Santosh Gadigaonkar for the same. Mr. Amarjeet Ubhi,
country Manager, Forever Living Products (India) PVT. LTD.

Mr.

Eddy Chai, Forever Living products (Taiwan), Indian Direct Selling


Association, World federation of direct selling association, Robert
Kiyosaki, Author, "Rich Dad Poor Dad", Richard Tan & Kay Cee si,
Author, 201 ways for success in Network Marketing.

SYNOPSIS
Network marketing or MLM as it is called, one of the most efficient
ways of distributing products and services adopted by the various
corporations around the world, is a 50 year old concept. But in most
of the developing countries like India, the concept s relatively new;
due to which there are various misconceptions regarding the concept.
A clear understanding of this concept is required, so that industry and
the public at large would benefit from it.
The collection of various relevant data from various sources like;
Indian Direct Selling Association (I.D.S.A.), book Tai Chai ways to
success in MLM written by Eddy Chai, Forever Living Products
(India) pvt. Ltd., about the development of the concept, its past and
present scenario, and the future prediction by the industry leaders,
and finally giving certain recommendations to the industry on the
analysis of data.
The analysis will remove the misconceptions regarding the industry
and exactly tell how industry can be a boon to everyone in economic
structure.
Thus the project report will explain exactly why one needs to support
and encourage MLM industry.

contents

INTRODUCTION 09
SCOPE OF STUDY 10 - 17
Birth of MLM industry. 10
Overview. 11
World wide MLM sales volume.11
Top MLM markets.12
Global MLM sales force. 13
Products sold through MLM.14
Top 10 global MLM players. 15
India perspective. 16
Indian MLM sales volume. 16
Top 10 MLM corporations in India. 17

PROBLEM UNDER STUDY. 18


METHODOLOGY. 19 - 47
Causes of problem. 20
Dubious companies. 21
Not managed by experienced staff. 30
Exaggeration & game playing. 31
Unprofessional attitude. 32
No expenditure on advertisement. 33
Lack of proper knowledge. 34
Low success rate. 35
Actually what is MLM? 36
MLM Vs traditional business. 37
Time leverage. 38
MLM matrix 39
7

Types of matrix. 40
Why MLM? 41
For companies. 41
For individuals. 42

RECOMMENDATIONS. 48 - 57
Tips tp choose a good MLm organisation.48
Company. 49
Products. 50
Business plan. 51
Suggestion to MLM organisations. 52
Comply woth laws relationd to MLm industry.53
Should be managed by competitive staff.53
Better PR.53
Suggesttions to networkmarketers. 54
MLM success path 54
Tips for doing good business. 55
Solution to game playing. 56
MLM in Eddy Chai's words. 57
Biblography 58.

INTRODUCTION
Multi-level marketing (MLM) (also called network marketing (NM) or
matrix marketing) is a business model which utilizes a combination of
direct marketing and franchising. Typically, independent business
owners become associated with a parent company in a contractorlike relationship. Independent business owners receive remuneration
for shopping within their own business, for selling products and for
expanding their network of people ("down line") doing the same
Indian Direct Selling association has defined MLM as:
Multilevel marketing allows sellers to build a business through their
own sales efforts and by inviting others to become sellers.
Remuneration is based on a seller's personal sales AND on the
combined sales of those people they have sponsored, trained and
motivated.

MLM matrix
MANUFACTURER

DIRECT
SINGLE
LEVEL

INDIRECT
MULTI
LEVEL

TRADITIONAL
CHANNELS viz.
wholesaler,
retailer,
Advertisement

END CONSUMER

SCOPE OF STUDY
I. Birth of Network Marketin g:
China, 1920s;
Dr. Carl Rehnborg was working in China and began to observe
that urban Chinese citizen showed sign of malnutrition, but not he
poor citizen living in rural areas. His studies revealed that this was
because the riches urban folks were eating polished rice, void in any
nutrients critical to human diet. After many years of research and
study in this field, in 1939 Dr. Carl Rehnborg setup a company called
Nutrilite, to manufacture food supplements containing different
vitamins and minerals vital for human body. The major problem he
faced was in the marketing and the customer education relating to
this product or range, since most of the people at that time had not
heard about vitamins and minerals.
To solve this problem he came up with another new idea in
1945, whereby he used his zealous customers as a sales force,
working a system which we today know as multilevel marketing.

10

II. Global overview of the industry :


1. Growth of the industry in the past 10 years: in figures & in
percentage growth.

In 1988, turnover of the MLM was just about 32 Billion U.S. $.

It touched U.S. $ 62 Billion in 1992.

To100 Billion U.S. $ in 2004.

The MLM industry has grown to 147% between 1994 and 2004.

11

2. top markets of MLM

South
America,
9.03%

Austrelia, Canada,
New Zeland,
1.08%
Others,
2.09%

Europe,
15.53%

South Africa,
0.26%

Asia, 40.46%

U.S.A,
29.27%

Total world wide


turnover 2004 -05

US $ 99.965 Bn.

Combined sales of all MLM companies in U.S. was just 29


Billion $, which is just about 1 month sales on Wal-Mart.
Achievable goal is about 3% or about 100 Billion U.S. $ for
U.S.A.
World wide sale for MLM should hit U.S. $ 1 Trillion.

12

3.

Global retail force:

The growth rate in MLM sales force grew from about 12.9

million to 54.23 million in 2004, having a growth rate of 321%.

The highest number of MLM sales force is in Japan, al around

40 million.

13

1. top players in the market (Globally) (2004-05)


Company

Product lines

HQ

Established in

Turnover

US

$
Amway

Health, Daily, Ada,

corporation

Personal,

1955

4 Bn.

1978

2.13 Bn.

1973

1.5 Bn.

1979

1.6 Bn.

UT

1984

1.2 Bn.

Organic

Torrance, CA,

1982

products,

USA.

Michigan,

Kitchen ware, USA


so on.
Forever Living

Health

care,

Products Inc.

personal care,

Scottsdale,
Arizona, USA

cosmetics,
skincare etc...
Nikken Co.
Herbalife
Nu

Health Fitness

Fukuoka,

& wellness.

Japan.

Health care &

Los Angeles,

wellness.

CA, USA

Skin Pharmanex,

Enterprise

health

care

Provo,
USA

products.
Sunrider inc.

weight
management,
skincare.
Oriflamme

Swedish

Brussels,

cosmetics.

Belgium.

1967

Euros.778
Mn.

14

5. Products sold under Multi Level Marketing:

Personal care products (cosmetics, jewelry, skin care, etc.)

30.8%

Home/family care products (cleaning products, cookware,

30.5%

cutlery, etc.)

Wellness (weight loss products, vitamins, etc.)

16.1%

Services/other

14.3%

Leisure/educational (books, videos, toys, etc.)

8.3%

15

III. India perspective.


1. Growth of the industry in the past 10 years: in figures & in
percentage growth.

Year

Turnover

2001

1700 cr.

2002

1979 cr.

2003

2275 cr.

2004

2617 cr.

2005

3010 cr.

There is an average growth rate in this industry over last 5 yease


of 15%.

By the year 2010, this turnover is expected to be over Rs. 8000


cr.

16

2. top MLM organizations in India (2004-05):


Company

Product

HQ

category

Years

of

Turnover

operation

2004-05

New Delhi.

11years.

Rs. 625 cr.

Modicare Ltd.

Health &
New Delhi.
Nutrition,
Cosmetics &
Skin Care,
Personal Care,
Laundry Care,
Home Care,
Auto Care,
Agriculture,
Food, and
Water
Purification.

7 years.

Rs. 350 Cr.

Forever Living

Health care &

Mumbai.

5 years.

Rs. 55.7 cr.

Products

wellness.

Bangalore.

6 years.

US $ 1.6 Bn.

11 years.

766

Amway

Health, Daily,

corporation

Personal,
Kitchen ware,
so on.

(India)

Pvt.

Ltd.
Herbalife
(India)

Health care &


Pvt.

wellness.

Ltd.
Oriflamme Ind Cosmetics
Pvt. Ltd.

beauty.

& New Delhi.

million

euros

17

THE PROBLEM UNDER STUDY


There is much misconception about network marketing, bad
reputation, and highly abused industry.
Following are the misconceptions about network marketing:
1.

door- to-door salesmanship

2.

Get rich quick scheme:

3.

Pyramid scheme:

4.

Illegal: Pyramid schemes are illegal. Some pyramid schemes

try to disguise themselves as network marketing companies.


Leading to a very low success rate:

18

METHODOLOGY
I. Causes of the problem
1)

Dubious companies:

Some companies are not true MLM companies but are in fact
pyramid schemes, set up by unscrupulous people whose only goal is
to cheat as many other possible. MLM is essentially a product
oriented business, no money rolling game.

A. F.A.Q.s about pyramid schemes


1. What is a Pyramid Scheme?
Pyramid schemes, also referred to as "chain referral", "binary

compensation" or "matrix marketing" schemes, are marketing and


investment frauds which reward participants for inducing other
people to join the program.
Pyramid schemes focus on exchange of money and recruitment.

At the heart of each pyramid scheme there is typically a


representation that new participants can recoup their original
investments by inducing two or more prospects to make the same
investment. For each person you bring in you are promised future
monetary rewards or bonuses based on your advancement up the
structure.

19

They say you will have to do "little or no work because the people
below you will". You should be aware that the actual business of
sales and supervision is hard work. So if everyone is doing little or
no work, how successful can a venture be?

2. How are Pyramid Schemes Disguised?


These illegal money-making ventures may be disguised as games,
chain letters, buying clubs, motivational companies, mail order
operations, or investment organizations.

Because of the similarity in structure to legitimate multi-level

marketing (MLM) plans, which are legal and survive by making


money off product sales to actual customers, not new recruits,
pyramid schemes may occur when you are offered a distributorship
or franchise to market a particular product. Your investment contract
will also authorize you to sell additional franchises.
Once the number of actual product buyers diminishes new recruits
will focus primarily on recruiting others into the system without any
realistic expectation that they can profit from retailing alone.

20

Inventory loading occurs when Legitimate multilevel marketing


a

company's

incentive

plans actually sell their product

program forces recruits to buy

to members of the general

more products than they could

public, without requiring these

ever

consumers to pay anything

sell,

often

at

prices

inflated

extra or to join the MLM


system.
MLM's may pay commissions

to a long string of distributors,


but these commission are paid
for real retail sales, not for new
recruits.

One indication of a pyramid structure is one which pays override


commissions on more than five levels of participation. Even the
largest corporations can not stretch the markups on products
beyond the hierarchy of sales person, branch manager, district
manager, regional manager and national manager without
becoming uncompetitive with standard retail outlets.
Suggested retail prices for products sold in the pyramid are almost
always too high to be competi tive because huge margins have to
be built in to allow for commissions to be paid to down -line
distributors for item sales without compromising the company's
overly generous profits.
Many pyramid schemes will also advertise that they are in the
"pre-launch" stage, yet they never can and never do launch
They rely on widespread ignorance of basic mathematics.
21

3.

Why do Pyramid Schemes Fail?

Pyramid schemes are inherently injurious to consumers because


as a mathematical certainty, they are doomed to collapse. As in
the case of chain letters that require a payment, only the people at
the very top make any money.
Promoters of pyramid schemes stress the selling of additional
franchises for a quicker return on your investment. Investors,
therefore, expend their energies selling franchises rather than the
product. At some point, the supply of potential investors is
exhausted, leading to the inevitable collapse of the pyramid. Those
at the bottom of the pyramid, the vast majority of the participants,
lose money because there is no one below them.
In order for a pyramid scheme to profit, there would have to be a
never-ending supply of potential, and willing, participants. In
reality, however, the supply of participants is limited, and each new
level of participants has less chance of recruiting others and a
greater chance of losing money.
The diminishing odds of making money with a pyramid scheme
make it a losing proposition because each time a new level rises
to the top; a new level must be added to the bottom, each one
at least twice as large as the one before.
Pyramid schemes are based on simple mathematics: many losers
pay a few winners. A nine-level pyramid, which is built when each
participant gets six "friends" to join, would involve over ten million
people!

22

6
36
216
1,296
7,776
46,656
279,936
1,679,616
10,077,696

4.

Who are the Victims?

Most pyramid schemes seem intent on exploiting people with


limited means and limited knowledge of business such as
individuals

who

have

little

experience

in

direct

sales,

distributorships, or franchise enterprises or who have limited


money or credit with which to establish their own businesses.
Many victims of these scams sell first to their friends. When the
supposed money-making opportunity goes belly up, most lose not
only their money but also their friends.
The Pentagonal promotions have apparently targeted deaf people
in some states while the main focus appears to be on senior
citizens in others.

5.

Why Would Anyone Pay to Join a Pyramid?


They're sold to investors with the assurance that they are

perfectly legal, approved by the IRS or a CPA, and that they are
definitely "not" a pyramid scheme.

23

Promoters may even flaunt the fact that they are illegal and are

therefore secret and exclusive. This adds to the allure and mystery of
this larcenous, but seemingly harmless, act.

When the expected wealth does not materialize, participants

often blame their own lack of recruiting skills for the failure, rather
than the original promoters who have benefited most, and almost
exclusively, from their deception.

The pyramid promoter is likely to persuade the investor that he

is "getting in early" and that he should consider himself at the top of


the matrix. Most participants don't envision themselves anywhere
near the bottom layer of the pyramid.

Investigators say pyramid schemes come in waves of three to

six years and rise during times of economic boom by playing upon
the greed and envy among those who are eager to participate in
moneymaking ventures.

6. Legal Aspects

Pyramids are deceptive and participants in a pyramid, whether


they mean to or not, are deceiving those they recruit. Few would
pay to join if the odds stacked against them were fully explained.
Because pyramid sales plans are by their very nature deceptive,
they are illegal. There is a real risk that a pyramid operation will be
closed down by police and the participants subject to fines and
possible arrest.
In Canada, the Competition Act explains the differences between
multi-level marketing and pyramid selling, and sets out the
24

responsibilities for operators and participants in these types of


plans. Multi-level marketing, when it operates within the limits set
by the Competition Act, is a legal business activity, while pyramid
selling is a multi-level marketing plan that incorporates various
deceptive marketing practices, making it a criminal offence under
the Competition Act.

It is illegal to:

Pay money for the right to receive compensation for recruiting new
participants;
Require a participant to buy specific products before he/she is
allowed to join the plan;
Sell unreasonable quantities of the product or products to
participants (this practice is called inventory loading); and
Refuse to allow participants to return products on reasonable
commercial terms.
People who break the law relating to multi-level marketing or
pyramid selling can be convicted and sentenced to a fine or a
prison term.
Sometimes, no clear line separates illegal pyramid schemes from
legitimate multilevel marketing programs. To differentiate between
the two regulators in the U.S. evaluate the marketing strategy
(e.g., emphasis on recruitment versus sales) and the percentage
of product sold compared with the percentage of commissions
granted.

25

A business venture that meets all three of these descriptions is an


illegal pyramid:

You must make an investment to get the right to recruit others


into the program...and
When you recruit another person into the program, you receive
what the law calls "consideration." That usually means money, but
can be anything of value...and
Your new recruits must make an investment to get the right to
recruit, and they receive "consideration" for getting others to join.

B. Some case examples :

1. The Allure of Gold, Gold 1 & 2.


For two years, Ame rican Gold Eagle offered a "Gold Matching
Program" to the public: participants placed a $200 down payment on
$800 worth of gold and paid the balance by receiving commissions
after recruiting new participants.
The original participant would pay the $200 an d then recruit two
separate "investment groups" into the Gold Matching Program (much
like cells in hierarchical organizations, with the original participant at
the top and with two branches diverging from the center, each branch
containing three recruits). For every group of three that joined the
matching

program,

the

original

participant

received

$300

commission toward the purchase of the laid -away gold.

26

After recruiting two groups (six individuals), the original participant


could take the gold but are encouraged to roll over the $600 credit
into a new recruitment arrangement that offered a higher ceiling on
future enrollment commissions.
After being issued cease and desist orders the corporation failed
amid problems with vendors which resulted in the end of gold
deliveries and a swelling of anger by representatives seeking to
realize the fruits of their recruiting efforts. The promoters moved on,
leaving over five hundred complaints unresolved with losses of
$370,000.
Undaunted by past troubles, they soon offered people the opportunity
to participate in the new "Gold Earning Program" ("Gold I").
Participants paid $200 toward a $400 gold coin then, by recruiting
new investors, earned commissions toward the cost of the coin or
payment in cash.
New charges found that Gold I emphasized recruitment of clients,
not sales of products, and thus constituted an illegal pyramid scheme.
They signed a settlement agreement with the state, agreeing to pay
restitution to Gold I's participants and submitting to a permanent
injunction against operating pyramid schemes and making unrealistic
earnings claims.
Not letting an injunction stand in the way, they launched a new
marketing plan, referred to imaginatively as "Gold II." Under Gold II,
participants could purchase gold and jewelry from them and resell it,
or they could join the "Binary Compensation Program."

27

To differentiate it from the earlier plans, and to at least give the


impression of a legal MLM organization, they added more product
lines (supplementing Gold I's gold coins with silver coins and gold
jewelry); changed manuals, strengthened refund policies, and
supposedly attempted to emphasize product sales over recruitment.
It appears recruitment was more rewarding though, for within just
three years 96,000 participants had paid $43,000,000 to join Gold
II, which had disbursed $25,000,000 in commissions. The product
line produced sales of 12,628 coins, with a gross profit from the
coins of only $552,620.
The district court sentenced the owner to 135 months in prison and
his wife to 121 months. Allowed to remain free until the sentence
started, they created the "Freedom I" program, disappeared, and
presumably are still at large.

2.

Buy Your Way to the Top (case of a dubious company):

A group named Equinox operated a multi-level marketing company


which offered distributorships for products including water filters,
vitamins, nutritional supplements, and skin care products. Their
distributors ran classified ads in the "Help Wanted" sections of
newspapers which implied that a salaried position was being offered.
When you responded to the career ad you were instead given a sales
presentation designed to recruit new distributors. They said you could
earn money by selling products or recruiting but emphasized that the

28

real way that distributors make money is through recruiting, not


through sales.
You were encouraged to purchase $5,000 worth of products so you
could enter the program at the manager level, to rent desk space for
$300 to $500 a month, to subscribe to a phone line so you could
begin recruiting others, and to attend seminars designed to train you.
The seminars cost between $300 and $1000 and stressed that you
could make substantial amounts of money.
A very small percentage of distributors who became participants in
the program actually made more money than they expended for frontend expenses, and the vast majority of people quit the program with
little or no earnings.
While they purported to link compensation to retail sales, they really
didn't focus on the products. The structure and operation of the
program was geared such that financial gains were primarily
dependent upon the continued, successive recruitment of other
participants, and retail sales were supposedly not required to realize
such financial gains.
The deceptive earnings claims were false and misleading and
violated federal law. By furnishing you with promotional recruiting
materials that contained false and misleading information, including
the deceptive earnings claims, they supplied the means for you to
break the law as well.

29

2)

Not managed by the experienced staff:

90% of the MLM companies are managed by a not so competent


th

staff; they dont see their 5

anniversary. They are doomed to be

failures right from the beginning.

3)

Exaggeration and playing games:

Many leaders exaggerate their product and marketing plans and their
incomes. In spite that MLM is a legitimate business, some network
marketers operate their businesses like pyramid schemes.
A. Good distributors under bad leader
It is a sad fact that there are groups of distributors who love MLM, but
do not understand what MLM is and how it should be done, simply
because they are under bad leaders.
B. Type Adistributors:
This is where a person grows up in an environment that demands
conditional love. Conditions are always attached to love or reward
given as a result; a person grows up doing things, not because work
has to be done, but rather in order to please others. Type Apersons
usually try to play games in the MLM business.

C. What are the results for playing games?


1.

Financial

losses

to

all

the

downline

distributors,

as

playin
g game involve excessive buying of products to make up
for achieving pin levels or to makeup for undeserved bonuses.

30

2.

Financial losses to the company. All good MLM companies will


and buy back as much as products as possible, to limit the
damage already done or having serious price cuttings.

3.

Distributors then get stuck with unsold lot of products. Then the
easiest way to get rid of those products is to sell them cheap.
Some uplines have even been known to ask their downlines to
buy from them, and not from the company, by offering prices
below wholesale.

4.

Potentially the most damaging; it has its effects on the good


leaders who are doing business properly.

Eventually breaking

the morale of the company.


5.

This situation can be compared to inflated, unhealthy stock


markets; when the bubble bursts, people who have made money
will find it difficult in adjusting the new reality.

D. Detecting game playing:


1.

When a group or upline recommend certain amount of product


purchase ranging anywhere between: Rs. 40000 +.

2.

When the upline recommends downline to attain certain pin


levels by purchase of certain amounts of products in short time,
even

though

the

downline

doesnt

have

enough

of

organization under him.


3.

Whenever a downline is asked to purchase certain amounts of


products resulting to pushup of the upline, or his qualification for
certain bonus, or incentive level.

31

4) unprofessional attitude:
The amounts of time distributors from one MLM company spend to
criticize

other MLM company. E.g. Amways marketing plan

being criticized, and Amway criticizing stability of other companies.


It is very important to understand that they are in the same
industry.

5) Negligible/ no expenditure on advertising:


It is very important to understand that MLM Company has negligible
expenditure on Advertising. Reporters therefore dont worry of loosing
revenue for their newspaper.
The following is the comparison between the articles of a non-MLM
and MLM company.
McDonalds discreetly

Amway cries foul,

Apologizes over beef fat

cops continue to raid

New York, AFP


Fast-food leviathan McDonalds
On Thursday offered a discreet
Excuse on its U.S. Internet Web
Site failing to inform customers that it seasoned its FrenchFries with beef fat.
The statement follows a lawsuit
Filed in early may in Seattle, in the
Northwestern state of Wash- ington,
on behalf of two Hindus and a nonHindu vegetarian claiming the
restaurant chain had lied to
customers for more than a decade
by using beef fat in its French fries.

HYDERABAD:
Even as Amway India Enterprises
contended on Tuesday that the
provisions of the Prize Chits and
Money Circulation Scheme (Banning)
Act, 1978 does not apply to the Amway
business
model,
the
Crime
Investigation Department (CID) of the
Andhra Pradesh police conducted raids
on some more of its offices in the state.
According to CID officials, raids were
conducted on the offices and godowns
in
Kurnool,
Vijayawada
and
Visakhapatnam, apart from Hyderabad.
CID,
economic
offences
wing,
Superintendent of Police, V C Sajjanar
said two persons, Padmavathi and
Ramu, involved in the Amway
operations in Tirupati, were produced
before a court in Hyderabad on
Tuesday.

32

The Drugs Control Administration


(DCA) too jumped into the picture after
the CID raids. A senior official of the
DCA said the staff had been instructed
to collect samples of drugs, if they too
were being sold through the Amway
network. "Action will be initiated after
getting the drugs samples are
analyzed," the official said.
While the CID is sticking to its
contention that what Amway is
indulging in is multi-level marketing
which is against the Prize Chits and
Money Circulation Scheme (Banning)
Act, 1978, Amway India Enterprises
pointed out to an official communiqu
issued by the Union Ministry of
Consumer Affairs, Food and Public
Distribution, New Delhi on March 31,
2003 to prove that it was not on the
wrong
side.
"The communiqu refers to the
interpretation of various judgments by
the Supreme Court implies that
activities or direct/network/multilevel
marketing do not fall within the
provisions of the act," a clarification by
Amway
India
Enterprises
said.
Amway also said there was no
minimum
or
maximum
business
volume imposed for the distributors and
incentives and commissions are paid
for sale of products only

Giving Beef to a Hindu is a terrible sin. Even after such a terrible


event followed by protest by

shiv sena in Mumbai, the

article appeared in NY Times in the 5

th

page and those too

occupying only 5 X 7 cm.


But a substantially big article was printed on the TOI on the 27

th

sept.

Following the raid on Amway, this was due to defects in its policy.
33

6) Lack of proper knowledge;


There is no guide to choose a good MLM company. 300 odd MLM
companies only 16 are registered under the Indian Direct Selling
Association (I.D.S.A).
(I.D.S.A.): Indian direct selling association is an association of
companies in the business of direct selling in the association. The
members are of high national and international repute having set
standards in delivering and in following ethical business practices. It
is an arm of World Federation of Direct Selling Association
(W.F.D.S.A.).
Main objectives:

To protect and promote interest of direct selling industry and of

consumers.

The support and protect the character and the status of direct

selling industry, and to assist and guide in maintaining qualitative


standards in direct selling.

Out of 300 400 odd MLM corporations in India, only 16

recommended members are:


1. Amway India

7. AMC Cookware

12. Avon Beauty

2. Forever Living

8. Hindustan Lever Network

13. Herbalife

3. ModiCare

9. Oriflame India

4. Sun rider India

5.

Altos

Limited

Enterprises

10. Direct Educational Technologies India Pvt.


Ltd.

11. Daehsan Trading (India) Pvt. Ltd.

14. Quantum Int'l Pvt.


Ltd.

15. Tupperware India

16. Max New York Life

34

7) People that we meet in network marketing:


That MLM has a low conversion ratio is a grim fact.
Mark Yarnell, a well-known network marketer gave a good indication
of the kind of negatives that you will get when you do prospecting. He
says that out of 200 people you contact, 80 will say no when you ask
them to meet up with you (REJECTION). Out 120 that say yes, only
70 will turn up (DECEPTIN). For those who turned up, 13 will become
distributors; 57 will actually not be interested or will just walk out
(APATHY). Of 13 persons who joined you, only one will stay and
eventually will make money, other 12 will leave over time
(ATTRITION). For you to succeed in this business, you need to
prepare for these mental adversaries: REJECTION, DECEPTION,
APATHY & ATTRITION.
But with 3 5 like these associates one can build a very successful
organization (network) that can fetch a very high income.

35

II. Actually what network marketing is?


Traditional channel.

1) MLM Vs. traditional business:

Manufacturer
MLM
business

DISTRIBUTOR

Wholesaler
Area agent
Middle man
Retailer

Customers
MLM Business

Traditional Business

there is only one link

between

manufacturer

and

final consumer

We

have

national

agent, regional agents, and


few other middle-men, then
comes retailer.

With little or no cash,

Major requirements to

you can create your own

do business. Viz.

organization.

skills, risk factor.

No risk

Capital,

Risk bearing capacity


36

2) One of the most important reasons to join MLM is: Time Leverage

For example:
General people:
8hrs/per day 5days/per week = 40hrs/per week
40hrs/per week 50weeks = 2000hrs/per year
2000hrs/per year 40years = 80000hrs/your whole life.
Top Corporation:
80000employees 8hrs/per day = 640000hrs/per day.

Our salary = Rs. 200/- per hour 80000hrs. = Rs. 16


Mn. /life.
Corporations income in a hr. = Rs. 50 X 640000 hrs.
= Rs. 32 Mn/ day.

So: our entire lifes earnings are Top


corporations day earnings.
If your job pays you on hourly basis, you may alleys find it difficult to
break away from making ends meet.

37

3) The MLM matrix

You Introduce

You Introduce

2
4

3
2 + 1 = 90?

27

61

81

Total 30

Total 120
You Introduce

5
25
125
625

Total = 780

38

4) Types of network marketing matrix:


A. Uni-Level MATRIX PLANS

This is often referred to by the un-informed as the Dreaded


"Pyramid". A Unilevel Matrix allows you to have Unlimited Width
and Limited Depth. Simply Point let's say that you are personally
responsible for signing up 10 team members. You will earn a
commission on all sales generated by your 10 Team Members.
(You could in fact sign up 100 or 1,000 or even 1,000,000 or more
people on your first level). Now lets Say each of your 10 Team
members Sign up 10. Since 10x10 is 100, you will now have 100
People on your 2nd Level. You would also earn commissions on
all Sales Generated by your 2nd level. A Typical Uni-Level will pay
down 5 or More Levels. If each person were to continue to get 10
this would leave 1,000 people on your 3rd Level, 10,000 People
on level 4 and 100,000 People on level 5. A very promising but
highly unlikely scenario.

B. FORCED MATRIX Pay Plans

A Forced Matrix is Similar to a Unilevel Matrix but it limits the


amount of people each person can have in their first Level. A Very
Popular Kind of forced Matrix is a 3x9 Forced Matrix.
With a 3x9 Forced Matrix The Most People you can have on Level
1 is 3. Now the most people each of those 3 can have on there
level 1 is 3 which leaves you 9 people on your 2nd Level, A 3x9
Matrix by the Levels

39

27

81

243

729

2.187

6,561

19,683
Total - 29,523

One Advantage of a Forced Matrix is Spillover. Spillover occurs


when you sponsor more people then can fit on your first level. So if
we use the Unilevel Example above and Assume Everyone
Sponsors 10 You Would not only completely fill your 3x9 Matrix
but you would actually have enough people left over to fill a 10th
level of 59,049 and partially fill an 11th level of over 170,000.

C. BINARY PLANS

A Binary Plan is like a 2xInfinity Forced Mat rix with a Twist. In a


Binary you would have 2 Legs. You would typically earn a
commission on the Entire Volume of your weakest Leg. Many
binary's have systems in place that may allow you to earn
Commissions at a later (via a Carryover) on your Strongest l eg.
While the pay plan is important. It clearly is only one small part of
the MLM you choose to join. You should look at the whole
package, Pay Plan, Product, Automated Tools. Market Size, Start Up Costs etc.

40

II. Why Network marketing?


1) Why do organizations prefer MLM distribution system?
Difference between MLM and traditional business is as follows.
MLM

Traditional channel

a. Very small salaried staff.

a. Large size salaried staff.

b. No expenditure on advertisement. c. b. Very


Selling and distribution expenditure

huge

expenditure

on

advertisement.

variable. For instance; if the sales c. Fixed

selling

and

distribution

occurs only then the commission is

expenditure. For instance; if the

payable.

sales target is Rs. 100 Cr. And


expenditure on advt. = Rs.5cr. S &
D expense = Rs. 20 cr. even if the
sales is Rs. 80cr. There will be no
change in the expenditure.

d. High level of personalized service.

d. Personalized service is a costly


affair.

e. Greater multiplier effect.

e. Lesser multiplier effect.

In today's world of rapid change, direct selling offers companies: a


direct distribution channel that can be accessed immediately
bypassing rigid and costly traditional distribution channels.

41

2). Why is it necessary for the individuals to join a good network


marketing organization?
For individuals, it is important to understand some following points:
A. Three development stages of a country:
I.Under-developed country
1. In an underdeveloped economy poverty prevails.
2. There are very few white-collar jobs and business is mostly
conducted by small vendors.
3. You could compare this stage like the tank is filled with small
fishes; that compete against each others.
II.Developing country:
1. Huge capital investments required for developments such as
infrastructural, industrial etc.
2. Government

encourages

big

factories

or

selected

few

businessmen to produce goods for export and to earn foreign


exchange. Which require huge investments small vendors do no
have.
3. Establishment

of

corporations,

opportunity

for

selected

businessmen to have their companies goes public and listed in


stock markets. These corporations normally become big and very
wealthy.

42

III.Developed country:
1. Where infrastructure is done, factories are built; people have
higher standards of living.
2. Big corporation flush with money. Will begin to go into business
sector that used to be the territory of small vendors.
3. The difference is that, these corporations will go into these sectors
in a big way. Huge technological developments, more expertise,
economies of large scale. For instance; Reliance and other
multinationals are entering in the retail sector, where there were
small players until now.
Currently India is in the transitional stage, from developing stage
to developed stage. A tank formally of small fishes, usually survive
together. But now of really big fishes are entering in tank, where
big fishes are eating away small fishes.
Welcome to the business world.

43

B. The result in the market place:


In the developing and developed economy; the large corporations
destroy many small and medium businesses, even those who
have made sufficient money in the developing stages and are the
stable. Only the sectors where the large corporations dont want to
enter are safe.
The trend then becomes that instead of going into business
for oneself, it appears more sensible just to buy shares of those
companies, or to work for those companies.

If you cant

beat them, then join them.


We buy shares of the companies which are listed in the stock
market. To increase the share price, the company will do two of
the things; viz. reduce costs or increase sales. To increase sales,
one either will find new market or expand the market share. When
Wal-mart, reliance will enter into in to market, they will enter in a
big way. The medium and small sized businesses are likely to
collapse.
But these entrepreneurs still need something to fulfill their
entrepreneurial spirit and MLM might be to only vehicle for them.

44

C. Facts that one needs to face:


1. There is now little opportunity for you to be a traditional business
person, as even established small companies face difficulties in
surviving. How can one compete with big time multinationals ?
With listed companies, when they use the money they raise from
the

stock

market

to

compete

with

small

and

marginal

entrepreneurs?
With economies of large scale they are able to sell a product at the
cost price of the local vendors.
When they can give out special deals or loss leaders every week,
selling at their wholesale price to attract customers to their
doorstep?
When they have money to employ specialists and professional
help?
When they have money to set-up their shops at the best selected
locations?
When they can build a one-stop shopping mall?
Most people who run small and medium scaled business, are not
afraid of hard work .they are troubled by the facts that rules have
changed.

45

2. It will be difficult to keep up with inflation and taxes, working for other
people.
How much was it enough for a family of four to run a house (no
luxuries, just necessities) 40 years back?
Ans: Rs. 100 Rs. 200 p.m.
How much is it required for the same family to run the same
house today?
Ans: Rs. 15000 Rs. 20000.
And how much do you think one will require 40 years from now, if
you count at the same rate
Ans: Rs. 500000 Rs. 750000

The inflation rate, as this project is prepared, is about 5% p.a.


If even half of what is predicted is required; you should better plan for
it right now.
India underdeveloped country then; and it will be a developed
economy 40 years from now.

46

D. Globalization at only the tip of iceberg:


1. Developed economies are experiencing white collared job shifts
like

back

office

banking,

auditing,

financial

analysis,

semiconductor chip design, aeronautical design, call centers and


so on, to

developing economies, as there is 60%-70% reduction

in costs.
Bank of America is shifting 4700 credit card jobs to India.
Microsoft and IBM are going to pledge over $450 million p.a. and
$1billion respectively to India in next three years.
th

India is Volvo trucks 4 largest and fastest growing manufacturing


and exporting hub.
Globalization is lowering the income bar in the developed
countries, to that of rest of still developing world. Big corporations
in the developed countries will be able to cut costs, increase profit
margins in the countries like India, China, the Philippines and the
eastern European countries will benefit.
Theoretically, in spite of structural unemployment the GDP of the
country remains same, but with less people needed.
There are countries even cheaper than India, if jobs are outsourced
here, they can be outsourced anywhere.
That is why Tata, Mahindra etc are all expanding in Africa, Vietnam
etc. that time is not far away when Jobs from India will be outsourced
to one of these countries.
Some Indian jobs have already competing with global salary
standards! So the cost benefit is gradually eroding away.
The future belongs to the one who starts preparing for it from today.

47

E. On the brighter side

Several large corporations like HLL, Johnson N Johnson, Gillette,


etc are trying MLM to efficiently reach out their customers.

MLM approach helps to reduction in distribution, after sales


service, and other related overheads. This enables the company
to reach out the customers more effectively and more efficiently.

Statistics given by World Federation of direct Selling Association


(W.F.D.S.A) indicate worldwide growth of MLM by $10 billion in
1980s to $40 billion in 1992 to $70 billion in 1996; touch $100 billion
mark in 2000. In the two biggest markets viz. India & China, network
market is still in the infancy stage.

48

RECOMMENDATIONS AND CONCLUSIONS.


I. Traits of a good MLM company:
1) Products:
Most important criteria to choose a good network marketing
company.
MLM companies are essentially a product driven company.
Consumable products should be the primary products of any MLM
company that is going to last...
All good companies must have a wide range of products, not just a
handful. The reason: for success in MLM business you need to
have as many people you can. Therefore the product range must
wide enough for these people to choose from. One may not like
everything that is sold by the company.
Customer satisfaction guarantees not only good product but also
ensures good price and avoid turning business into a pyramid
scheme. A good customer satisfaction guarantee makes easier to
sell the products.
Good patented products. No company is going to apply patent
license for poor products.
Products are sold through MLM only, not through any other
channel.

49

2) Company:
Proven financial stability: It is always advisable to ask for
established and financially stable company. The company should
represent their steady growth, sales figure and sales history,
ultimately projecting their future trends.
Good reputation and background, strong management and
established international markets in place. If its a new company
then make sure that the owner has at least 10 years of MLM
experience.
Never join a company just because the owner is rich. Dont join
even if there experts employed by the company.
Extensive support network: your company should offer extensive
support network, for training seminars and materials, to incentives
and helpful staff at regional, national and international levels. Your
success depends on MLM Companys success.

50

3) Business plan:
What is the real bonus paid by the company?
Are there multiple income opportunities? A variety of income
opportunities must be offered to you, along with the advantages of
working on your own schedule, either part or full time. You should
earn multiple opportunities to earn money.
No pass-ups: you should look for the marketing plan that rewards
for your efforts. When someone you sponsored and introduced to
your MLM business excels in sales, you should be rewarded and
not passed up.
No demotions: distributors should not be demoted due to inactivity
of sales. Once youve been promoted to certain level you should
be there for lifetime.
Bonuses paid on retail cost of the product: even though you pay
wholesale price of product, a quality company will still pay you on
the RETAIL prices of the product.

Marketing plan should be simple and foolproof, and should not

change frequently.

51

II. Suggestion to MLM organizations:


1) Should operate legally. Should comply with all the laws.
MLM companies operate under their own set of guidelines which
come in every possible variety imaginable. The general looseness of
the guidelines has resulted in a large number of lawsuits from
distributors who have lost substantial sums of money in the
programs. The landmark legal case for the industry is the 1979
Federal Trade Commission ruling on Amway which found that
although Amway engaged in deceptive practices, as long as profits
were made through the sale of product, the company could continue
to operate within the law.
For MLM businesses to operate legally, they must meet the following
criteria:
1. The company brings a product or service to the marketplace that is
(a) retailable and (b) being retailed;
2. The product or service reaches the end user through direct sales
representatives

(independent

contractors),

rather

than

through

traditional retail establishments;


3. The company's compensation plan (a) is designed to reward
representatives for the sales of the product or service they make, and
(b) includes a feature that additionally rewards a representative who
introduces an additional representative to the company, based on the
sales volume of the second representative.
A business that has all these components except for 3 (b) is a singlelevel direct selling company. 3 (b) is what makes it an MLM. All of the
criteria above must be met for the MLM business to be legal. Any
52

missing component turns it into an illegal business. For instance, if in


3. The second representative does not personally sell the product or
service, the business is no longer legal. How much that percentage of
sales needs to be has not been defined. If a program compensates
representatives, directly or indirectly, simply for the introduction or
enrollment of other participants in the program, it is considered to be
a pyramid scheme which is illegal.
Additionally, recent court decisions have ruled that at least 70% of all
goods sold by the MLM Company must be purchased by nondistributors.
Beyond understanding what an MLM is, however, there is still an
incredible controversy raging about whether these companies really
do what they say they do.

2) Should be managed by competitive staff:

The staff of MLM Company should constantly monitor the

networking activities of its distributors, to prevent game playing.

They also should constantly work on the distributor training

program; upgrade it in order to suit the distributor requirements.


3) Better PR:
The organization should have a better policy in order to create a
favorable image of its company.
IDSA registered company can enjoy the benefits of being regarded as
the credible companies. The IDSA then handles the P.R of these
companies.
53

3) Suggestion to network marketers:


I. Roadmap to success in MLM:
.

Cannot
people.

find

find

Can
people.

Dont want to
listen.

Want to
listen.
Dont want
to do.

Want to do.
Cant build a business.

Can build a business.


Could not
leverage.

Leverag
e.

54

II. Tips to do a good business:


1)

Always have professional attitude

2)

Cultivate a pleasing personality

3)

Work with others interest at heart. Help others get what they
want and you will get what you want.

4)

Build your organization based on proper ethics and values.

5)

Be honest and transparent. Never exaggerate or make false


claims regarding products or possible earnings.

6)

Teach all people in your organization the same concepts of


business. This will ensure sustainable growth.

7)

Be passionate about the products and business.

8)

Believe in yourself. Be self-confidant.

55

III. Solution to game playing:


1.

Work the business in the healthy way; your bonus must reflect
the number of distributors in your organization.

2.

When a distributor feels that he is been dragged into the game; it


is recommended that one must listen to his upline carefully at
first. After confirming that it is really game playing just ask few
questions, not one at a time; altogether.

I would like to ask you a few questions.


Why are you asking me to buy so many products at once or to
make the pin level?
How will this benefit me?
And how will this benefit you?
Is this the proper way to do the business?
By listening to this he might understand that you are aware of
Game playing.
3.

A good MLM company will have 25-75 product buying rule i.e.
that unless the distributor has sold 75- 80% of the previous stock,
he is not allowed to make a new purchase.

4.

A final solution; termination of the membership of distributor


playing game.

56

MLM in Eddy Chais words


And god said no to multi level
marketer: I asked god to give me bug
organization. And god said, No.
He said he gives courage
And it up to me to built it.
I asked god to give me knowledge to build this organization.
And god said, No.
He said he gives me wisdom
And it is up to me to learn.
I asked god to take away my pride so that I will learn
And god said, No.
He said it was not him to take away
But for me to give it up.
I asked god to give me happiness.
And god said, No.
He said he gives me blessings
But happiness is up to me.
I asked god to make my spirits grow
And god said, No.
He said he gives me blessings
But he gave me a book to guide me.
I asked god to help me love my associates
As much as he loves me.
And god said,
Ah, finally you understand multi-level-marketing

57

BIBLIOGRAPHY

SCOPE OF STUDY-

(Birth of MLM): "Tai Chai book for success in MLM".


by Eddy Chai.

International statistical figures: World Federation of Direct

Selling (W.F.D.S.A.).

Domestic statistical figures: Indian Direct Selling association.

METHODOLOGY.

MLM concept model: Forever Living Products Int'l Inc.

Types of MLM matrix: www.mlmwatchdog.com.

Reasons to MLM: "Tai Chai- book for success in MLM".


by Eddy Chai.

RECOMMENDATIONS.

Tips to choose a good network marketing company: (Federal

Trade commission, U.S.A., (W.F.D.S.A.).

MLM road map: "201 ways to make money in MLM"


by Richard Tan & K.C. si.

And interview with Amarjeet Ubhi.

58