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Online and MLM fraud companies

Daniel R Pranjal |

Updated: December 18, 2013, 5:14 PM IST
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Online and MLM fraud companies
Scams continue to exploit loopholes to circumvent law and are continue to be a threat to the country.

Direct selling has completed 18 years in India and about 8 million of our countrymen are engaged with the industry. The industry continues to grow at rapid speed despite of scams (using the multilevel marketing compensation plans) causing damage of thousands of crores every year.

Scams not only swindle the people but also create confusion about the business model since they impersonate as principled direct selling companies. This snowballs to become menace for ethical direct selling companies because of misunderstandings created, this coupled by general dislike works in favour of scams which stand to benefit in case of damage to ethical direct selling companies when more and more people in greed for easy money leave product based direct selling companies to join scams promising easy money.

Scams continue to exploit loopholes to circumvent law and are continue to be a threat to the country. Even countries like Bangladesh and Vietnam have learned their lessons before us and have regulated direct selling along with others like Japan, Germany, United States, United Kingdom, Korea, Thailand, Malaysia, Canada, Russia, France, Brazil, Mexico, Italy, China, Taiwan and Columbia.

The scams use MLM (Multilevel marketing) compensation plans:

* To avoid high cost of advertising and take advantage of the effectiveness of the word of mouth publicity which more effective to get bigger investments.

* To reduce risk of investor complaints if the founders abscond (since the investors approach and get initial investments from their friends and relatives who don't want their friends in trouble).

* To effectively and speedily spread in the rural areas where information about these types of scams is not available to the common man and the police.

* To fly below the radar or to avoid the limelight and scrutiny by government and non-government agencies.

* To spread fast in areas with little or no access to media (electronic and print)

Some popular get rich schemes in India:

Type 1 (Non MLM): Teak plantations, car lease program, real estate (investing in under construction flats, townships etc), investment in gold/silver, time shares, gold/diamond jewellery etc.

Type 2 (MLM) - Forex trading, trading in stocks, trading in commodities, investing in real estate, timeshares, e-books, surveys, get paid to watch advertisements, get paid for blogging, pay per click, investing in IT sector, investing in infrastructure projects, club
membership, e-zines, goat farming, emu farming, poultry farming, cow and buffalo farming, rabbit farming, plots, trading in virtual currency, etc

Scams like:

* Aryarup/ATCR , SpeakAsia , Unipay2u, Stock Guru, TVI Express contribute a small percentage to the total turnover of scams which goes as high as Rs 10,000 crores per year . Most of the companies do not register in India and siphon off money via various payment services not authorized by Reserve Bank of India.

The ideal process of direct selling is:

1. Enthusiastic consumer: Use the products and experience the benefits. When you discover that the benefits outstrip the promises made about them, and all the conditions that had to be met to obtain those benefits (including the purchase price and actually using them), you get really enthused.

An added benefit is, not having to face an ethical dilemma whenever you try to sell or introduce someone without that personal experience of the claimed benefits which undermines your integrity, self-respect and credibility.

2. Enthusiastic product advocate: Share the product benefits with other people. This will earn you reciprocal income, where you exchange one thing of value for another. (In this case your product for their money. Just like in a job, you exchange your time for your boss's/companies money.) Reciprocal income may or may not be your main income source in direct selling, but it's the most immediate and the easiest to earn for new people.

The products work for others and they get excited by the benefits and second, you can actually make money selling the products to others. Once again, your enthusiasm is based on fulfilment, not promises. Not just your own fulfilment, either, your consumers' fulfilment as well.

3. Enthusiastic business advocate: Share the income opportunity with other people. Some of those consumers may catch your own enthusiasm, and your reality will become their vision. They'll join you and experience the benefits of reciprocal income, immediately and also get the products for themselves at discounts.

This will begin to create residual income for you - the real income stream in direct selling, because it's high leverage.

The more people who join you, the more your income will grow - your time and effort will increase a little for helping your team and guiding the team members to achieve their goals. Now your enthusiasm is climbing rapidly, based once more on actual fulfilment, not mere promises. And because your people are experiencing their own fulfilments based on actual experience, the synergy within your team becomes extremely powerful.

This happens mainly because of lack of clarity on the business model and this will continue till the industry is regulated.

Till that time the industry is regulated there are red flags you should look out for :

a) If you are not shown and spoken about the products offered by the direct selling company - Do not join

b) If you cannot see value at which the products are sold (even if you can afford them) - Do not buy them or join the company since if you yourself would not use them, you would not have the confidence to recommend them to others. If the products don't get sold - you don't make any money.

c) In case the products sold by the company have no market value - Stay away.

d) If the products are based on speculations and probability - Stay away

e) If the cost of entry to start earning is high - Stay away .

f) Avoid the companies promoting the following:

* Deposits/Investments - in/ for/ in form of - stocks, debentures, gifts/ help/ assistance/ support/ donations, currency, preferential shares, forex trading, plantations, farming, infrastructure projects, resorts, trading in commodities, birds (poultry, Emu, etc), animals (rabbit, goats, cows, buffaloes, etc), media and real estate.

* Discount coupons/Vouchers

* Crypto currency

* Bid coupons/Vouchers

* Websites/Web space/ Hosting space

* Get paid- to click, to give surveys, watch advertisements, receive SMS and receive emails.

g) If you primarily get paid to recruit new distributors - Stay away

h) "Earlier you join, richer you become" is the mantra - Stay away

i) "More you invest, the more money you get " is the case - Stay away

j) If the company claims to pay you back higher than 50 per cent as commissions on sale of products ( online or physical ) - Stay away

k) If opportunity is shown to be greater and more important than the products - Stay away

Daniel R Pranjal is the Chief Strategist at the Strategy India.

First Published: December 18, 2013, 5:14 PM IST
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