Summary: Multilevel marketing (MLM), also known as network marketing, involves a hierarchical structure where salespeople, often unpaid, sell products directly to consumers. Major MLM companies like Amway, Avon, and Forever Living have entered the Indian market, targeting direct sales. MLM representatives earn commissions based on sales and recruitment, with opportunities for substantial income. The MLM business model includes various roles, such as sales representatives and recruiters, who often operate independently. While MLM has seen growth, especially in industries like health, beauty, and electronics, it is sometimes confused with illegal schemes like pyramid and Ponzi schemes. These schemes focus on recruiting investors rather than selling legitimate products, leading to legal issues. Pyramid schemes, where recruits pay entry fees with promises of high returns, are illegal in India, as per RBI guidelines. The MLM sector, though offering opportunities for self-employment, faces scrutiny due to its association with such schemes. Judicial cases like State of West Bengal vs Swapan Kumar Guha and M/S Apple FMCG Marketing Pvt. Ltd. vs Union of India have set important legal precedents, emphasizing the need to distinguish between legitimate MLM practices and fraudulent schemes. MLM continues to be a growing yet controversial business model globally and in India.
Abstract
In an effort to increase direct sales, Amway, Avon, MaryKay, Forever Living, and other outstanding MLM companies have entered the Indian market. Many outstanding MLM firms have entered the Indian market to increase direct sales, including Amway, Avon, MaryKay, Forever Living, and others. Several outstanding MLM companies in India have entered the Indian market to increase direct sales. MLM companies such as Amway, Avon, MaryKay, Forever Living, and others have entered the Indian market to increase direct sales. The MLM industry has seen several outstanding companies enter the Indian market with the objective of increasing direct sales. One example is Amway, Avon, MaryKay, and Forever Living. Direct selling companies like Amway, Avon, MaryKay, Forever Living, and others in the Indian market are trying to gain a competitive edge in this market. In an effort to increase direct sales, prominent MLM firms have entered the Indian market, including Amway, Avon, Mary Kay, and Forever Living
Introduction
Multilevel marketing (MLM) is a business model in which an unpaid hierarchical sales team sells products directly to customers by employing additional corporate salespeople. Multi-level marketing is also known as or network marketing.
Existing MLM companies sell and market their services to a network of potential customers. new employees are often requested to be recruited to support the company’s ever-increasing income levels there will always be a hierarchy of roles and levels within a multi-level marketing organization, which can be enhanced by effective sales and recruiting, appropriate compensation, and employee development..
1.1 Working in a Multilevel Marketing
B2C enterprises provide items or services to individual salespeople who frequently operate as small company owners in multi-level marketing. These people offer items and services directly to customers, often without the use of physical storefronts. Independent distributors serve as brand ambassadors or micro-influencers. An MLM company’s structure may have flat hierarchies. This implies that there are minimal tiers of separation between senior management and new recruits. CEO, Distributor, Sales Representative, Sponsor, and Recruiter are all roles in the MLM business paradigm. A compensation strategy is normally in place. When the lowest salesman makes a sale, everyone above them usually gets a cut of the profits. MLM salespeople are not paid by the hour, but rather by fixed commissions at each level. Although the emphasis is on recruiting new distributors, distributor representatives also earn money by selling the company’s products.
MLM sales teams are frequently made up of women, young moms, or those searching for alternative employment. MLM firms sell previously pleased consumers, offering independence and new business chances. Customers are more inclined to trust a friend or acquaintance serving as an agent than a stranger selling a product, according to one of MLM’s techniques. Representatives who utilise the community as a consumer base may discover that their friends and family are eager to support their commercial endeavours.
1.2 Growth Of MLM Companies In The Current Scenario[1]
MLM companies operate in all areas, including health and nutrition, beauty and skin care, tableware, cutlery, and consumer electronics. The best thing about this business is that it continues to grow and has no chance of going down. Each member earns a certain amount based on sales and downline people. MLMs provide a fair return for all employees in the pyramid, and those at the top of the downline can undoubtedly have strong income opportunities. With this business, you can also earn unlimited income, but it all depends on how wisely you invest your time, money and work. When you work for an MLM company, you automatically become an independent entrepreneur, a self-made successful person, and you subconsciously put a lot of effort into shaping your personality. Communicating with people, speaking up in meetings, managing your downline, maintaining dignity, generating leads, managing your email and website will automatically develop your personality and improve your communication and management skills. , discipline, consistency, focus, confidence, and more.
1.3 Multi-level Marketing in Globall and in India[2]
Despite its massive presence in retail, MLM is a less well-known concept in mainstream marketing practises in India due to poor awareness and a small network of individuals participating. is. Pyramid schemes are also occasionally mistaken with it (Sudhir, 2014). This practise is widely condemned and illegal in many nations, including India. There is a scarcity of marketing literature concentrating on this form of product sales. Several publications have highlighted the dangers of relegating MLMs to criminal Ponzi schemes. However, it accounts for a significant share of India’s retail commerce and is predicted to develop at a quick rate of -13% (Shenoy, 2018), offering self-employment chances to 5 million individuals in India. (KPMG, undated)), a practise description is critical at the beginning. When selling things directly, the corporation looks for direct salespeople (consultants) who would buy products at a discount (wholesale). Goods are bought for personal consumption and then sold to other consumers at market pricing. The direct seller’s profit is the difference between the wholesale and market prices. Another component of the sales approach makes the business proposition particularly appealing to consultants. Most MLM models incorporate a referral mechanism to convince potential advisor customers to become advisors, allowing wholesale purchases from firms at wholesale costs rather than buying at market prices from advisors for consumption. You may purchase immediately. It also introduces the method of purchasing and selling things directly and profiting from the sales.
In Malaysia[3], the direct selling business is expanding rapidly. According to the Ministry of Domestic Trade, Cooperatives, and Consumerism, direct sales volume would increase by 20% in 2012. To protect potential clients, the Direct Selling Act of 1993 has been tightened. With Malaysia’s real incomes declining and unemployment growing, particularly among the young , there may be a greater desire to pursue multilevel marketing (MLM) to supplement their income and maintain their desired modern lifestyle. In the past, however, the MLM scheme has suffered in the form of an unethical pyramid and Ponzi schemes that seek quick profits but are not sustainable.. The goal of this study is to investigate the influence of MLM business perception and agent attributes on young interest in MLM as a career. Researchers that employ ambulatory assessment methods and other forms of diaries are increasingly (almost always) analyzing their data using some type of multilevel methodology. This is because the data acquired in such investigations is inherently multidimensional. A random sample of people contributes data on a regular basis, resulting in a multilevel data structure in which people are one level of analysis, and the repeated measures they offer are another level, or layers, of analysis.[4]
1.4 Legality of Multilevel Marketing in India [5]
In India, network marketing is legal. Multi-level marketing schemes are also unlawful, with the exception of some enterprises that are done to deceive unsuspecting customers into investing in MLM schemes and are sold directly by investors. There is also no genuine service or promoter trade. Rather, there is just a guarantee that the investment will receive a return. However, such promises are seldom fulfilled, resulting in massive losses for investors.
The MLM India schemes listed below are unlawful :
Pyramid-based schemes
According to Indian law, a pyramid scheme is one in which the organiser creates a pyramid structure, starting with one individual who symbolises the pyramid’s tip. Someone appoints someone else to work for him. Additionally, this person is obligated to contribute a set sum, which goes to the recruiter who first brought them on board. A pyramid chain of investors must be recruited by the new member in order to receive a return on their investment. Investors are being cautioned by the Reserve Bank of India (RBI) against pyramid scheme scams that demand exorbitant membership fees in exchange for unrealistically high profits. MLM, Chain Marketing, and Pyramid Structure Schemes Allegedly Promise Easy or Quick Money Upon Enrollment, Per the RBI Scheme for Money Circulation Members. The Multi-Level Marketing firms running Pyramid Structure Schemes, Network Marketing, Chain Marketing in India have been advised not to mislead the public with claims of large profits, according to the Reserve Bank of India.
Ponzi schemes
Ponzi schemes are deceptive investment schemes that promise enormous returns on their investors’ funds.The cash flows from new investors are utilised to give rewards to present investors. Thus, the plan is dependent on a continual supply of new investments and collapses when that stream of investors ceases.It is critical to understand the differences between a pyramid structure and other forms of multi-level marketing schemes, such as ponzi scams. A Ponzi scheme includes one person running the fund and just shifting money from one person to another without really investing it. When the investor gains confidence and additional investors begin to invest.
Literature Review
Multilevel Marketing (MLM) — A Futuristic Concept?[6]
Staggered promoting organisations (MLMs) are a rapidly increasing hierarchical type, otherwise known as network promoting, alluding to the act of disseminating, offering, or supplying goods or administrations through several levels of free specialists (workers for hire, merchants, and so on.). These professionals are compensated in the form of commissions, rewards, restrictions, earnings, or other sorts of thought in kind for selling things or administrations and also for picking other specialists. The MLM Organisation might be a human, a company, a partnership, or another type of commercial entity. MLMs include Avon, Amway, Equinox Worldwide, and Tupperware. MLMs may be both legal and illegal.
Marketing Fraud: An Approach for Differentiating Multilevel Marketing from Pyramid Schemes[7]
Multilevel marketing (MLM), a type of direct selling, had substantial international expansion throughout the 1990s, aided in part by the emergence of the Internet. During the same time period, there was an upsurge in the investigation and punishment of illicit pyramid schemes. These concurrent operations caused ambiguity among marketing executives who utilised or desired to employ the MLM method. The authors compare the multilevel marketing method to actions connected with criminal pyramid schemes. Based on prior pyramid scheme trials and current US legislation, a mathematical model is utilised to distinguish between the two. The model’s results reveal critical elements that marketers interested in MLM should consider when creating this sort of distribution channel.
A Review of the Multilevel Marketing Phenomenon[8]
MLM is a moderately new and rapidly growing peculiarity. These organizations are many times known as immediate advertisers (direct selling associations) or organization advertisers. The essential qualification between Direct Promoting, genuine DSOs (what we characterize as organization showcasing), and MLMs is that in network advertising, the item is prevailing and item deals are accentuated, while in MLMs, the item is much of the time immaterial or optional, and the accentuation isn’t on selling item however on selecting different salesmen to enlist even more. At the point when the accentuation shifts from offering product to selecting extra salesmen, a DSO turns into a MLM. The scholastic local area presently can’t seem to completely explore the MLM peculiarities. This study examines the Staggered Advertising peculiarity and its suggestions.
Judicial Precedents
State Of West Bengal & Ors vs Swapan Kumar Guha & Ors 2 February1 982 AIR 949, 1982 SCR (3) 121[9]
Sanchita Speculations, an enrolled organization firm with an offer capital of INR 7,000/ -, started its tasks in money and interests in the Territory of Bengal v. Swapan Kr. Guha. In light of the Business Duty Official’s report, an FIR was documented with the charges that the business had been promising a 48% premium, which was then sliced to 36%, and that it was subsequently captivating in a cash dissemination plan for producing speedy or income sans work. The business and its accomplices documented two writ petitions in the Calcutta High Court looking to excuse the FIR under Article 226 [10]of the Indian Constitution. The High Court allowed the writ request and upset the FIR, and West Bengal documented an allure.
M/S Apple FMCG Marketing Pvt. Ltd. v. Union of India
For this case, the High Court led an inside and out assessment of Area 2(c) of the Demonstration, inferring that all movement to bring in fast or pain-free income wouldn’t fall inside Statement (c) of Segment 2 of the Demonstration and that bringing in such speedy or pain-free income should be dependent upon any occasion or possibility related or appropriate to the enrolment of individuals into the plan. Having analyzed the idea of a “cash dissemination conspire,” the High Court applied it to the allegations in the FIR and dismissed the declaration that the program was dependent upon the prerequisites of Segment 2(c) of the Demonstration.
In M/S Apple FMCG Promoting Pvt. Ltd. v. Association of India, the candidate looked for a writ of statement pronouncing that selling items through the Organization Showcasing Framework is legitimate and doesn’t disregard the arrangements of the Award Chits and Cash Flow Plans (Prohibiting) Act, 1978[11] or some other regulation. M/s Apple FMCG Promoting Private Restricted was integrated under the Organizations Demonstration of 1956[12] . Through “network showcasing,” it advanced various things including as cleanser, tea, espresso powder, face ointment moisturizer, etc under the brand name “Satisfaction Timeless.” The advertising methodology was done straight by employing merchants of the things and administrations. There was no help cost for turning into a wholesaler. Any individual who communicated an interest was offered an item at a foreordained cost. The wholesalers
More wholesalers were encouraged to join. Commissions were just paid in view of how much deals delivered by the specific wholesaler and his group.
The Court expressed that the framework creates a chain of clients, and the ‘essential merchant’ gets extra commission just when the chain go on without a break in any of the associations. Assuming the chain is broken anytime, the significant wholesaler’s bonus will be sliced relatively to that sum. Subsequently, it is mistaken to guarantee that there is no client chain simultaneously. The case that no help cost was gathered seemed to be off base, considering that each client who buys a pack is expected to pay a help charge of each unit is INR 50. The way that 65% of the returns are saved for commission installments to merchants shows that the item’s worth is just 35% of the deal cost. That occasion, when items are sold for R550/, the genuine worth of the things sold is just INR 188. It proceeded to say that the advancement of the client chain would ultimately become soaked, and the merchant who bought the things would not be able to find any buyer/sub-merchant to sell or join over again. By then, attributable to the chain’s movement in the technique depicted above, such people won’t track down new individuals in the lakhs.
Kuriachan Chacko v. State of Kerala, (2008) 8 SCC 708[13]
In the wake of gathering advance cash, M/s LIS, Ernakulam, an organization concern engaged with the matter of selling lottery and distributions. They proposed a framework called the “LIS Deepasthambham Plan.” The Plan’s guideline was clear. An individual should pay Rs 625 to the advertisers to obtain one unit of lottery. The advertisers would utilize Rs 350 to purchase 35 lottery tickets from the Kerala State Government, every value Rs 10 for the accompanying 35 weeks. On an early date, the unit-holder will be repaid (paid) the Rs 625 he at first positioned, yet additionally twofold his speculation, for example Rs 1250 (short Rs 100 as administration costs for the advertisers and lawful allowances for charge, and so on.).
The High Court In passage 34, the court said that “both the fundamentals of Segment 2(c) are available in the moment case.” The Plan offers for (I) fast or modest cash, and (ii) it is dependent upon an event or circumstance connected with or pertinent to part enlistment in the Plan.
The RBI warns the public about multi-level marketing activities.[14]
In order to safeguard investors against unethical businesses, the Reserve Bank of India has issued a warning to the general public about Multi-level Marketing (MLM) activities.The Reserve Bank described the operations of these businesses, claiming that MLM/Chain Marketing/Pyramid Structure scams provide easy or quick money upon member enrollment. Instead of from the sale of the goods they provide, such schemes make the majority of their money by enrolling ever-increasing numbers of members, from whom they get significant monthly fees. Since a portion of the subscription fees are sent to the members at the top of the pyramid, all members are required to sign up more people. The pyramid collapses once the chain is broken.
The Reserve Bank has urged individuals to avoid being duped by firms that claim to have made significant profits utilising Pyramid Structure, Chain Marketing, and Multi-level Marketing Schemes. The Reserve Bank has issued a warning that falling for such proposals might result in rapid financial losses, and that customers should avoid reacting to such solicitations in any form.
Accepting money through pyramid schemes such as multi-level marketing or money circulation is also a serious criminal under the Prize Chit and Money Circulation (Banning) Act of 1978, according to the Reserve Bank. Anyone who comes across such solicitations must immediately call the State Police and file a report.
Analysis
In the current scenario Multilevel Marketing is in a boom and is growing rapidly despite having some legal flaws. It can be denied that each and everywhere in the world MLM has its impact but as long as customers are aware of the goods and services offered by the company and are confident that it is not a scam, MLM business will boom in the near future, especially since the demand for high-quality products is increasing and people are seeking more independence in their careers than ever before. In network marketing, your chances of success are higher. Yes, some individuals struggle with it. In MLM or network marketing, it is common for 20% of the individuals to make 80% of the money.
Conclusion
The Multilevel Marketing is in a booming phase despite having some legal flaws. In Finally, network marketing is more than just a company; it is a chance to grow and progress as an individual. If all the individuals and organisations take effective steps then all challenges can be overcomed and it would flow more efficiently
[1]Nishtha Malhotra, Growth Of MLM Companies In The Current Scenario, by BWBUSINESSWORLD(August 4 ,2023)
[2] Abhishek Banerjee, Multi-level Marketing in India: Business Prospect Versus Social Interactions? Some Identified Research Issues for Marketers, by SAGE JOURNALS (15th December 2022)
[3] Joyce Koe Hwee Nga (School of Business, Sunway University, Petaling Jaya, Malaysia)
Soo Wai Mun (Taylors Business School, School of Accountancy and Finance, Taylor’s University, Petaling Jaya, Malaysia) The influence of MLM companies and agent attributes on the willingness to undertake multilevel marketing as a career option among youth by Journal of Research in Interactive Marketing (29th March 2011 )
[4] Nezlek, J. B Multilevel modeling analyses of diary-style data. In M. R. Mehl & T. S. Conner (pp. 357–383) (2012).
[5] Akansha Upadhyay, Is Multi-Level Marketing (MLM) Legal in India? eStartIndia (2023- 03-10)
[6] Multilevel Marketing (MLM) — A Futuristic Concept? Conference proceeding of the National conference on Paradigm for Sustainable Business: People, Planet and Profit held at DOMS, IIT Roorkee (8-9th March 2013)
[7]Peter J. Vander Nat and William W. Keep, Marketing Fraud: An Approach for Differentiating Multilevel Marketing from Pyramid Schemes, Sage journal (2002)
[8]Paul Herbig & Rama Yelkurm A Review of the Multilevel Marketing Phenomenon, Journal of Marketing Channels (1997)
[9] State Of West Bengal & Ors vs Swapan Kumar Guha & Ors 2 February1 982 AIR 949, 1982 SCR (3) 121
[10] Constitution of India 1950
[11] Award Chits and Cash Flow Plans (Prohibiting) Act, 1978
[12] Companies Act 2013
[13] Kuriachan Chacko v. State of Kerala, (2008) 8 SCC 708
[14] Alpana Killawala, Principal Chief General Manager RBI cautions Public against Multi Level Marketing Activities, Reserve Bank of India (01/01/2015)
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