It has come to my attention that Egypt among other developing countries is practicing a new "marketing" trend called "Network Marketing". Basically, you will be approached by a representative of a certain company offering you to work with them in the business by becoming a marketer yourself. He/She will explain to you the whole process of making money through this scheme.
In this article, I intend to bring awareness to people of what is Network Marketing and how can you get confused by the legal businesses and the illegal businesses using facts, logic and math!
Okay, so first let me explain what is marketing? "Marketing is the activity, set of institutions, and processes for creating, communicating, delivering (making it available in the market or the shops), and exchanging offerings that have value for customers, clients, partners, and society (for helping them socially, economically, or politically) at large." as defined by the American Marketing Association [1].
If we examine the definition by the American Marketing Association, we will find that an intended benefit is required for both the customer (by utilizing the product) and the producer (by making profit).
So, what you might be thinking now is what “Network Marketing” is? Okay, hold on, I will have to describe the kinds of marketing that it has derived from it. Legitimate Multi level Marketing (MLM) is the marketing scheme used to confuse new recruiters to join “Network Marketing” along with the Illegal Pyramid schemes.
First, what is a Legitimate Multi Level Marketing? MLM is a marketing scheme whereby the marketing of a product is done through the distribution of it to the general market by recruiters or distributors who will not only buy and sell the products but will recruit others who will do the same. It is very attractive because you don’t only get commission on the products you sell but a percentage on the products sold by the distributors that you recruited into the system.
This process is often confused with the Illegal Pyramid Scheme (It will be described later in the article). Therefore you must ensure that this process satisfy a certain criteria as stated by the US Federal Trade Commission [2]. The criterion is to: 1. Sell a real product 2. to members of the general public 3. without requiring them to pay anything extra to join the MLM system. 4. Commissions may be paid to distributors; however, it is paid for real retail sales NOT for new recruits.
Popular examples of successful MLM are Oriflame[3], Avon[4], and Mary Kay Cosmetics[5]. If you examine those three examples, you will find that they satisfy the criteria stated by the American Federal State of Commission to become a Legitimate Multi Level Marketing, that is—by 1. selling real products (check the website), 2. to members to the general public (you can buy it directly from the website or find in the market like in pharmacies or cosmetic stores) 3. without requiring to pay an extra penny than the market stated price, and finally 4. if you are a distributor you get commission on the retail sales not the number of recruiters (ie: getting the same commission whether you sold 10 products to one person or 1 product to 10 persons).
So, now what is Illegal Pyramid Schemes? Illegal Pyramid Schemes derive their structure from the Legitimate Multi Level Marketing, however, with some minor changes that may confuse new recruiters in making them believe it’s a legal business process. It involves promising participants payments upon recruiting new people into the scheme NOT by selling products or services to the general public. So, the commission here is for recruiting people, and that is not what marketing is about. It is described by Federal Bureau of Investigation (FBI) [6] and Federal Trade Commission as a form of FRAUD.
So still, how does it work? First, you will need to buy a product in order to enter the business. Second, you will need to recruit new people to enter the business or market the product. However, you will not receive commission by just recruiting one person; there will be some restrictions like you will have to recruit 6 participants for each commission. The recruiters of this business help new recruiters believe that they will have to work hard for the first few months, and then a river of endless money will be thrown into their laps. However the MATH DOES NOT WORK! Please see the below demonstration [7].
PLEASE SEE PICTURES ATTACHED FOR THIS DEMONSTRATION
As stated by World Development Indicators [8], the population of Earth on 2008 was 6,697,254,041. Therefore, if you examine the bolded numbers, you will see that it has EXCEEDED THE POPULATION OF EARTH. So, mathematically and logically speaking there is NOT enough people to make this process infinite.
You will tend to hear from the people convincing you to join the network or the pyramid that they have already made money from this process; most probably they are not lying. Still, the question lies, in which level are you starting? If you started at the top levels then chances are you will be making money off the backs of the recruiters below you, but what if you aren’t? Is there any chance to know where do you stand? The answer is: No!
As you get approached with this kind of business, which nowadays call it “Network Marketing” (I still don’t see where the marketing of products lies here). The recruiter will ask will advise you to recruit the closest friends and family members below you, so that they will make the greatest profit after you. Logically speaking, if you and your family members were in the top levels, then chances are you both will make money and be happy. However, what if, what if you were not on the top levels? You would have convinced the CLOSEST FRIENDS and FAMILY MEMBERS to join the business making them fall in the trap. Socially speaking, how do you think this will affect the relationship with these people? Do you think they will trust you with money again? Do you think they will respect you? Moreover, do you think you will have any kind of relationship with them again? Well, some might say depending on the money they have “invested” and some might say they will forgive him. The question is: will money be any good without those people surrounding you? Given that maybe you were from the levels who earned money and they were from the levels that didn’t.
As I am trying to analyze here, have you noticed that now we are talking about the money that we invested in this business NOT the money we paid to buy a useful product that we actually needed? So now that we speak, is it really a marketing strategy or is it a business model? It’s confusing, isn’t it?
Since I gave examples to the Legitimate Multi Level Marketing, it would be unfair to not give an example to the Illegal Pyramid Schemes. The most popular Pyramid Scheme working under the name of “Network Marketing” is QNET[9].
Some questions arising that make me wonder. Are the products available in the market? No, I wouldn’t find the watch they are selling in any watch store; they want it to be unique products that you will only buy from the distributors (unlike products of Oriflame that you can find them in any pharmacy). Can I buy the product online?No, it has to be through a referral. Can I browse the prices and products online? No, why? I have no idea! Are the products overpriced? Yes, the minimum purchase is for $600. The products are diverse such as travel packages, jewelry, watches and so on. Are they branded products? No. Gucci[10] watches prices start from $300++ . Mmmm… I think I would prefer to buy Gucci, wouldn’t you?
Some people would argue that the product is overpriced because you are not just buying the product, but you are investing your money into the business. Hold on, wait a second, let me check again the criteria that ensures a Legitimate MLM. Oh yes, I remember, it requires me NOT PAY AN EXTRA PENNY for the price of the product.
I then stop for a second and wonder, if I entered this business, would I buy another product? Let’s say, I bought the overpriced non-branded watch to join the business. If I want to buy a new watch, would I still pay this ridiculously high price for that product, or will I go buy it from Gucci, Bvlgari, or Mont Blanc. Come on, at least people would know am wearing a Gucci watch! We all like to showoff don’t we?
Also, the first time I paid extra money was to invest in the business, but do I really have to invest again? No, I am already in the pyramid. Chances are, my first investment was at the top levels of the pyramid (if I am making profit), who is to say I am in which level now? So another question arises, do I buy the product because I really want it, or is it just a business venture?
I can’t help notice that in the website it’s stated that the company has been up and running since 1998 and that the Head Quarters are in Hong Kong. I also can't help notice the countries where they have their offices in such as Azerbaijan, Indonesia, Philippines, Singapore, Taiwan, Tajikistan, Thailand, and United Arab Emirates. Well, anyone approached by this company might think “mmmm… I guess it’s trustworthy”. I thought so too, until I checked the activity of their website through Alexa [11] a web information company. When I checked this company’s activity (SEE ATTACHED PICTURE) [12], I was amazed and not so surprised with what I got. I’d like to share with you what I found out.
For starters (please check the Traffic Stats tab), I was keen to know the peak activity on the website. Since the whole buying and selling process goes through it, then, the more activity on the website, the more sales has been made. I found out that there was no activity on 2009, and the activity started to boost in midst (June) 2010 which made me think, how come the company has been there since 1998 and the activity started only on 2010? (The activity of the website was prior to 2009 according to the old websitehttp://www.quest.net )
Secondly the company’s Head Quarters is in Hong Kong! Yaaay, it’s a first world country, which should mean something! Oh, wait they have an office in Singapore as well, that should mean the business is up and running in developed countries. Wait my friend, don’t rush into things. I checked the company’s worldwide traffic rank, meaning I checked the top countries that access and view the website. Since again the whole process is done online, then the countries with the highest rank are the countries that are more actively involved in the “business”. So let me list for you the first 10 countries: Sudan, Azerbaijan, Egypt, Jordan, Tunisia, Saudi Arabia, Indonesia, Turkey, United Arab Emirates, Iran, Malaysia, India, Philippines and the US. Out of the top countries, only three countries have offices as stated. The question that I can’t find an answer to is why don’t all the countries that practice this business have an office? Another question is why are the top countries only developing countries? If this is business if flawless and guarantees profit if you put in effort and hard work, then where is European countries, Australia, Canada, and Singapore for God’s sake. Where is the activity of Head Quarters in HONG KONG! I am trying to use reason and logic here.
Okay, some might think I am a little biased here, so I will present the same information for Oriflame (SEE ATTACHED PICTURE) [13] an example of a Legitimate Multi Level Marketing company.
As you can see, the activity on the website is up and running continuing from 2008, maybe the activity was a bit low in 2009 due to the economic crises, and boosted again since the beginning of 2010. Although it was low in 2009, it was still there! Well, I personally think that makes sense!
The top active countries are Slovakia, Czech Republic, Lithaunia, Azerbaija, Estonia, Russia, Ukraine, Bulgaria, Indonesia, Hyngary, Romania, Portugal, Poland, Serbia and Montegero, Greece, Peru, Chili, Belarus, Turkey, Mexico, Colombia, Spain India, Iran, and the US. As we can see, that there is activity of both developing and developed countries.
Up till now, I have been discussing the participation of this “business” and it’s affect on you personally. But then, this wouldn’t be fair to the society. As stated earlier that marketing should benefit the society as a whole.
Since I am Egyptian, I will try to examine the effect of this process to the economy of my country. Egypt is of course known to be one of the developing countries. We don’t use our currency the Egyptian pound to buy goods from other countries like the US importing using the US dollar, or the European countries in the European Union using the Euro. So, in order to buy any products from abroad, I need to first buy US dollar, a foreign currency, second I will need to transfer the money abroad in that case Hong Kong, third I need to receive the product worthy of the money I paid.
So let me explain it a little bit clearer, if I buy a $1000 worth of gold and I receive it in my country taxed. Then, my country is not losing; you got what you paid for. Nevertheless, this is not the case with “Network Marketing”. You basically pay double if not more the price of what you are buying. So the country here lost half of what you paid. If you paid $1000 and got a watch worth of $500, then the country lost $500 not just you. You might think that’s MY MONEY, I USE IT TO BUY WHATEVER I WANT! Well it’s true. However, if you spend it in the country, then the country will benefit by 1. Businesses in the country making profit from you 2. The goods are being taxed. If you import any good from abroad, let’s say you bought a book from Amazon.com, the country will tax you on that book, making the country profit from you. So, the question here lies, is the goods bought taxed? If the goods are taxed, then the country is losing half of the price you paid. If the goods are not taxed then the country is losing the whole price of what you paid.
Let’s assume that you will get commission for every 6 people you recruit. Meaning that by level 13, you will exceed the population of earth, and by level 11 you will exceed the population of Egypt. So, I am assuming that the business flourished and reached level 10, which will have 60,466,176 people. Let’s assume that all these people will join the business, keeping aside the fact that Egypt is a POOR country and not everyone can pay an average of $1000 to join the business. By level 9, the last level making profit in the country assuming everyone will join, an average of 60,466,176 * $1000 = $60,466,176,000 is sent outside the country for all members in level 9 to make profit. How much money entered the country for profit? Let’s assume as they tell you that you will make $250 for every 6 people joining the “business”, that will make 60,466,176/6 * $250 = $2,519,424,000 to people’s pockets (the top of the pyramid making profit). Also, let’s assume that the top of the pyramid is in Egypt not in Hong Kong as they claim. That will be about $2,519,424,000 / $60,466,176,000 * 100% = 4.167% of what is paid outside the country being re-spent again inside the country. Please do keep in mind that this number of people entering the business is almost impossible because a small percentage of Egyptians can actually afford to pay an average of $1000 to join the “business”. (Please do keep in mind that I have neglected the higher levels of the pyramid; I only used the calculations in level 10 for simplicity and demonstration purposes only.)
Once more, you might still wonder, why is this kind of business activity only flourishing in developing countries? Well, I can help you a little if you allow me. Pyramid schemes are considered a kind of fraud and can be sued for it in court in the US. In Singapore [14], you will be fined from $30,000 to $200,000 and might be imprisoned up to 5 years. If you kept on searching policies made by Canada, the UK, or other developed countries, you would understand!
Let me recall the definition of marketing. "Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large." Help me understand how will that bring VALUE to the customers and SOCIETY at large? With some facts, a little logic, a little reason, and some math we all can make sense of what’s going on.
Technology can be very attractive and the quality of a website can deceive people into trusting it. As an IT professional, I believe that by providing just a web developer or myself for that matter and a domain costing $10, I can present such a classical and attractive window for the Pyramid Scheme. Hell, I can start a Pyramid Scheme myself and call it “Society Marketing” for God’s sake!
Note: I included references used so you can check up on me. If you find this article useful in any way please share it with your friends. We want to increase the awareness of such things penetrating and ruining our society and economy.
Check the article "Why DEVELOPED (1st World) countries are NOT involved with QNET? Let’s find out…" for more facts about Qnet: http://sherwette.blogspot.com/2010/10/why-developed-1st-world-countries-are_07.html
NEW: Please refer to: Is Qnet Scam? Illegal? Desperate justifications by Qnet proved FALSE! Increase your AWARENESS!!!: http://sherwette.blogspot.com/2010/10/is-qnet-scam-illegal-desperate.html
Check out Start your own Business, Start Freelancing! for alternative creative productive ways to MAKE MONEY!
References:
1. American Marketing Association :http://www.marketingpower.com/aboutama/pages/definitionofmarketing.aspx
(Sept 2010)
2. Federal Trade Commission: http://www.ftc.gov/speeches/other/dvimf16.shtm(Sept 2010)
3 Oriflame: http://www.oriflame.com/ (Sept 2010)
4. Avon: http://www.avon.com/ (Sept 2010)
5. Mary Kay Cosmetics: http://www.marykay.com/ (Sept 2010)
6. Federal Bureau of Investment (FBI):http://www.fbi.gov/majcases/fraud/fraudschemes.htm#pyramid (Sept 2010)
7. Pyramid Scheme level demonstration:http://www.consumerfraudreporting.org/MLM_pyramid.php (Sept 2010)
8. Population of Earth: http://data.worldbank.org/ (Sept 2010)
9. QNET: www.qnet.net (Sept 2010)
10.Gucci: http://www.gucci.com/ (Sept 2010)
11. Alexa: http://www.alexa.com/ (Sept 2010)
12. Qnet.net Traffic: http://www.alexa.com/siteinfo/qnet.net# (Sept 2010)
13. Oriflame.com Traffic: http://www.alexa.com/siteinfo/oriflame.com (Sept 2010)
14. Ministry of Trade and Industry Singapore: http://app.mti.gov.sg/default.asp?id=567#9 (Sept 2010)
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