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MULTILEVEL MARKETING

Robbing with fantasy

Absence of regulator makes the situation worse

PORIMOL PALMA
In absence of a regulator, multilevel marketing (MLM) companies have robbed thousands of gullible people of crores of taka in the last five years.
Global Guardian Network, which had pioneered multilevel marketing in Bangladesh in 1999, left the country in 2001 allegedly with a booty of around Tk 1.5 crore.
Then came Neway, Destiny-2000 Ltd, SAP, Doorway, FIC, A-1 System and Biznas.com, an MLM operator listed. But, the number of MLM companies registered with the Board of Investment could not be confirmed despite repeated attempts.
These companies together have about seven lakh members, with Destiny alone steering a network of over six lakh people.
HOW IT WORKS
In MLM system, when a man buys a
package of products or services from a company he also gets a distributorship of those on condition of securing two fresh buyers. Both the recruits also get similar distributorships on the same condition. The company shares a portion of the proceeds with the buyerdistributors.
MLM operators say, unlike traditional businesses, they save a handsome amount by bypassing advertisement costs and agency fees or commissions, which they share with their buyerdistributors.
For example, a company sells a package of products to A for Tk 7,000 --Tk 2,000 more than the market price. Now A turns into a distributor and recruits two fresh buyers -- B and C. From these three members, the company gathers an extra amount of Tk 6,000, from which it pays, say, Tk 400 to A, and the rest is its net spoils.
In the next cycle, B and C obtain four
fresh customers, from whom the company gets Tk 8,000 gross in extra money, from which it pays Tk 800 to B and C. At this stage, when six buyers come under A, he gets, say, Tk 600 (Tk 100 per head). The remaining Tk 6,600 becomes the company's net extra profit. Thus, at every new stage of the pyramid building, A receives a profit-share but at a progressively decreasing rate, which varies from company to company.
MLM ISSUES
MLM operators claim the everwidening networking process of buying, recruiting and profit sharing can continue ad infinitum.
"But the market is not unlimited. So, the distributors at the lower tiers in the pyramid system of marketing become the losers. Their losses are the ultimate source of profit of those at the top," points out Prof Syed Rashidul Hasan of Dhaka University.
He confirmed that the products or services provided by the MLM companies are overpriced and that they keep a major portion of the extra gains and share only a very small portion with their members.
"It certainly is a sort of deception," said the marketing professor.
At least that go with the pictures found in some villages of Natore and elsewhere. Sketching a bright moneyed future, so-called members of Destiny manipulated simple villagers into becoming buyer-distributors of the company. Some victims of the delusion said they had borrowed money from cooperative credit schemes in order to register with the company, but now they find no-one to pass the buck on.
Biplob Sarker, one of the credulous, said, "I went wild with enthusiasm when they [Destiny distributors] explained to me what seemed like a fantastic way of making money. But, now I am in real trouble. The installments of loan repayment to the co-operative credit union have become a constant headache for me."
"I was truly excited with the hope to make money through the system of Global Guardian Network in 2000, and bought a washing machine for Tk 16,000 to grab the distributorship," said Provat Costa, a marketing executive at a multinational company.
He said, "I even recruited some people. But, later, it got so difficult for me to reach the level where I would make some profit and I became so exhausted that I quit the business."
A number of others echoed the marketing executive.
At a 'seminar' of Biznas.com at its Panthapath office in Dhaka, the 'trainer' was found to allure the participants, mostly students, with a dream of making thousands of dollars at the end of one year and the 'immense' scope of learning computer operation and English they were offering.
A staff of Biznas.com said, since coming into business one and a half years ago, the company has trained
some 4,000 members in computer operations. It now has more than 12,000 distributors.
When asked if their distributors at the lower level were being deprived of profit or not by being unable to find fresh recruits, the official retorted, "It is not our headache if the members can find distributors or not. They will not earn money if they cannot work."
On MLM companies selling services, Prof Hasan said in this case there are more possibilities of deception, as the buyers may fail to obtain the services due to time constraints and no watchdog is there to check the quality of the services.
He thinks MLM companies fit neither into the criterion of nongovernment organisation nor that of standard private business, and doubts whether they have legal trade licences.
Hasan, however, conceded that MLM system could be a good way of creating income opportunities if a regulatory body kept strict watch on the transparency of financial transactions.
Destiny-2000 Ltd Deputy General Manager Ruhul Amin Saki said there was no chance of its buyers being deceived, as the company has some 76 products and its distributors can make their choice using privilege cards.
Admitting the swindling by MLM companies, Board of Investment Executive Chairman Mahmudur Rahman said the board had already requested the Bangladesh Bank to formulate a guideline for them, which, he said would be drafted soon.
He said the board could not deny registration to MLM companies as it would mean inviting criticism against itself of discouraging foreign investment in the country.