In this blog you can understand about the various types of scams involved in the Multi level marketing business. And how to check if a MLM company is scam or not.
How to detect scam in MLM business
Multilevel marketing is one of the powerful branch of world economy.
Worldwide organizations gave a hand to this system as an effective tool for product supply and sales growth.
One of the best feature of MLM business is, it gives an ample scope for its customers to achieve a financial growth, and stability as well as the entrepreneur.
However like any other business MLM business also faces some risk and problems.
Related: How to choose a MLM company ?
What is a scam business?
A scam business is a fraudulent business activity or a scheme performed by a dishonest company or a person or a group of people to obtain money or something else of value.
Here an individual or a company act as an honest skilled person and offering something big to people.
Scam has been increased by the arrival of internet, like E-mail spoofing, Phishing, Lottery scams, scam baiting, Help request scams etc…
Scam’s in multilevel marketing
As we all know Scam business is a common word in a business industry.
Now a days there have several types of scams in market.
Multi-level marketing business is also rich by many scam activities. Let’s have an analysis regarding this.
Sometimes Multi-level marketing company gives a bundle of offers to its members.
These offers may very attractive like, long financial growth, vehicle fund, Home fund and other attractive schemes.
Companies may fail to keep these promise made to its members.
Some multi-level marketing companies in market practices Pyramid scheme, actually it is a kind of scam which offers you a fair return in a short period of operation.
They assures you financial return with in a limited period of time. Organization promote you to recruit more people to the business.
They only need new members to join their business, and not giving more importance to product sale like other MLM companies…
However in multi-level marketing there should be a product to sale.
Your income from the business is strictly based on your product sales and performance.
A legitimate network marketing firm strictly focuses on product sale.
A Pyramid scheme practicing company only gives importance to recruit more people to their system.
A pyramid style is a money game and it has no commercial value.
In modern Multi Level Marketing business pyramid scheme comes with products, but in operation they only prefer a money game.
When a person makes money from pyramid scheme another person Lost’s his money.
But in network marketing your hard work and growth is highlighted, you can come up by helping others. It is a hand to hand system.
Related: MLM software for MLM business
However the shadow of this scam sometimes reflects on legitimate MLM companies.
The reason is people wish to be rich quickly. Some people takes it serious and works hard for success, at the same time some people fails, and points out that MLM Company is a scam and they couldn’t earn anything from it.
MLM is not an easy process if you work hard you will become rich.
Signs of MLM scam’s
There have some signs to rectify whether an MLM company is a scam or not. Before you enter in to the business keep an eye on these factors.
1. Poor quality products and service
If a company gives less importance to product quality and service it may be a pyramid scheme.
If they give value to member recruitment and team building it’s a money game.
A Good MLM company always targets a fair product supply and service to its customers.
2. Pressure to purchase more
Some companies pressures you to purchase more products and stock, they will always force you to purchase more this may be a scam.
3. Poor communication from the company
When the company fails to answer your queries regarding business and its operational strategy and totally when it gets irresponsible it may not be a legitimate organization.
4. Lack of training
A good MLM firm always provides a better training to its members regarding whole procedures and strategies of the company.
It also demonstrates member commission, income, etc.to its members.
But in some MLM companies there have a lack of training, they focuses on new affiliate recruitment and money, this is a sign of scam
5. High pressure on sales
If a company pressures you more in sales that may be a scam.
A legitimate MLM organization gives you time and opportunity to grow step by step.
A scam MLM firm always focuses on money and stimulates you to perform more.
6. Fraudulent job offers
Sometimes, MLM organizations offers MLM business as a job and promises you more financial growth and benefit as an employee.
However multilevel marketing is not a job it is strictly a business. Beware these type of job offers.
However there have many signs to recognize whether a MLM company is a scam or not, while you start your MLM business career always keep this points in your mind. And choose the best company.
The companies accused of scam practices
There have many MLM companies around the world which accused of scam practice, let’s have a look
Amway is one of the profitable Network marketing company in the world, and the company was faced investigations for pyramid scheme activity.
But in 1979 FTC decided Amway was not a pyramid scheme company. This suspect on Amway made a negative impact on its operations in many countries.
2. Herba life
Herba life was one of the leading MLM Company which faced pyramid selling scandals.
A commercial court in Belgium stated Herba life an illegal pyramid scheme in 2011, and the company faced huge legal problems
3. Mary kay
There was a rumor against Mary kay in 2012. Harper’s magazine published a story referring Mary kay as ‘’the pink pyramid scheme” The company faced many rumors relate to pyramid selling activity.
4. Nu skin enterprises
Nu skin enterprises was one of the big MLM Company which faced investigation from FTC.
The company solved the cases and ended up paying penalty to FTC. However this organization faced many scandals and rumors.
5. USANA Health sciences.
The company was also under suspect of pyramid scheme. However the company get away from it by a settlement with the person who filed the petition against them. The company still remain active now.
Legality of scam in multilevel marketing
We all know that scams are fraudulent practice and it is not fair in business industry.
We have went through the scams in MLM on above paragraphs.
Is all these scams are legal? If the scam is caught, will the company can survive?
However scams in MLM are not a legal activity. It is not encourage by any government under law.
However we have went through pyramid scheme which is the most common scam activity in MLM industry.
Sometimes it is difficult to understand whether a company is legitimate or a pyramid scheme.
It may look like a legitimate firm in first look, they also provides products and other features like others, but in reality the operation may be a pyramid scheme.
Federal trade commission (FTC) is an independent government agency established in 1914.
It is established for free market trade and supply. The commission has multiple law’s enforcement authority.
Commission bring cases against pyramid scheme practice under FTC act. FTC act prohibits unfair or illegal act or practices in or affecting commerce.
These act allows the commission to file a suit in federal court and seek remedies regarding this, including injunctive relief, freeze over the defendant’s asset, a receivership over the defendants’ business, and redress or restitution for consumers.
However FTC is an international organization. There have many worldwide countries as participant of this organization.
FTC have investigated many cases regarding pyramid scheme and took action for illegal trade against Many Big MLM Companies.
The existence of these kind of Pyramid Selling Company may vary according to the laws in your country
As we discussed like any other field scams are there in MLM business too.
However it is not legal.it is an illegal practice to make money quickly.
There have many MLM companies in market some are legitimate and some may be Pyramid scheme practicing companies.
You must need a keen study before you enter in to the field.
Make a research and market study about the MLM Company you are going to choose. Wish you all the best