Multi Level Marketing
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Direct selling refers to selling product directly to the consumers in the non-retail environment
Sales occur at home, work or other non-store locations. It is an umbrella term for all marketing and sales methods whereby the product goes from the distributor to the client via a sales consultant who has personally sold the product to the end-user, bypassing retail outlets.
Type of direct selling:
- Single-level direct sale
- Hostess or party play
- Multi-level marketing
Mult-level marketing is also like direct selling. It means marketing distribution & sale of goods or providing of services as a part of the network or direct selling other than a pyramid scheme.
Multi-level marketing in India is legal and is the broad terminology given to marketing which takes through a distributor network such as a pyramid scheme or a direct selling scheme in India. It is employed by companies employing direct sales strategies under direct selling guidelines 2016 to encourage their existing distributors to recruit new distributors by giving the existing distributors a commission on the sales of the new distributors. The major multi-level marketing legal issue in India that is encountered is the protection of the consumer. Often the marketing scams in India by these companies are done against the innocent public and rob them of their money, consumers are left with no legal remedy.
Legal Multi-level marketing companies:
- Focuses more on selling product/services to end customer than on any activity
- Company should make money from selling their product/services
- Legitimate MLM company don’t require large quantity of inventory
- Products or services provided by direct selling must be a legitimate one that people would buy at the retail price at the open market.
A pyramid scheme in Indian law is described as the scheme where the organizer builds a structure of a pyramid that starts with one person, representing the top of the pyramid. This person recruits another person under him, who are required to invest a certain amount which is paid to the initial recruiter. In order to make returns on his investment, the new member has to recruit more investors who invest a fixed sum of money, thereby forming a chain of pyramids. Recently, the Reserve Bank of India (RBI) released a statement cautioning investors against pyramid scheme fraud that promise high returns and run on hefty member subscription fees
Prohibition of Pyramid Scheme & Money Circulation Scheme
- No person or entity shall promote a Pyramid Scheme, as defined in Clause1 (11) or enroll any person to such scheme or participate in such arrangement in any manner whatsoever the grab of doing direct selling business.
- No person or entity will participate in Money Circulation Scheme, as defined in Clause 1 (12) in the grab of Direct Selling of
Pyramid scheme may be fraud or may not be “A Business That Uses A Pyramidal Structure Becomes A Fraud Only When There Is No Product That Is Exchanged For The Payment Of The Fees, And The Act Of Recruiting Participants Is Actually What Sustains The Structure.
Condition for setting up Multi-level Marketing Business:
Every direct selling entity intending to carry out a direct selling business shall within 90 days of publication of the notification, comply with the following condition:
- Be a registered entity under the Indian law
- Provide a mandatory orientation session to all the prospective direct seller providing fair and accurate information on all aspect of the direct selling operation, including but not limited to remuneration system and expected remuneration for the newly recruited direct seller
- Provide accurate and complete information to the prospective and existing direct seller concerning the reasonable amount of remuneration opportunity and related right and obligation
- Pay all due and withholdings to direct seller in a commercially reasonable manner
- Notify and provide a full refund or buy back guarantee to every direct seller to every direct seller on reasonable commercial terms which can be exercised within 30 days from the date of distribution of goods or services to direct seller.
- Notify & provide to every direct seller a cooling-off period which entitles such direct seller to return any good/services purchased by the direct seller during the cooling-off period.
- The promoter and the key managerial person should not have been convicted of any criminal offense punishable with imprisonment in the last 5year any court of competent jurisdiction.
- Have an office with identified jurisdiction of its operation in the state to enable the customer and direct seller to acquaint themselves with the price of the product, return or replacement of products and efficient delivery of goods and services and post-sale redressal of grievances.
Every multi-level marketing entity shall comply with the following conditions:
- It shall be the owner, holder, licensee of a trademark, service mark or any other identification mark which identifies the entity with the goods to be sold or supplied or services to be rendered;
- It shall issue proper identity document(s) to its Direct Sellers;
- It shall maintain proper records either manual or electronic of their business dealings, with complete details of their goods, services, terms of the contract, price, income plan, details of direct sellers, including but not limited to enrolment, termination, active status, earning etc;
- Every Direct Selling entity shall maintain a “Register of Direct Sellers” wherein relevant details of each enrolled Direct Seller shall be updated and maintained;
- The details of Direct Sellers shall include and not be limited to verified proof of address, proof of identity and PAN;
- It shall maintain a proper and updated website with all relevant details of the entity, contact information, management, products, product information, product quality certificate, price, complete income plan, terms of the contract with the direct seller and complaint redressal mechanism for direct sellers and consumers. The website should have space for registering consumer complaints and should ensure that grievances are addressed within 45 days of making such complaints;
- It shall provide to all direct sellers their periodic account/information concerning, as applicable, sales, purchases, details of earnings, commissions, bonus, and other relevant data, in accordance with an agreement with the direct sellers. All financial dues shall be paid and any withholding made in a commercially reasonable manner;
- It shall monitor the value of the purchases of all its Direct Sellers/Distributors on a monthly basis and once the purchase value crosses the VAT threshold; it must intimate the Direct seller/Distributor to pay the VAT;
- A Direct Selling entity shall not:
- a) Use misleading, deceptive or unfair recruiting practices, including misrepresentation of actual or potential sales or earnings, in their interaction with prospective or existing direct sellers;
- b) Make any factual representation to a prospective direct seller that cannot be verified or make any promise that cannot be fulfilled;
- c) Present any advantages of direct selling to any prospective direct seller in a false or deceptive manner;
- d) Make or cause, or permit to be made, any representation relating to its direct selling business, including remuneration system and agreement between itself and the direct seller, or to the goods or services being sold by itself or by the direct seller which is false or misleading;
- e) Engage in, or cause or permit, any conduct that is misleading or likely to mislead with regard to any material particulars relating to its direct selling business, including remuneration system and agreement between itself and the direct seller, or to the goods or services being sold by itself or by the direct seller;
- f) Use, or cause or permit to be used, fraud, coercion, harassment, or unconscionable or unlawful means in promoting its direct selling practice, including remuneration system and agreement between itself and the direct seller, or to the goods or services being sold by itself or by the direct seller;
- g) Require its direct sellers to provide any benefit, including entry fees and renewal fees or to purchase any sales demonstration equipment or material in order to participate in its direct selling operations;
- h) Provide any benefit to any person for the introduction or recruitment of one or more persons as direct sellers;
- i) Require the direct sellers to pay any money by way of minimum monthly subscription or renewal charges;
- Notwithstanding the distribution system adopted by a direct selling entity, the Direct Selling Entity shall be responsible for compliance of these Guidelines by any member of its network of direct selling, whether such member is appointed directly or indirectly by the Direct Selling Entity.
Do’s of multi-level Marketing:
- Direct Seller engaged in direct selling should carry their identity card and not visit the customer’s premises without prior appointment/approval;
- At the initiation of a sales representation, without request, truthfully and clearly identify themselves, the identity of the direct selling entity, the nature of the goods or services sold and the purpose of the solicitation to the prospective consumer;
- Offer a prospective consumer accurate and complete explanations and demonstrations of goods and services, prices, credit terms, terms of payment, return policies, terms of guarantee, after-sales service;
- Provide the following information to the prospect / consumers at the time of sale, namely:
- Name, address, registration number or enrollment number, identity proof and telephone number of the direct seller and details of direct selling entity;
- A description of the goods or services to be supplied;
- Explain to the consumer about the goods return policy of the company in the details before the transaction;
- The Order date, the total amount to be paid by the consumer along with the bill and receipt;
- Time and place for inspection of the sample and delivery of good;
- Information of his/her rights to cancel the order and / or to return the product in saleable condition and avail full refund on sums paid
Don’t of multi-level marketing:
- Use misleading, deceptive and / or unfair trade practices;
- Use misleading, false, deceptive, and / or unfair recruiting practices, including misrepresentation of actual or potential sales or earnings and advantages of Direct Selling to any prospective direct seller, in their interaction with prospective direct sellers;
- Make any factual representation to a prospective direct seller that cannot be verified or make any promise that cannot be fulfilled;
- Present any advantages of Direct Selling to any prospective direct seller in a false and / or a deceptive manner;
- Knowingly make, omit, engage, or cause, or permit to be made, any representation relating to the Direct Selling operation, including remuneration system and agreement between the Direct Selling entity and the direct seller, or the goods and / or services being sold by such direct seller which is false and/or misleading;
- Require or encourage direct sellers recruited by the first-mentioned direct seller to purchase goods and/or services in unreasonably large amounts;
- Provide any literature and/or training material not restricted to collateral issued by the Direct Selling entity, to a prospective and/or existing direct sellers both within and outside the parent Direct Selling entity, which has not been approved by the parent Direct Selling entity;
- Require prospective or existing direct sellers to purchase any literature or training materials or sales demonstration equipment