What’s the plan? “Making customers, and teaching others how to make customers—that is the plan.” So says ‘Amway Diamond’ K.K. Singh, in a surreptitiously taped ‘Open Meeting’ in Chandigarh last March (now on YouTube). Singh tells attending Amwayites how to “go Diamond”: “Make a list of people. Contact them in your spare time. Try to get them into the business.” Singh’s pep talk dismisses salaried jobs as dead-end, mediocre and stagnant. He exhorts attendees to quit after their income from Amway exceeds salary. “The plan works if you stick to it,” he assures them.
Someone’s plan must really be working, if 50 lakh people—mostly women—have taken to direct selling since 1993. Amarnath Sengupta, chairman of the direct sellers’ lobby group, IDSA, says it’s a Rs 6,000-crore, “recession-proof” business, despite its low bandwidth—health supplements, cosmetics and plastic containers. Since direct sellers pay no salaries, the women only get commissions on sales of others they “recruit” or “enrol” too. A network could have thousands of women, where commissions pile theoretically on commission, but only a lucky few get—and companies really say this—“unlimited earnings”. And therein lies the controversy.
Direct sellers are accused of mis-selling, overstocking hapless distributors, and fraud (see list of some recent cases). In Kerala and Rajasthan, Amway and Daeshan Trading units have been sealed. Investigations are on in Andhra Pradesh, Bihar, Uttar Pradesh and elsewhere, against members of IDSA and others. The key charge is that new recruits pay to sign up with a direct selling firm, running afoul of the Prize Chits and Money Circulation Act, which bans money circulation schemes aka ‘pyramid’ or ‘ponzi’ scams. “In direct selling, commissions are paid for bringing recruits rather than sales to independent customers. This gives undue advantage to those recruiting at the cost of those recruited,” says V.C. Sajjanar, former head, economic offences wing, Andhra Police, who has pursued many investigations.
IDSA denies any commission on recruitment. “We have done away with entry charges for our members,” says its secretary-general Chavi Hemanth. This isn’t immediately apparent: Oriflame, for one, takes Rs 299 from everyone enrolling. Speak to industry players and you get varied reasons: “This is for a sales kit that’s now voluntary”; or “once you start selling, you recover this amount”; or “This isn’t an entry fee. They pay us for documents, procedures and sales pitches”; or even it’s an “investment” into a recruit’s “own business”.
Documents typically have basic information (e.g. how to use eyeshadow). “Business plans” are bare diagrams showing skyrocketing commissions. All direct sellers interviewed—from Amway, Tupperware, Daeshan, Oriflame, Jafra—seemed to have similar sales and business plans. IDSA insists the upfront fees is minimal: 5 per cent of revenue (Rs 300 crore). But the government is clear: “The PCMC Act does not set degrees, it just says joining fee is not permitted,” says Pankaj Agarwala, secretary, consumer affairs.
Nevertheless, the government is baffled why direct selling wares are significantly more expensive than traditional retail. There’s no marketing, no distribution, a non-salaried sales force. Does it mean “forced” sales are happening? Firms say their complicated “business plans” escalate costs, but gloss over attendees who pay or bring along paying recruits to training sessions. Often training is in homes where attendees also buy products. Some companies claim higher “fill levels” of shampoo bottles or higher detergent concentration. Others say products “contain patented complexes”, whatever that means.
“The government says our products are exorbitant, we say we give value for money,” says Hemant. The challenge for regulators isn’t figuring out the intrinsic value of a product—that’s easily determined by comparison. The challenge is that prices really are up to the seller—consumers can take it or leave it.
The other trouble with direct selling is its informal, mostly female, sales force, whose task is selling commonplace items through, and to, friends and family. The starting income could be a minor Rs 2,000, but that’s not how the industry positions itself. It sells “unlimited income” and making “dreams come true”. So, critics say, overzealous recruits, pressurised by those earning commissions, have “splintered friendships and broken homes”. “Sometimes distributors become very arrogant, and mis-selling happens, but it’s rare,” says IDSA’s Sengupta. “We can remove errant distributors. These things happen in any business.”
Boxing a dream Tupperware consultant Bharti Sharma. (Photograph by Sanjay Rawat)
Not really. Traditional retail is driven by demand, supported by marketing. With direct selling, purely retail customers (non-distributors) are not quantified. And distributors cannot seek the help of consumer protection laws. In this odd way, direct selling blurs distinctions between customer, distributor and product—the customer here is the product.
Direct sellers claim they transform society by giving women high-status, home-based, part-time careers alongside housework. “Women who join us would never have dreamed of achieving anything,” says Shilpa Ajwani, who heads Jafra, a cosmetics firm. Tupperware even gives new “consultants” ‘Dream Books’ to fill. The consultant gets friends and family to commit to “fulfil her dream” by buying it—literally. The money comes from Tupperware commissions and deadlines are arrived at.
Bharti Sharma, 39, got her first Dream Book in 2010; it lists 42 women’s dreams. S. Begam’s is “to go shopping at Lajpat Nagar without a burkha, and buy goggles for Rs 2,500-3,000”. Other people’s dreams include: “Sending my children to nursery school: Rs 15,000. Baby stroller: Rs 5,000. Branded clothes: Rs 1,500.”
It doesn’t stop Asha Gupta, who heads Tupperware India, from having an equally romantic take on business. “India’s 30 million middle-class households are a captive market for us,” she says. She concedes to looking beyond the metropolises—“urban Indians have many choices”—but insists demand is “virtually bottomless” because “everyone wants affordable luxury if it comes in the form of an investment”. By this logic, a family that lowers food consumption by what a container costs gets this “investment” free. Interestingly, Gupta limits liability for over-the-top claims by Tupperware’s 2 lakh saleswomen: “We sell to distributors. End of story.”
IDSA now has a voluntary code of ethics but remains aggrieved that investigators don’t understand “genuine” direct selling. “Only independent central oversight can help us. We face too many hurdles and misunderstandings at local (state) level,” says Hemant. When she walks into police stations in Kerala where investigations are on against several top multi-level marketing firms, police officers refer to her as “that Pyramid-waali lady”. “We’ve been saying for years we are not pyramids,” she moans.
Officials feel the expectation is a bit off. “How can they ask for this? The PCMC Act fixes accountability on anyone who violates it. If direct sellers do, they will be accountable,” says consumer affairs secretary Agarwala. With the direct selling industry insisting that it doesn’t force anyone to buy products, it makes sense to say caveat emptor—buyers beware—in India.
Direct Selling Disasters
Mavrodi Mondial Moneybox India
GoldQuest, Questnet, Qnet
Edited online to correct the spelling of Chavi Hemanth and designation of Rahul Jain
In the small accompanying graphic box to your story on direct selling companies (Recruits in a Dream Sequence, May 6), you have mentioned QNET. We would like to state that the incident quoted is archaic and the company was duly absolved of the all the principal charges by the Supreme Court of India. The Supreme Court also appointed a ‘Settlement Commissioner’ for the settlement of all legitimate complainants who did not receive their products from the company. All products were disbursed to all legitimate complainants by the company.
Ajay Chanam, Head, Corporate Affairs and Communications (India)
The correspondent replies: QNET’s business of selling “numismatic coins” priced at Rs 30,000 was shut down.
One should see resistance to Walmart, which offers real goods, sourced from every corner of the globe, at sensible prices to shoppers, making a net profit of 3% on turnover, in the context of these schemes.
The moot point is, that if you sell to a person, before you have received due consideration, then can you make people 'enforce' your rights on the person who has bought from you? It would seem like what the term 'extortion' means. Why not make sure you will get the money, before selling anything? How can people collect overdue or disputed credit card amounts from people, when the financial entities who issue such credit are really reputable, and they don't have departments inhouse to follow up disputes?
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