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Sanjay Rawat
The spell bind: Repeat visitors pay to listen to Rahul Jain, an alumnus of the direct selling industry, in Delhi
direct selling: regulation
Recruits In A Dream Sequence
Does the lure of ‘unlimited earning’ turn direct sellers into rapacious monsters?
COMMENTS PRINT

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.

 
 
“Many fraudulent companies imitate direct selling but sell nothing except promises. We sell real products.”S. Subramanian, Head, legal affairs, Oriflame
 
 
Companies say they’re wrongly accu­sed—“misunderstood”—and are seeking legal recourse while lobbying frantically for a separate regulator for “genuine” direct sellers. They want the PCMC Act to be amended so as to exempt them. “In a genuine direct sales company, you don’t earn from enrolment,” says S. Sub­ra­m­a­nian, head, legal affairs, Oriflame. “Many fraudulent companies imitate direct selling while selling nothing but promises. We sell real products which you can touch, feel and bring home.” The crux is that selling something that is not magical, miraculous or a tall claim isn’t legally fraudulent. Glib, maybe, but there’s no denying the logic: legally, most companies may be making unreasonable claims about quality. But with only 90 of India’s 19,000 product standards mandatory, direct sellers can only be hauled up for violating these.

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.”

 
 
“How can they expect to be exempt? The PCMC Act fixes accountability on anyone who violates it.”Pankaj Agarwala, Secretary, Consumer Affairs
 
 
Against every successful name (one who sells enough Tupperware to buy the dream, or enrols enough women to make commissions from their sales), Sharma makes a “star” and commissions. “When I hear these dreams of women, I realise Tupperware’s not a business but a way to change lives,” she gushes. “Now I’m always thinking: whose life shall I change next?” Sharma, granted the title Tupper­ware “high flyer”, won’t reveal her income but says she is “doing very well”. She, however, works full time on Tupperware. “I was my husband’s wife, my son’s mother. Tupperware woman is my own identity.” Of course, the most remarkable dream in her book, of S. Begam shedding her burkha, has no star against it—an indicator of the limit to the social transformation spouted by direct selling companies.

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

SpeakAsia

  • What: Earn money by filling survey forms and enrol others to do so
  • Status: Various senior SpeakAsia officials arrested on cheating charges

PACL

  • What: Real estate fraud that works through subscriptions. Even tiny investors (Rs 10) are accepted for a “share” in a non-existent land bank.
  • Status: Various arrests for fraud

Mavrodi Mondial Moneybox India

  • What: Fake currency floated in exchange for real money
  • Status: CID has issued a warning against this company

TVI Express

  • What: Holidays to luxury destinations promised to those who lure investors into join the scheme
  • Status: Arrests have taken place on fraud charges

GoldQuest, Questnet, Qnet

  • What: Collecting Rs 30,000 from every investor in return for “numismatic coins”
  • Status: Scam busted, keeps resurfacing in new forms. The company has expanded, denies wrongdoing.

***

Multi-Level Paradox

  • Nearly 600 unregistered multi-level marketing (MLM) schemes; Rs 2 lakh crore frauds till date.
  • Industry body IDSA wants central regulator for 18 “genuine” direct sellers
  • Government wants states to monitor MLM, doesn’t favour central regulator
  • IDSA insists firms are not pyramids; they sell genuine products
  • Govt says no one can be exempt from an existing law

Edited online to correct the spelling of Chavi Hemanth and designation of Rahul Jain

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