Direct Selling Versus Pyramid Scheme Marketing

Direct selling has a long history, going back to the days of travelling salesmen in the mid-1800s. Direct Selling in its current form, as we know it today was made popular by the likes of Avon...

Here comes the truth
Direct selling has a long history, going back to the days of travelling salesmen in the mid-1800s. Direct Selling in its current form, as we know it today was made popular by the likes of Avon and Amway over 60 years ago. But this industry is still in its nascent form in many emerging markets, especially in Asia, Middle East and Africa. According to the Direct Selling News, Africa is pitted as the new frontier for the direct selling industry, while Asia Pacific is today responsible for around 44 per cent of the global revenues of the industry.

Despite direct selling’s growing popularity worldwide, a sign that this form of business is looking increasingly attractive to aspiring entrepreneurs, especially in countries with high unemployment rates and limited mainstream income opportunities, the industry suffers from a bad rap. This is especially true in our part of the world, where direct selling is often mixed up with pyramid schemes or fraudulent investment schemes.

In this article, we strive to understand what this business is and why it gets such a strong reaction from people all over the world. As a start, we must understand what is Direct Selling, and how it differs from Pyramid Marketing Schemes? And how direct selling companies such as Amway, Avon, Herbalife, Oriflame, QNET and several others are successfully operating on the African continent and what sets them apart from Pyramid and Ponzi Schemes.

According to the World Federation of Direct Selling Associations (WFDSA) "direct selling" is a marketing strategy used by both top global brands and smaller, entrepreneurial companies to market products and services to consumers directly, away from a fixed retail location. According to the 2019 annual report by the World Federation of Direct Selling Associations (WFDSA), the global revenues generated by the industry stands at USD 180.5 billion and approximately 119.9 million entrepreneurs earn their income by direct selling, representing some of the world’s most sought-after brands in nutrition, beauty, home care, jewellery, clothing, home decor and other products. The report also show that the largest selling product category in the direct selling industry is wellness at 36% followed by Cosmetics and Personal Care at 29%.

Pyramid schemes on the other hand are illegal and typically involve large numbers of people at the bottom of the pyramid pay money to a few people at the top. Each new participant pays for the chance to advance to the top and profit from payments of others who might join later.

Based on guidelines published by direct selling associations and other experts, here are 8 ways to tell the legitimate direct selling companies apart from pyramid schemes.

1. Direct selling is not a “get-rich-quick scheme”.
Direct Selling may be very lucrative, but it is also a tough business. Right from the start, genuine businesses will tell you that you achieve results only if you put in the time and effort. Any company that promises you an easy way to riches should be regarded with caution.

2. Direct selling companies deliver quality products or services.
Pyramid schemes have no legitimate products or services. Good direct selling companies dedicate substantial resources to research and development to create quality products that are of actual use to people.

3. Direct selling companies have restrictions in their compensation plan.
Reputable direct selling companies limit the number of people who can earn a commission through sales. This is to level the playing field for its members. In a pyramid scheme, the “uplines” or the ones at the top make all the money, while the “downlines” or the ones at the bottom, lag behind due to late participation.

4. Direct selling distributors do not earn commission solely through recruitment.
Recruiting new members is not a requirement for real direct selling distributors to earn a commission. Legitimate Direct Selling companies are structured to reward people for promoting their products. In a pyramid scheme, there is no financial return unless others are successfully enrolled.

5. Direct selling opportunities have a solid training system.
Legitimate companies place great emphasis on training their distributors. They have qualified trainers equipped with the expertise and experience to help their members better understand the business and products. They also inculcate a culture of mentoring to help with personal growth of individuals. Many established direct selling companies such as QNET have successfully conducted structured training, both in-person and virtually, for hundreds of thousands of its distributors worldwide.

6. Direct selling opportunities come with the support of business tools.
Established direct selling companies help you keep track of purchases, commission earnings and the status of product deliveries, as well as full customer support. Other forms of support include regular product information releases, promotional offers and marketing materials to help distributors better understand the products and how to sell them.

7. Direct selling companies have proper policies and procedures, as well as ethical marketing codes.
Carefully review the company’s policies and procedures before making a decision. Genuine companies aim to achieve sustainable growth by fostering a culture of ethical marketing. Many established direct selling companies have a strict and enforced position to the adherence of its policies, procedures and code of conduct, wherein unethical practices are met with immediate disciplinary action.

8. Direct selling companies don’t encourage product overloading
Legitimate direct selling companies allow distributors proper methods of dealing with inventory and do not encourage product overloading. This allows distributors to focus on proper direct selling and not worrying about the excessive product inventory sitting in storage.

Factors impacting the industry

There are many factors which have contributed to the confusion about direct selling; the first of these is dishonest business, where " One Bad Apple spoils the Whole Bunch" is always the rule. Dishonest companies and individuals try to disguise slick pyramid schemes as legitimate businesses. The second factor is related to the amount of knowledge a distributor has about the company or the business in general. If the distributor is not well informed, the impression they give to their prospects is one of doubt. Finally, the lack of regulations governing the industry has greatly contributed to people's misperception about direct selling. Even though the global industry is valued at USD 180 billion, most developing countries still do not have legislation to govern this business model. This leads to direct selling companies being confused with or clubbed with financial or investment schemes.  In many third world countries, an individual can get imprisoned for participating in direct selling.

For anyone interested in entering the world of direct selling, remember not to be carried away by promises of financial freedom and the fulfillment of life-long dreams. Direct selling will provide you with a business model, a platform and an opportunity to build success; however, it is still up to the individual to do the hard work!