MLM business worldwide and its abuse in Bangladesh

Multi level marketing is popularly known as MLM business. Wikipedia defines MLM business as a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a down-line of distributors and a hierarchy of multiple levels of compensation. Such kind of business is also known as pyramid selling, referral marketing, network marketing, home-base marketing, holiday business, teamwork marketing, freedom enterprise and so forth. However, minor differences may arise with the use of different nomenclatures while undertaking in-depth discussion on MLM. In developed countries MLM is well-known but in Bangladesh and South Asia this concept is relatively new as this was not practised before. For this reason, many misconceptions prevail in people's mind about MLM business. Multi-level marketing is recognised in many parts of the world as legal, fair and promptly spread business. The subject is also included in the curriculum of many universities, for instance, University of Illinois, USA (http://www.uic.edu/cba/cba-depts/ms/FacultyProfiles/king.html), University of Auckland, New Zealand (http://www.shortcourses.auckland.ac.nz/courses/165/).

Historically, the multi-level marketing concept was first introduced in 1945 by the California Vitamin Company (shortly afterwards to become Nutrilite). Basic mechanism was applied by Dr Carl Rehn Bourgh, a renowned chemist of America. The plan allowed Nutrilite distributors with at least 25 regular customers to recruit new distributors and draw a 3.0 per cent commission from their sales. Unlike traditional direct selling, this was an ongoing payment whenever the customer re-ordered; allowing direct sellers to build a sales organisation that could generate an additional income. Through the procedure, he started to attract many customers through word-of-mouth of existing customers. Through first customer many potential consumers went to him for buying which made a good profit, and from that amount of profit an attractive portion was offered to the first customer and other team-members complying with the conditions of the commission plan. MLM concept has been applied to many products selling like non-durable goods such as detergent, rice, sugar, soap; services such as telephone service, health service, traveling packages; and even unsought goods such as insurance. Gillette, Colgate and Palmolive applied MLM to sell products.

Organisations need to market products and services, and sometimes themselves to enhance goodwill and ensure market position. Except appropriate marketing in today's business world, organisations may lose their market share, customers, channels and eventually experience loss. So, organisations have to adopt vibrant marketing strategies. From marketing viewpoint, there are two parties, producer (marketer) and customer (consumer) and to develop a good interaction between them two types of marketing concepts are evolved - Traditional Marketing (TM) and Multi -level Marketing (MLM). The traditional marketing (TM) strategy is channel based and dominated by several layers of middlemen. The manufacturer produces goods and services that reach the customers through various channels of distribution - from producer to wholesalers, wholesalers to retailers and retailers to consumers. The more stretched the distribution channel is the more complex the distribution process is. Maintaining the distribution channel deserves a grave attention of the producer as well. Thus, the product price goes high, because of the cost of transferring goods and margin of middlemen. TM process also requires a large capital involvement. Marketing and sales departments require manpower, office, logistics, infrastructure etc. Advertising and promotion also requires a high level of care and capital.

In case of MLM the necessity of distribution channel like TM has been reduced. Only some middlemen exist who are manufacturer's in-house middlemen. The work of agent, dealer, wholesaler and retailer is done by consumer-seller. The word-of-mouth strategy is widely used here. The consumers act as distributors, sell product and convince other consumers to reorder. If possible, a customer can recruit another customer as distributor and exploit the commission from the sales of his own recruited distributor. The newly-recruited distributor will then be considered as the former's down-line. The customers have to meet individual sales-target to gain the commission. A standard commission package is set by the manufacturer to calculate the commission for consumer-sellers. Thus, in addition to selling one can enjoy a smart amount of commission from his down-line's sales. Hence, customer's yield from MLM depends largely on teamwork. Where in TM only producers and middlemen are benefited from the perspective of earnings, in MLM customers-cum-distributors can also get a share of the producer's profit. However, the mechanism of channel is undermined in MLM; various good products are available to the consumer in a relatively lower price. MLM is financially less-risky as products are distributed by volunteer forces who decide which market to enter or leave and how much time to spend, whether to work part-time or full-time. So, consumers enjoy less restricted environment here. Since, in network marketing distributor sells the products directly to the customer; costing of showroom, promotional schemes and other advertisement could be extensively reduced for the manufacturer. If any particular business adopting MLM is collapsed then consumer-cum-distributors' maximum loss would be the opportunity cost of time spent.

There are also many criticisms of MLM strategy. Critics argue that with the availability of e-commerce, online shopping, capability of advertising and selling directly to consumers, MLM has become obsolete. The very early distributors can exploit the benefit of MLM where the recent distributors get nothing. The most important drawback of this method is that, swindling is easy by using the banner of MLM. People get misguided as some vested quarters execute 'ponzi scheme' by taking the signboard of MLM. Nevertheless, the MLM obtained its popularity in the developed countries and is acquiring popularity in the developing countries as well. Malaysia is considered as the largest market for MLM companies. In Canada, USA, Panama, Australia, South America, UK, New Zealand, Japan, China MLM is prevalent. 

A word of caution: before involvement or investing in any business, a thorough study on that subject and a feasibility test must be carried out.

Bangladesh perspective: Bangladesh is a populous country of about 160 million people. It is a vast market of many present and prospective businesses. Telecommunication, food products, cosmetic products, banking and insurance have already climbed the peak of success by exploiting the market. As the population is comprised of mostly semi-educated and uneducated people, many fraudulent businesses play their black magic by swindling in this huge market. The latest edition of deceptive schemes has arrived with the cover of Multi-level marketing, briefly called MLM. Many educated youths are unemployed and are continuously searching for earning source. By attracting them and using their ardour many hoodwinkers swindle millions of takas using the signboard of legal business, most recently through MLM. Destiny, Sitetalk, E-links, Daehsan and many small MLMs are still in business. Earlier, the people had their experience with UniPay2U and Jubok. Jubok has collected hard-earned money of many people and failed to repay those. Many victims have not yet been able to recover their loss from investment in Jubok. Unipay2 has collected millions of takas by convincing people about purchasing gold in foreign countries and pledged to pay such a high return which is incredible to any rational person. However, people invested and suffered a huge loss. Nevertheless, the Destiny 2000 Limited, popularly known as Destiny, emerged in December 2000 and acquired a position that surpassed all their competitors. According to its website, the company has 27 sister concerns with many more coming, 2800 employees, 4.3 million consumer-distributors and over US$ 70 million yearly turnover. Destiny Group has its active subsidiaries such as Destiny 2000 Limited, Destiny Tree Plantation Limited, Destiny Multipurpose Cooperative Society Limited. The meteoric rise in asset accumulation of destiny is absolutely perplexing. Its total accumulated asset was more than BDT 3742 million in 2009-2010 and BDT 1065 million, 366 million, 62 million, 104 million in the earlier sequential fiscal years. (Source: Destiny Website). A newspaper reported that, the destiny multipurpose co-operative society amassed wealth to the amount of Tk 33.5 billion as on March 31, 2012 of which an amount of Tk 11.1 billion was received from Destiny 2000 Ltd. (The Financial Express, June 10, 2012).

People have an inborn tendency to get rich in shortcut. This hankering largely influences the unemployed young people. Most ponzi schemers first target those youths and ensure their involvement. As the MLM is based on word-of-mouth strategy, they train young people not only to sell products but also to recruit the down-liners. Thus, they execute a pyramid structure. But it is observed worldwide that, the very early distributors can only exploit the benefit of MLM where the recent distributors get nothing. So, how they accumulated such a phenomenal growth in asset is a dubious matter.The ownership of Boishakhi TV is also now under dispute. Another controversy has arisen on the matter of banking by Destiny. It is very much harmful to the economy if any non-bank institution operates lending and depositing. Because the central bank cannot anticipate the money supply in the economy and therefore cannot control the supply, swiftly. An allegation of money laundering has been brought against Destiny. According to a newspaper report, one of its overseas directors, Noel G. Carey, laundered Tk 700 million in the guise of payment through one a letter of credit (LC). The Tk 700 million import payment has been made to the same man where no physical goods or services were transferred. (Tk 7.09b embezzled, Tk 700m siphoned off, The Financial Express, June 10, 2012). Destiny has allegedly evaded tax. 

As there was no specific law regarding direct selling and multi-level marketing, many MLM companies have apparently indulged in spurious business activities and the government was also inattentive to this issue. A tactic that Destiny used in attracting people was to invite the renowned persons and VVIPs in their programmes and used the photos with them in website and banners. Thus, many gullible people get convinced about Destiny. Though Bangladesh Bank has halted the bank accounts of Destiny, it allegedly transferred a lot of money from those accounts. Reportedly, its directors, hold a total number of 443 bank accounts where funds worth only Tk 1.77 billion could be traced. Among the total number of bank accounts, 225 were found closed. (The Financial Express, June 10, 2012) 

MLM is only a strategy to market goods by man to man where channels are mostly eliminated. But using this concept to deceive people is worrisome. The government should monitor the activities of MLMs seriously and protect the interest of the people by making proper laws and applying them effectively. 

This writing was published in The Financial Express, (Thursday, July 05, 2012)

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