Facts and Myths of Direct Selling Industry | India | Business Gossip

Facts and Myths of MLM

MYTH :- Direct selling companies are pyramid schemes.

FACT :- Direct selling companies and pyramid schemes are not the same. Bad actors in the marketplace sometimes masquerade as direct sellers, harming consumers and legitimate direct selling companies. There are a number of important differences between direct selling companies and pyramid schemes. First, an important difference is that direct selling companies offer protections and guarantees to those that interact with them so their sellers and customers can be confident they are safeguarded. Also, member companies of the Direct Selling Association (DSA) adhere to a rigorous set of standards as part of its Code of Ethics, including requirements that member companies buy back unused inventory at no less than 90% of the original purchase price. Pyramid schemes are illegal and should be prosecuted to the fullest extent of the law. At this time there is no set definition of a pyramid scheme in federal law. For this reason, the Direct Selling Association (DSA) supports H.R. 5230, the Anti-Pyramid Promotional Scheme Act of 2016, bipartisan consumer protection legislation that would clearly define a pyramid scheme in federal statute for the first time. None of the key provisions of H.R. 5230 are new or outlandish. The legislation is based on the widely-accepted principle that a scheme exists when compensation is based primarily on recruitment rather than retail sales, and that personal use is a legitimate business practice in direct selling. DSA has long been working to codify consumer protection law at the state level. Forty-nine states have codified laws banning pyramid schemes, and numerous court decisions have used the same definition of a scheme that H.R. 5230 seeks to enact at the federal level. This pro-consumer measure mitigates confusion and extends protection of consumers and direct sellers at the federal level as a natural next step.

MYTH :- Purchasing products from a direct selling company at a discount isn’t a  legitimate business practice.

FACT :- There are many reasons why independent contractors become involved with and stay in the
direct selling industry, including the ability to buy products and services they love for their personal use at a discounted price. In fact, this is one of the reasons why many people decide to get into direct selling in the first place. And in many cases, it’s an entry point for people to then go into selling to others.

MYTH :- All direct sellers are required to purchase inventory themselves to start selling.

FACT :- This is simply not true. Every company is different, but many direct selling companies allow
independent consultants to take orders from customers without requiring them to purchase inventory themselves. Typically, independent consultants also decide to purchase products for their own use because they love what’s offered or want to familiarize themselves with various product and service lines. While some individuals in direct selling may purchase inventory to sell, members of DSA
abide by a Code of Ethics with key provisions that protect direct sellers against financial loss. This includes requirements that all companies purchase unused inventory from independent consultants at 90% or more of the original cost.