Friday 14 March 2008

The mystery of the pyramids

No, I’m not going to go on some mystical journey through superstition, pseudoscience and nonsense about how the pyramids can heal the sick, how they were built by aliens and how they are a channel to another dimension.

No, this is about pyramid selling schemes. Well, I have to be fair, reasonable and responsible, it’s about multi-level marketing as well. I can’t go around accusing companies of running pyramid selling schemes because in many countries of the world they are illegal. Far be it from me to accuse a company of operating illegally. I would never do that. Well, I would if they ignored the Control of Goods (Marking of Goods) Regulations and the requirement to disclose the FULL credit price of anything they sell on credit. Oh hang on, that’s almost all stores except Ellerines and Beares isn’t it?

Maybe they just don’t know about the Regulations? That way they could claim ignorance even though in law ignorance is no defence. But that doesn’t work either because we wrote to all the stores on 19th October last year telling them. And again on 26th October last year. And over and over and over again in Mmegi. You don’t think they are illiterate do you?

Anyway, back to the pyramids.

So what exactly is multi-level marketing? The essence of MLM is that instead of selling a product yourself you simply recruit a group of people to do the selling for you and you take a commission from every sale they make. So far, so normal. However what you do is to get these people to recruit more people to sell on their behalf and they can then take a commission from everyone they recruit. The really smart bit is that everyone has to pay a proportion of their profits back up the line to you. Each of them then has to recruit more people in order to make money and the more they recruit the more that comes back up to you. Some people call this “network marketing” but most often it’s just called multi-level marketing because of the many levels of people all marketing your product.

The obvious flaw is mathematical. In order for someone to make money they have to recruit several people below them. Imagine you start such a scheme and you recruit 10 people. Each of them then recruits a further 10 people. Each of those 10 people then recruits another 10 and so on. After only 5 generations of recruiting you will find the entire adult population of Gaborone is in the scheme. The next level has captured every grown-up in the country. Four more levels and every human being on the planet as well as their dogs are busy selling your product. It simply doesn’t add up. And all this assumes that you can persuade people to part with their money. The targets set are most than just unreasonable, they are insane.

Perhaps the biggest of the organisations behind this approach is Amway, a multi-billion dollar company from the USA. The products they market are almost all toiletries and household products and they’re here in Botswana as you read this. In fact they’ve been here for a few years and we all probably know someone who has tried to sell us some soap, or perhaps better, the opportunity to make money ourselves from selling soap.

Amway have a huge marketing momentum that tries to persuade potential buyers that with a little hard work a fortune can be made. In fact they are so persuasive that some commentators have remarked that they operate more like a cult religion that a business.

They operate freely in Botswana but not so in other countries. They are under pressure in the UK where the government is trying to close them down “in the public interest”. Evidence from the UK government findings show that around 70% of Amway victims, sorry that should read distributors, make nothing from them. In the USA Amway are obliged to label their products with a message warning that more than half of all Amway distributors never make a single cent from the business and that those that DO make, on average, a paltry US$65 per year.

Multi-level marketing of the Amway variety goes against the very essence of the free market economy. Note the emphasis on the word free. In such an economy two people come together and make a deal. One sells something, either a product, a service or simply his labour and the other buys it. Perhaps they negotiate over the price but at the end of the day they both agree on what they think is a fair price. However this is all based on honesty and openness. Pyramid schemes and multi-level marketing are both based on the absence of this openness and instead are based on false hope, distortions and exploitation.

Yes, it's true that some people DO make money from Amway and other similar schemes, but some people who jump off tall buildings survive, that doesn't mean it's a smart thing to do.

Amway have been known to be very defensive when they are the victim of criticism but as always we’re happy to defend what we say. It is, after all, based on facts. If you want to find further information on Amway as well as see the sources for the information in this article visit our web site and click on Consumer Watchdog.

If anyone from Amway feels like threatening to sue us then there’s a link there as well.

Finally, if you have dealt with Amway and have a story to share get in touch, we’d love to hear more.

This week’s stars!

  • Kenanao Makula from Barclays Bank who helped resolve a problem. Our reader said “I have never seen such a recovery. Mma Makula was helpful from the start and she kept calling until she got hold of me. It is people like Mma Makula who give us hope that excellent service and botho are not entirely dead and inspire those of us in the service industry to excel at our jobs. I hope you will be able to give a special mention to her in the paper.
We spoke to Barclays and one of their managers said they think Mma Makula is a “gem” and they told us that “we will ensure that she gets the recognition she deserves”.
  • Virginia at the beauty parlour at Mowana Safari Lodge in Kasane for putting the “tranquillity” into our national brand!

That, by the way, is the most Consumer Watchdog will ever say about our so-called national brand.

Well, perhaps.

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