When is a program a pyramid scheme?
When we say a program is a pyramid scheme, we do not refer so much as the shape of the program or organization but more of the mode of operation of the scheme.
"Shape does not matter, what does is the mode of operation."
If shape is a criterion in determining a pyramid scheme, then our companies and government department are shaped that way too. This is because the shape of the organization structure of a company and even government departments are in the shape of a pyramid; with the highest level at the top.In a company, the organization is headed by a General Manager at the top hierarchy of a pyramid organization, followed by middle management, executives, supervisors and finally the workers of a company.
How To Identify a Pyramid Scheme
So, how do we identify a pyramid scheme?One common problem most people face is deciding if the emphasis of a program is on sales of a product (a legal multi-level) or recruiting of people (a pyramid scheme).
Well, just ask yourself these few simple questions. If you answered honestly and impartially YES to Question (a) and (b) below, you can be sure the scheme or program is most likely a pyramid.
a) Does the money that you are going to make come from the sale of products or services to consumers? If not, does it come from the recruitment of new distributors?
You know that your money is coming from new distributors when:
You are encouraged to invest a one-time only lump sum of money. Very often more than the worth of the products / services you are getting. No work or sweat or efforts are required of you. Somebody else will do the work for you. You are told that the products or services are irrelevant or incidental. What matters is the "opportunity" in it and the right to recruit distributors to make money. Products or services are ignored.
On the other hand, legitimate network marketing emphasizes on making money from the sales or consumption of quality products and services. The emphasis is on products. No products sold or consumed, will therefore mean no commission. You get commissions from your own sale of products and services and from the sale of goods and services by your distributors.
b) Does the investment or price exorbitantly more than what you will normally pay for products or services of similar nature?
You know the products or services are over priced, inflated or is just incidental to camouflage the scheme when the products or services come along with the investment as part of the deal and you do not have a choice. It is a take-it-or-leave-it situation. Not even an option to refund or to exchange later.
You know you can get the same products or services at a very significantly much lower price somewhere else. In other words, there is a comparably lower retail value somewhere else. The products or services are nothing more than gimmick and are of little value. For examples, certificates to recruit or sponsor, images of art, web-page design or phone card. Your friends or even relatives tell you that you have paid an exorbitant or ridiculous price for what you have purchased.
On the other hand, legitimate network marketing emphasizes on top quality and fair price for the products and services that they distribute. You are also given the choice to pick and choose the type of products and services you need. As the sales of products and services are the key factors to a network marketing business, issue of whether the products or services that you pay are really "value for money", can only be determined by you. In determining this value, one must compare "an apple with an apple" or "an orange with an orange".
c) What is the cost to participate in such a scheme?
To become a distributor in a MLM business, membership fee may range from about USD20 - USD 100/member. After becoming a distributor, you have the choice to buy or not to buy their products or/and services. In some cases, a sample purchase of products is included as part of the sales kit.
d) If you did not sign-up as a distributor, will you buy the products or services at the prices offered?
If you said 'no' or 'maybe', then review your own motives and understand why you are into the scheme. Is it the moneymaking opportunity that draws you into it? Or it is the 'pioneer' status that was offered to you to be that few at the top of the pyramid bonus payment? However, if you said 'yes', make sure you are not kidding yourself. This means that you will be willing to buy the product or services even without the money making opportunity because of the quality, superiority, uniqueness or true goodness of the products and services provided.
e) Does the scheme allow you to make more money than your upline without having more than one position?
Does the scheme emphasize more on productivity (sale of products or services) or more on how much money you put into the scheme? In a legitimate network marketing business, a downline can make more money than an upline if the downline is more productive and hardworking than the upline. You get paid for your results or performance in a legitimate network marketing company. Unlike in a pyramid scheme, an upline will always make more money than a downline by virtue because they are the 'first' to be in.
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