Checklist to Evaluate Multi-Level Marketing (MLM) Programs that may be Pyramid Schemes
Use the questions below to evaluate a multi-level Marketing program that you are considering to see if it meets a government definition of a pyramid scheme.
Is there a joining fee?
Pyramid selling schemes often have start-up fees which are not for purchasing commercially viable goods or services since most earnings come from introducing others to the scheme.
Does the promotional literature indicate unrealistic earnings (eg "make $100,000 a month legally")?
Promoters who make unrealistic claims risk breaking the law.
If you answer yes to (1) and (2) then regardless of whether the scheme is pyramid selling or not, you should seek financial advice before entering.
Do participants earn commissions primarily from selling products or services, or are financial rewards largely dependent on recruiting others into the scheme?
Pyramid selling schemes are based on recruiting others into the scheme.
Are the products commercially viable?
A legitimate scheme has as its main feature products which consumers want to buy.
Are the products sold to genuine customers?
Legitimate multi-level marketing depends on selling to customers and establishing an ongoing market.
Is the number of products required to be purchased or ordered by the participants reasonable?
Legitimate businesses require participants to buy or order only as much stock as they can realistically expect to sell.
Does the promotional literature offer benefits such as "a life of happiness and prosperity", or "itís easy to sign up new distributors"?
Such statements need to be read carefully as they may make unrealistic promises which conceal the amount of hard work necessary to actually achieve such goals.
Does the promotional literature contain testimonials from people who are not easily available for possible checking (eg "RS of Auckland writes ..")?
People giving testimonials may not want to be identified for reasons of privacy. This may raise suspicions about whether the testimonials are genuine. Even if they are, there is generally no way for consumers to check. References to testimonials should be read with this caution in mind.
Does the promotional literature contain claims such as "this is not a get rich scheme" or "this scheme is legal"?
Again, statements like this need to be read with care. You need to ask yourself why such a statement is necessary. They may disguise the fact that the scheme may be illegal, or contain illegal components.
Does the information about the scheme suggest that the Ministry of Consumer Affairs, Commerce Commission or another government department or agency has endorsed or approved the scheme?
Neither the Ministry or the Commerce Commission endorse or approve any schemes. If this statement is made, it is untrue.
Does the promotional literature fail to provide a street address, so that you cannot contact a person for further details?
Legitimate schemes are unlikely to do this.
Does the scheme provide ongoing training and sales support?
Legitimate multi-level marketing businesses have a vested interest in ensuring that participants are well trained and supported.
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