Do retail sales matter?

Look at part of a declaration by Dr Peter J VanderNat, a US Federal Trade Commission economist and expert witness on “pyramid schemes” in the case of FTC vs. Equinox International Corporation, in 1999. “In distinguishing between a pyramid scheme and a legitimate business,” he said, “the critical issue is whether rewards paid in connection with recruitment are tied to, or are derived from, the sales of goods and services to the general public (i.e. retail sales)”.

The previous year, the prepared statement of Debra A. Valentine, General Counsel for the U.S. Federal Trade Commission on pyramid schemes, presented at the International Monetary Fund's “Seminar on Current Legal Issues Affecting Central Banks” in Washington DC, contained these words: “Pyramid schemes now come in so many forms that they may be difficult to recognize immediately. However, they all share one overriding characteristic. They promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public. Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure. A lack of retail sales is also a red flag that a pyramid exists.”

So, there have to be genuine retail sales to genuine retail customers, in network marketing, otherwise the business isn’t legal. This is one of the reasons why the products matter so much: if people (meaning not just distributors!) aren’t actually buying them, the business will eventually be closed down by the legal/regulatory authorities and/or courts.

For network marketing, product matters enormously.

As a network marketer, you are hitching your business and your income (and eventually those of other people, too, albeit that that's ultimately their own responsibility) to the stability, success and longevity of a company whose fortunes and survival you're normally unable to influence. The network marketing companies that survive for the long term are the ones with quality products in genuine retail demand. No company makes money for the long term without being able to sell its products. And not just to people joining for the business opportunity.

There are also huge legal issues around product, at least in Northern America and all of Europe, and I believe elsewhere, too: the products have to be of genuine value. The primary legal test that all enforcement agencies, regulators and authorities use when initially looking at a company if they ever get any complaints/inquiries about it is “Are the products of genuine value and being sold to people for value other than because of the attached business opportunity?” No company that doesn't produce a clear “yes” to that question can survive indefinitely.

This is one the most important and most fundamental reasons (though there are many others) for joining only well-established companies that have already successfully proven, in a notoriously difficult “industry”, that their products have value and are genuinely being sold (i.e. not just being bought by people because of an attached business opportunity).

Here’s an article from the website of a specialist network marketing law-firm in America, explaining why the true value of the products, and the fact that they mustn't be linked to recruiting, is so absolutely fundamental to the legality of network marketing businesses.

Comments

[Alison Moore Smith]

Yulia, I should have known you'd crank out some truly valuable information! I've subscribed to your feed since I know it will be worth my time to read anything you write.

Now get yourself a big, fat, juicy RSS button up there so everyone can easily see how to subscribe. :) You'll be doing visitors a favor.

Good luck!