Is Network Marketing a Pyramid Scheme?

Assalamualaikum dan selamat sejahtera...

If not, what's the difference between network marketing and a pyramid scheme?

Let me guess, somebody has just approached you and asked you to join their network marketing business and your instant thought was - is this one of those pyramid scams? So, you are no difference when compared to me. When my friend introduce me to score a program,network marketing under Kenshido International, my first thought is that this is pyramid scheme and not going to last long. so, i refused to listen to any explaination they offered to share with me. However, somehow i come across with   Kenshido Syariah Compliance about their plan marketing,i read it and  then i myself join this network marketing on my  own.8


You made the right decision to do some research and be concerned, because pyramid schemes are illegal and can put you in to a lot of trouble. The good news is that network marketing or multi-level marketing is a legitimate and legal business model. On this page we will help you to identify the differences between network marketing and pyramid schemes, including a checklist of things to look for.

To start with we will review the similarities and then work to distinguish the two.

Generally, the initial concern for people when introduced to a network marketing opportunity is when they see the compensation plan which resembles a pyramid in shape. Instantly they fear the worst as they draw a resemblance to illegal pyramid schemes. The truth is that this pyramid structure is the same as every other sustainable business model across the world. This is best highlighted in the diagram below (figure 1.)

figure 1

Is it the shape of the business model that dictates whether a business model is illegal?

No, of course not. If this were true every profitable company, government,and school would be illegal and shut down. It is not so much the shape of the pyramid that people should be concerned about, more the way in which the pyramid is created that distinguishes whether or not it is legal. Let’s review.

Pyramid Scheme (illegal scam)

A pyramid scheme can be defined as a fraudulent money-making scheme that is based on a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme without a legitimate product or service being delivered. Eventually the number of new recruits fails to sustain the payment structure and the scheme collapses with most people losing the money they paid in.

In a more practical sense, probably the easiest way to identify pyramid schemes is firstly there is no legitimate product or service involved (ie you do not get a legitimate product in return for your initial investment). The second way to identify pyramid schemes is that you do not get a financial return unless you have successfully introduced a number of new recruits into the pyramid. Basically, pyramid schemes concentrate on the money that you could earn by recruiting new people into the pyramid and generally ignore the marketing and selling of any products or services.

Network Marketing (legitimate, legal business model)

The concept behind network marketing is a distribution model that allows a company to sell their products directly to the consumer. Choosing to use a word of mouth approach (networking) instead of advertising through traditional streams (eg media). Therefore instead of paying the media for advertising, network marketing companies are structured to reward distributors through commission in return for selling their products and finding new customers.

Therefore the main focus of a network marketing company is product distribution. In fact, in a legitimate network marketing company, distributors are not required to recruit new distributors in order to earn a commission, they can earn money purely by selling the company’s product.

Although distributors can choose to sell the company’s products to earn their commissions, not everybody wants to be a sales person and therefore choose to recruit more distributors into their organisation as a means to build their referral base. Not only does this create a group of loyal customers, it also allows you to leverage the efforts of others to create a residual stream of income.

“I would rather earn 1% of 100 people’s efforts than 100% of my own efforts”
- John Paul Getty (American Billionaire)

Therefore the recruiting element of a network marketing business is merely a way of distributing more products and helping to build a leveraged income.

Why do distributors in network marketing normally receive a commission when a new recruit joins their organisation?

To join a network marketing company you have to purchase an initial start up kit. This kit usually includes training, some sales and management tools to assist you to build your business, and a certain amount of product. Because there is a certain amount of product included in the start up kit, the sponsoring distributor is now entitled to a commission. For example, when becoming associated with a network marketing company there are normally a number of different business options available, what’s the main difference between the cheap business options and the more expensive ones? The amount of product you receive in the package, that is the more you spend up front, the more product you receive as part of your initial package and the greater the commission the sponsoring distributor is now entitled to.

The opposite is also true, most network marketing companies now offer a very low start up option where you do not have to purchase any product to get started, just the training and business tools. In this scenario the sponsoring distributor does not receive any commission in return for you joining their organisation, they do however now have a new distributor (and customer) who they introduced to the business and therefore any future product that is bought or sold by this new recruit is eligible for commission.

In summary, when trying to understand network marketing, distributors are paid a commission - not for recruiting new members, but for the amount of product that is sold through their organisation. Therefore recruiting new members into a network marketing company is purely a way of expanding the distributor’s network and customer base. Any commission made through recruiting new members is a result of the product sold in the start up package and not for the recruiting itself.

Another big distinction between pyramid schemes and network marketing is the fairness of good maths. To prevent network marketing companies from falling over like pyramid schemes (where people at the top make all the money and people at the bottom lose everything), there are restrictions placed in the network marketing company’s compensation plan that limit the number of people who can earn a commission off any given sale. Basically there are only so many ways you can split a dollar, therefore, network marketing commissions only travel so far. This not only makes the business model sustainable but also makes it fair in the sense that it doesn’t matter if you got in first or last, you have the same opportunity as everyone else.

Please bear in mind that every network marketing company’s compensation plan is structured differently. To learn more about the basic structures please refer to the compensation plan chapter after finishing this page.

So in summary, despite the fact that network marketing and pyramid schemes share a few similarities (i.e. the pyramid shaped business model shown in figure 1, and that in both you can recruit new members) network marketing is a legitimate business opportunity and one where you can earn a substantial legal income. You don’t have to take our word for it, network marketing is now being endorsed by a number of leading businessmen worldwide.

“If I lost everything and had to start again, I would find myself a great network marketing company and get to work!”
- Donald Trump (David Letterman Show)

A word of advice when looking into a network marketing business opportunity - unfortunately some pyramid schemes have tried to mimic the network marketing business model before being discovered as fraudulent, therefore you have every right to be initially concerned. For your benefit we have put together a list of questions that you can ask yourself prior to signing the dotted line to help you identify a legitimate company from a fake one.

In particular, the following 2 questions:

1. Is there a legitimate product involved? 
   What do you get in return for your start up investment, other then the potential to earn good money? If you're not getting a product or service or if the training tools appear to be overpriced you could have discovered a scam. For more information about recommend products please refer to the "choosing the right product" chapter.
   
2. Do you get commissions based on product distribution or on recruitment? 
   If they are paying commissions based purely on recruitment, walk away now.

Additionally, you should also consider the following factors that might influence long term success.
Be aware of hype and ground floor opportunities

Although some people might claim you earn more money if you get in first, this is never the case and these are companies that normally fold within the first couple of years. It is much safer to join a company with a proven track record.

Does the company have a proven track record?

If the company has been around for a few years then there is a fair chance that governing bodies that police pyramid schemes have already pulled the business model apart and given them the ok. Publicly traded companies are normally your best bet.

Will the company buy back any unsold product?

Most network marketing companies have a money back guarantee which means that if you are unhappy with the products you can send them back for a refund. Given that the majority of your start up kit was product, if you’re not happy with the business you should be able to send back any leftover product to refund most of your start up costs. Try network marketing and potentially become very wealthy, or if it’s not working for you send your product back for a refund, it’s a win-win! Naturally a pyramid scheme is not going to refund your money.

Is this a get rich quick scheme? 

Although there is a lot of potential to earn very good money in network marketing very few have made it quick, most make their millions through consistent effort. So if it sounds to good to be true, it probably is.

Shop around

If you are looking into the industry for the first time don’t be scared to look at other business models and products, particularly if you don’t know which company to join. There are many discussed within this webpage.

What training do they provide?

A good company has a solid training system.

To finish with, we strongly advise that you take the time to make your decision, don’t be pressured into joining right away, do your homework. This webpage will give you most of the information you need including background into the industry itself, what it takes to be successful and common mistakes to avoid.

If this webpage has helped you in any way, we are glad to be of assistance. In the spirit of networking please feel free to recommend this webpage to others to help give the industry a good name.

What Is Network Marketing?

Assalamualaikum ...

Network marketing is becoming very popular among many people around the world. Here is a simple guide to understand what network marketing is. Network marketing is a simple business model in which a network marketing company distributes its service or product through the individual contractors. Network marketing is also popularly known as multi-level marketing business, tiered marketing, and affiliate marketing. There are many popular companies out there in the market that are into this business, in Malaysia, most commonly heard of is Zhulian, Uptrend, Amway and Kenshido International.

The working of network marketing can be best understood by the franchise model. In franchising, the business owners are given the rights to sell product or service with the parent company’s name and brand. Along with this, the business owners get training, support, and other necessary things required to run the business. While network marketing is not totally like the franchising, it is similar to franchise model. In the network marketing business model, the individual contractors are hired by the companies to sell the product or service and distributer make profit by selling the products to their own customers.

The key factor and most attractive offer in this business is that the individual distributer cannot only make profit by selling products, but can also expand their sales team and build a long list of downline members. This way the marketers not only make profit from the sales made by them, but also make profit from the sales made by their downline members. This business has the ability to generate revenue from multiple sources and therefore this is what makes the business so popular.

However, there are certain things that should be considered when joining the network marketing business. The first thing is the legitimacy of the company. Next is the length of period the company has been in business. Most network companies require some initial investment from the distributer set up the business so the distributer  should be ready to spend some amount on the business. Next important thing to consider is the company’s return policy and the products popularity. Finally, the distributer should analyze the compensation plan offered by the company. Other than this, the distributer can look for training and support from the company.

Network Marketing ... HARAM ke???

As-salamu `alaykum wa rahmatullah...... Bismillahir Rahmanir Rahim...

Tulisan Ustaz Zaharuddin Abdul Rahman, “Mudahnya MLM menjadi haram!”menimbulkan sedikit salah faham, seolah-olah semua skim Multi Level Marketingcenderung kepada haram. Sedangkan Ustaz Zaharuddin sebenarnya turut menggariskan asas minima syariah yang perlu dipatuhi bagi membersihkan urusniagaMLM itu :

1.     Produk MLM ini mestilah dibeli dengan tujuan yang sebenarnya (seperti produk yang bermanfaat dan dibangunkan dengan serius seperti ubat-ubatan berkualiti). Produk MLM yang kabur kualiti dan kegunaannya tidaklah dibenarkan kerana ia hanya bertujuan mengabui undang-undang dan syariah. Jesteru, kekuatan MLM itu ialah kepada produknya yang bermutu dan bukan kepada objektif jangka pendek mengumpul dana (modal).

2.     Produknya bukan emas dan perak yang boleh dijual beli secara tangguh. Ini kerana penjualan barangan emas secara tangguh adalah riba jenis Nasiah.

3.     Komisyen yang diberikan kepada ahli untuk setiap penjual dan ahli bawahannya mestilah jelas. Tiada komisyen tanpa usaha, ini bermakna orang atas hanya berhak mendapat komisyen dari ahli bawahan yang dibantunya sahaja.

4.     Keuntungan dan komisyen bukan berdasarkan ‘kepala’ atau ahli yang ditaja, tetapi berdasarkan nilai produk yang berjaya dijual. Ini bagi membuktikan ia menumpukan kepada perniagaan penjualan produk dan perkhidmatan, bukannya permainan wang (money game).

5.     Tidak diwajibkan bagi si ahli menjual jumlah tertentu bagi memperolehi komisyen dari orang bawahnya.

6.     Setiap ‘upline’ atau orang di sebelah atas mestilah menaruh usaha atas jualan orang bawahannya, seperti mengadakan taklimat, motivasi dan teknik berkempen secara terancang seperti sebuah syarikat yang pelbagai ahlinya. Ia perlu bagi melayakkannya menerima komisyen itu dari sudut syariah. Jika tidak, dibimbangi ia terjerumus kepada keraguan ’syubhah’. Konsep niaga dalam Islam tidak membenarkan keuntungan yang di perolehi tanpa usaha. Sedikit usaha perlu dicurahkan bagi menjadi sebab haknya ke atas komisyen. Perlu diingat, kebanyakkan ahli di kaki yang 10 ke bawah, mungkin tidak mengenalinya lantaran ia dilantik orang bawahnya yang kesembilan. Jika tidak, apakah haknya untuk mendapat komisyen yang demikian berangkai dan begitu jauh?

7.     Tidak menggunakan skim piramid iaitu skim siapa masuk dahulu akan untung selamanya. Manakala hak mereka yang masuk kemudian akan berkurangan. Jesteru, plan pemasaran mestilah memberikan hak kepada semua, malah orang bawahan mampu mendapat keuntungan lebih dari orang atasannya, apabila ia mampu menjual dengan lebih hebat.

8.     Mempersembahkan sistem komisyen dan bonus yang telus dan boleh difahami dan dipantau oleh ahli dengan jelas. Ia bagi mengelakkan segala jenis penipuan.

9.     Menstruktur plan pemasaran di antara ahli dan orang bawahannya secara musyarakah iaitu perkongsian untung dan rugi berdasarkan modal masing-masing dengan nisbah pembahagian keuntungan yang ditetapkan diperingkat awal.

Petikan ini dipetik dari sumber akhbar Harakah keluaran 1-15 April 2007

" Carilah ILMU dan MEMBACAlah...!"

=)

Memang Tabiat Manusia Membenci sesuatu yg tidak mereka ketahui...
=D

Network Marketing-It's an Asset, Not a Job

As-salamu `alaykum wa rahmatullah...... Bismillahir Rahmanir Rahim...


By Robert Kiyosaki

I am sometimes asked, "Why do so few people make it to the top of their network marketing system?"

The truth is, the top of the network marketing system is open to everyone-unlike traditional corporate systems, which allow only one person to reach the top of the company. The reason most people do not reach the top is simply because they quit too soon. So why would someone quit short of the top?

Most people join only to make money. If they don't make money in the first few months or years, they become discouraged and quit (and then often bad-mouth the industry!). Others quit and go looking for a company with a better compensation plan. But joining to make a few quick dollars is not the reason to get into the business.

The Two Essential Reasons to Join a Network Marketing Business

Reason number one is to help yourself. Reason number two is to help others. If you join for only one of these two reasons, then the system will not work for you.

Reason number one, means that you come to the business primarily to change quadrants-to change from the E (Employee) or the S (Self-employed) quadrant to the B (Business owner) or I (Investor) quadrant.

This change is normally very difficult for most people-because of money. The true E or S quadrant person will not work unless it is for money. This is also what causes people to not reach the top of the network marketing system: they want money more than they want to change quadrants.

A B quadrant or I quadrant person will also work for money, but in a different way. The B quadrant person works to build or create an asset-in this case, a business system. The I quadrant person invests in the asset or the system.

The beauty of most network marketing systems is that you do not really make much money unless you help others leave the E and S quadrants and succeed in the B and I quadrants. If you focus on helping others make this shift, then you will be successful in the business.

As a B or an I, sometimes you don't get paid for years; this, a true E quadrant or S quadrant person will not do. It's not part of their core values. Risk and delayed gratification disturb them emotionally.

Delayed Gratification and Emotional Intelligence

One of the beauties of network marketing is that it focuses on developing your emotional intelligence as well as your business skills.

Emotional intelligence is an entirely different matter from academic intelligence. In general, someone with high emotional intelligence will often do better than someone with high academic intelligence but low emotional intelligence. That explains, in part, why some people do well in school but not so well in the real world.

The ability to delay gratification is a sign of higher emotional intelligence. In a recent study of emotional intelligence, it was found that people who could delay gratification often led more successful lives than those who could not.

This is why the educational system inherent in a good network marketing opportunity is so important. It's the emotional education or emotional intelligence aspect of their programs that I find so valuable for people.

Many people write me and tell me they loved my book, Rich Dad, Poor Dad, but I fear that many of them don't get the most important point of the book: Lesson #1, "The rich don't work for money."

Once I have built or bought an asset, that asset works hard to make money for me. But I will not work for money-I will work only to build or buy assets. Those assets make me richer and richer, while I work less and less. That is what the rich do. The poor and middle class work hard for money, and then buy liabilities instead of investing in assets.

What Kind of Asset is a Network Marketing Business?

Remember, there are two reasons required to be successful in network marketing: to help yourself, and to help others. Reason number one means helping yourself get to the B side of the quadrant. What about reason number two

The beauty of most network marketing systems is that you don't really make much money unless you help others leave the E and S
quadrants and succeed in the B and I quadrants. If you focus on helping others make this shift, then you will be successful in the business

If you only want to teach yourself to be a B quadrant and I quadrant person, then a true network marketing system won't work for you. You may as well go to a traditional business school, which focuses only on your becoming a B quadrant person.

The beauty of a network marketing business is that your goal is to create assets, which are other B's working under you-and their job is to create other B's working under them. In traditional business, the focus is for the B to have only E's and S's working for them.

The type of business I was taught to build is a business with me at the top and E's and S's at the base. I really don't have room at the top for many other B's, which is why in my businesses, I strongly recommend that all my employees look into network marketing as their own part-time businesses.

The traditional corporate system really is a pyramid, because there are a few B's and I's near the top, and more E's and S's at the base. A network marketing system is a reverse pyramid: its primary focus is to bring up more and more B's to the top.

One type of pyramid, the traditional type, has its base on the ground; the other type has its base in the air. It's a pyramid that pulls you up instead of pushing you down. A network marketing business gives everyone access to what used to be the domain only of the rich.

This passage is excerpted by permission from The Business School for People Who Like Helping People, by Robert T. Kiyosaki, with Sharon Lechter, CPA, authors of Rich Dad, Poor Dad."