Pyramid Schemes

Posted on Apr 2, 2013 in BREG, Scams and Frauds

Multi-level sales programs, also known as pyramids, are marketing techniques used to sell a variety of products-from plastic containers, cosmetics, and household cleaning products to credit cards and even real estate. While many multi-level programs today are legal, there are some that are illegal and deceptive.

If you’re thinking about joining a multi-level sales program in order to earn extra money or to start a new career, be cautious. Find out all you can about the product to be sold and how their marketing works. Use the following standards to judge whether the plan you’re considering is legal or not:

There must be a real product to sell. If there is no product, you may be involved in a classic chain letter scheme. And, if the product is of small value, far less than the cost of entering the program, the pyramid is likewise deceptive and illegal.

Don’t join, if the company requires inventory loading. This means that salespersons are required to buy a certain amount of the product each month, regardless of the amount of their actual sales.

The program must be a real, continuing sales program. The upper level sales people can’t simply sign up downline sales people and wait for their commissions to roll in.

A legitimate program will guarantee product satisfaction. The company should be willing to buy back inventory which is not selling, from its salespersons.

A marketing program which makes claims of fantastic profits from a downline may be deceptive and illegal. This is because the profit structure of a pyramid is based on a geometric progression. At a very early point in the pyramid, it would take an unrealistic number of downline people to keep the structure going. All later participants, therefore, would have no chance of reaping the benefits being advertised.