What is Amway’s Pyramid Fraud?

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We have often seen a crowd of people gathering around a person who makes claims like, “Join network marketing with us and your life will change from rags to riches" or "Invest in this ABC Ltd. and you'll be earning 1.5 lakhs like us”. Suspicious but fascinating at the same time, right? Much like the movie, Hera Pheri's 'Pachchis din mei paisa double' scheme, isn't it?

Ever wondered what actually, this scheme is? Is Amway India, a US-based FMCG company following the same scheme? Let's have a deeper insight into this.

What does Amway do?

Any company, in general, promotes its products through advertisement or any distribution channel but Amway is somewhat different. Amway manufactures family-owned fast-moving consumer goods (FMCG) and then sells them directly to the customers through a PYRAMID network of its members, instead of conventional marketing and distribution. The company supplies products like Nutrilite vitamins, dietary supplements, and cosmetic products by tricking the individuals, telling them how average their life is, assuring a lavish lifestyle by purchasing Amway products, and having its membership or stake in it.

[Sources: The Sales plan of Amway]

What is Pyramid Scheme and why is Amway accused of Pyramid Fraud?

It is a fraudulent system of earning money where the promoters of a company recruit investors and ask them to, in turn, recruit more investors, and Amway is accused of it because of the following reasons:

  1. Amway products are priced higher than its competitors and are sold to its recruited members.
  2. Now, members are supposed to sell products to more recruited members to ‘recover their cost' in return for a commission. At present, Amway has a network of 5.5 Lakhs recruited members in India.
  3. The recruited members are told to onboard as many members as possible by telling inspirational stories of people who became rich by doing so and thus, incentivized while not emphasizing the selling of actual Amway products in the process.

Difference Between Multi-Level Marketing and Pyramid Scheme

BASIS

MULTI-LEVEL MARKETING (MLM)

PYRAMID SCHEME

What is it?

Marketing Strategy

Fraudulent Scheme

Setup

Commission is paid to distributors at multiple levels when the product is sold.

Real product isn’t sold.

Promised compensation

Participants in MLM make money from the enrollment fees and by selling products.

Participants in a pyramid scheme make money primarily from the enrollment fees and not by selling products.

Product

It is used as a channel for selling tangible products.

There is no actual product except a fake investment.

ED's action on Amway

The Enforcement Directorate is responsible for enforcing the provisions and investigating & prosecuting the cases under the Prevention of Money Laundering Act (PML) and the Foreign Exchange Management Act, 1999 (FEMA).

In the accused of conducting fraudulent practices and stating it as a 'scam' or 'fraud' amounting to INR 27000 crore, ED has seized the assets valuing INR 757 crore as a penalty.

Impact of Amway Fraud

The company profited by influencing people on how they could become wealthier by becoming members of the company by following referral marketing. Though, Indian law allows direct selling but prohibits business models based on pyramid schemes or money circulation schemes.

Amway's products have an excellent reputation for being high quality and attracting long-term customers. But after this fraud case and allegations by ED, its goodwill and brand image were affected, and its customer base was reduced.

Lesson to be learned

Sellers of such schemes will tell you that their business plan will change your life and help you earn enough money that you can easily quit your job and live a lavish lifestyle. You will become rich as you'll promote to higher positions in the company. Well, all this is a lie. Beware!

Comment your views in the comment section about this illegal Pyramid Scheme.

References:

  1. https://bit.ly/38HwM64
  2. https://bit.ly/3OQoxoN
  3. https://bit.ly/3vCdqZ6
  4. https://youtu.be/vKuE-YtktuM
  5. https://www.ssatripura.com/amway-india-pyramid-fraud/
  6. https://www.amway.in/business/amway-sales-plan
  7. https://www.cs.cmu.edu/~dst/Amway/AUS/stats.htm
  8. https://www.forbes.com/companies/amway/?sh=110187a6ec41
  9. https://thesnappingpoint.com/ponzi-scheme-pyramid-scheme-charles-ponzi/amp/

 

 

 

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