Posted on Tuesday, April 29, 2003

The strong attraction of greed

By Max de Leon, Researcher

Second of three parts

THE first part of this special report tackles the hopes and frustrations a recruit encounters as part of a “networking company” that promises fast earnings in millions. It starts with a marketing and compensation plan that is very enticing for someone who wants to earn big money the fast and easy way.

“What are your dreams in life?”

If you hear this question asked by the speaker in a seminar, followed by an enumeration of answers that include big incomes, a new house and lot and expensive cars, financial freedom and huge bank accounts while working part-time, chances are you are attending a “business opportunity presentation” of a networking company.

Marketing presentations of most shadowy “multilevel marketing” groups or MLMs often start by appealing to the materialism and greed of the prospective recruits present in the seminar. While this style may turn some people off, it also conditions the minds of the prospects to be part of the “get-rich-quick” scheme that is to be introduced to them. As people say, unbridled greed suspends good judgment.

Mark, a recruit from Forever Living Products Philippines Inc. (FLPPI), said this is the part where seminar participants “get high”—the same part that gave him sleepless nights.

After this, the speaker would discuss briefly the products and/or services being offered by the company and justify why the company charges an entry fee that is obviously overpriced.

Then the speaker would map out the company’s marketing plan, which includes the system on how to recruit “downlines” and how much would be earned for every successful recruitment effort.

Afterward the speaker would give more teasers on how big some of their distributors are earning and the luxurious lives they live through the company.

At the end of the presentation, prospective recruits are divided into small groups by those who invited them. Here, particular questions would be answered. Also, the prospects would be shown sam­ples of the huge amount of weekly checks re­ceived by old distributors of the company.

“Some of our busi­ness associates are now earning P350,000 a week,” Carmela Carva­jal, a marketing presentation speaker of First Quadrant, recently told some 50 persons cramped in a small seminar room of the company in Greenhills, San Juan.

Overpricing

First Quadrant, which has attracted more than 80,000 “business associates,” is owned by the family of Laureano Guevarra, the acknowledged founder of the Philippine shoe industry. Julie Rose Defensor, wife of the housing czar Michael Defensor, is the company’s corporate secretary.

It charges its new distributor P8,880 as entry fee.

Carvajal said the amount would entitle the company’s new business associate to P2,000 shopping privilege on its products, an accident insurance, 50-percent discount on all its products, a business kit and the right to recruit other distributors.

She said First Quadrant uses the binary system in its recruitment in which a distributor can only have two direct recruits that would be situated on the right and left of his pyramid as first level of his downlines. The first two recruits would be the start of his groups A and B. For every successful recruit, the business associate gets P1,000 and an additional P1,500 for every pair of recruits. Besides this, the distributor will also get a 5-percent rebate on every purchase made by his downlines.

The company, Carvajal said, does not impose a sales quota on its distributors. “If you don’t want to sell the products, it’s OK,” she said. “A lot of our business associates do that, but they still get their checks weekly.”

Julie, a ranking government employee based in Davao, said she was lured into the company by her best friend in August 2002, but never got to recruit anybody or sell its product because, according to her, the products are too expensive for their quality.

“For my P2,000 I only got a pair of sandals [with the brand name Doyee] worth P1,700 and a pair of slippers worth more than P300. Nag-abono pa nga ako [I even added some amount to it],” she told The Times when she recently visited her sister in Manila.

The same overpricing of products is the usual complaint of distributors of FLPPI. The company charges P12,000 as entry fee to a member so he could get the right to recruit other people and enjoy a 30-percent discount on the company’s products. He could also retail the products at a 43-percent profit.

For the P12,000 (it was recently reduced from P14,550) the new recruit will be given a “combo pack” consisting of 27 of the company’s products that range from health goods to shampoo and cosmetics. Some of the products are an eight-ounce Aloe Jojoba Shampoo with a retail price of P541, a 100-tablet bottle of the Absorbent C worth P715, Aloe Liquid Soap P618, and Forever Bee Honey P959.

A combo pack is equivalent to two case credits (cc) and would elevate the new distributor to the assistant supervisor level. Should he reach 25 cc, he would be promoted to supervisor, 75 cc to assistant manager and 120 cc to manager. The one on top of the chain gets corresponding compensation, commissions and rebates from the sale and recruits of his downlines. But, of course, as Mark said, this is easier said than done.

“The ladder to promotion is very hard to scale, because you need to spend a lot of time and money to reach higher levels. While you go up, the sales quota you need to maintain for you to get your commissions also goes up so that it becomes near impossible to meet, because the products are too expensive,” Mark said.

Recruits solve all problems

FLPPI is known in the networking circle as either owned or controlled by the family of National Security Adviser Roilo Golez, the company’s founding managing director. His wife, Natalia, now holds that position. In its Securities and Exchange Commission registration, Golez was not listed as one of the company’s incorporators.

To earn big in the company, distributors are being told to recruit more and more people as shown in one of their motivational materials entitled “Attack! Attack!” which also has a slogan “recruits solve all problems of the business.”

FLPPI uses a system where a member can get as many direct recruits as he can. Originally, an upline automatically gets 30 percent of the entry fee of his direct recruits plus 5-percent rebates. But in July 2000, the company decided to scrap the 30-percent ready commission in order to lower the price of the entry fee.

In the case of Powerhomes Unlimited Corp., distributors whom they call marketing and real-estate sales associates (MSAs) shell out $298 to buy its products and services and the right to recruit downlines.

In one of the articles posted on its website, Powerhomes claimed that its principal product is house, with its marketing training package consisting of basic real-estate brokering, leverage marketing and computer literacy as add-ons.

The company thought up the socialized power-pairing system (SPPS) “where an MSA can only be allowed to get two customers/enrollees that he/she attaches directly under the left and right side of his/her specific monitoring center to form a pair of direct customer base.”

The cycle will be duplicated by succeeding customer/enrollees. For every pair of recruits, the MSA receives a fee of $73.60.

In both Powerhomes and First Quadrant, the persons on top or the uplines, although limited to only two direct downlines, can spill over their excess recruits to their downlines who have not recruited somebody yet. With this, the matrix will continue to expand and the earnings go on flowing.

This is also why a person who stopped selling and recruiting can still earn, because he will be automatically entitled to specific commissions from the spillovers and those who will be recruited by them.

Legitimate networking

Joey Sarmiento, chairman of the Direct Selling Association of the Philippines, said that in his company, Sunrider Philippines, distributors get no payment from the recruitment they make, but only on sales.

So even if a distributor recruited so many downlines, but registered no sales, Sarmiento said he will not get paid.

“This is because in a legitimate MLM, the intention is really to sell your products. You recruit somebody to help you sell the products and not because you will get a certain amount from his registration fee.”

Jaime Olmos, assistant director of the Department of Trade and Industry, said that in MLM one will get a big income if one strives hard in selling the products of the company.

“But in pyramiding, you can just concentrate on recruiting people and soon you will be able buy your Isuzu Trooper,” Olmos said. “You no longer have to sell—just recruit and recruit.”

With the earnings of most MLMs anchored on recruitment, distri­butors often get pushy and deceptive when getting people signed up as they make extraordinary claims on the products and the earning potentials.

Sarmiento said this happens because MLM companies have no direct control over their independent distributors on the manner they sell the product and the business opportunity.

But Olmos said in this, both the distributor and the company can be held liable for violating Article 50 of the Consumer Act of the Philippines which states, “An act or practice shall be deemed deceptive whenever the producer, manu­facturer, supplier or seller, through concealment, false representation or fraudulent manipulation, induces a consumer to enter into a sales or lease transaction of any consumer product or service.”

(The conclusion tomorrow will discuss congressional efforts to make pyramiding a heinous crime and how the emerging law will affect the operations of networking companies.)

Part 1 | Conclusion