Product based pyramid schemes are companies that have real-life products which they sell through a reward system that is deemed a pyramid scheme by the government regulatory authorities. And, yes, these types of pyramid based companies are many in Nigeria and worldwide.
The popular belief among most network marketers (or mlm company distributors) is that any company that has a REAL product or service cannot be classified as a pyramid scheme.
If that is what you believe, then you're dead wrong.
The truth is this . . . the government regulatory agencies determine what is considered a pyramid scheme and what is not. Therefore, in determining what constitutes a pyramid scheme, we have to look at it from the perspective of the regulatory agencies.
Let's take a look at how the United States federal trade commission (FTC) defines a product based pyramid scheme to gain insight into what government regulatory authorities across the world consider to be pyramid scheme structure.
The U.S. federal trade commission web site says, "If the money you earn is based on your sales to the public, the company may be a legitimate multilevel marketing plan".
The FTC website further goes on to say, "You’re required to buy lots of inventory" or "you’re forced to buy other things you don’t want or need just to stay in good standing with the company" these are signs the company is operating an illegal pyramid scheme.
Now stop for a moment and consider what the focus of the FTC is in determining if a company is a pyramid scheme or not.
The focus of the FTC here is not whether the company in question have high quality products (or services). Neither is it about the pricing of the network marketing company's products or services.
The determining factor is how distributors of the mlm company in question are rewarded financially. Or more specifically, what activities qualifies them for financial reward from the company.
In summary, if any of the following activities are present in an mlm company that offers a product or service, then the company is a service or product based pyramid scheme.
1. Majority of commission earned by distributors is for sales to other participants in the business opportunity
2. Distributors are required to purchase large product packs (e.g. greater than $100 packs), which is higher than what can be called reasonable consumption. That is, inventory loading.
3. Company training materials (and meetings) are focused on recruiting more participants for the program instead of selling to the public
4. Qualification requirements for higher bonuses encourage activities that promote inventory loading
What qualifies a network marketing company as a product or service based pyramid scheme has nothing to do with how long the company has been in business or whether it offers high quality products.
The major determining factor is whether most of the commission paid to distributors is for sales to the public or for sales to other participants in the program. And whether the company's compensation plan is structured (and operated) in such a way that it encourages participants to buy products they do not actually need (in a bid to earn points that qualifies them to earn higher bonuses from the company).
Do NOT participate in a product based pyramid scheme or any other pyramid scheme for that matter. You will lose money in the long run or many of the people you introduce to the program will lose money and that may have adverse impact on your beloved relationship with them.
If you made net-gain, you could be required to pay back all that money you earned from the program (money you have already spent!)And, yes, you could even go to jail for promoting an illegal pyramid scheme!
This is serious!
Be careful when choosing a network marketing company to join!
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