Differences between Direct Selling and Ponzi Pyramid Schemes

Parameter

Direct Selling

Pyramid Scheme

Meaning/Definition

Direct Selling” means marketing, distribution and sale of goods or providing of services as a part of network of Direct Selling, other than under a pyramid scheme, to the consumers, generally in their houses or at their workplace or through explanation and demonstration of such goods and services at a particular place.

A Pyramid Scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.

Driving Object

Sale of products and services tothe ultimate consumer.

Little or no effort is made tomarket the product. All thefocus is on enrolment on newpeople and collecting moneyfrom them.

Cost of Entry

No or only a reasonable entryfee.

Charge steep start-up costs forjoining, including mandatorytraining, a starter kit and a non-refundablemembership fee.

Plan/Scheme

Plans are primarily based onthe value of sale of products.

Plans are primarily based onmoney paid by new recruits,and not on product sales

Mandatory Enrollment

Enrolment of recruits is notcompulsory for doing business.

Enrolment of recruits iscompulsory for doing business.

Underlying Product

Involves marketing of productsunder established brand names

Either no products are involved,or else the products are acover and are not really sold to

consumers

Quality of Products

High quality

Camouflage or sham products, inferior quality

Buy-back/guarantee of

product(s)

Product come with buy-back option

No right to return, buy-back orcooling off scheme required.

Exit Policy

Sellers can exit at any time byreturning the inventory.

No refund or exit policy exists.

Returns

Depends upon the value ofproducts sold and not thenumber of people recruited.

Money from new participantsis used to pay recruitingcommissions to earlierparticipants.

Sales Incentive

Primarily derived from saleof goods and are paid directlythrough banking channels.

Based on recruiting new peoplerather than on sales. Thepayments are made usually

through members.