Evaluation of Pyramid and Network Marketing Moslem Moradi1*, ArefBavi2, JalaleddinAhmadpooran3 1*M.A. Student of Business Management, Science and Research Branch, Persian Gulf International Educational Center, Khoozestan, Iran (Corresponding author) 2 M.A. Student of Business Management, Science and Research Branch, Persian Gulf International Educational Center, Khoozestan, Iran 3 M.A. Student of Entrepreneurship Management in SME, Science and Research Branch, Semnan University, Semnan, Iran Abstract Marketing industry is one of the most fun, most exciting and most powerful industries in the world and because of this business simplicity can be the starting point for any person to create a global business. Today the industry is used in all fifty states in America and more than a hundred and twenty countries and territories in the world. Millions independent marketer have an estimated annual income of more than one hundred million dollars. Network marketing basically uses three secrets of J. Paul Getty for becoming a millionaire: 1. The product that everyone needs to have. 2. Copy Yourself in the other. 3. be Self-employed. If network marketing is absolutely legal and reasonable growth rate and to provide useful products and to offer reasonable prices, in certain circumstances it may be helpful in order to economic growth, but companies that are growing do not care its products, its activities and its economic impact in the communities, will have very detrimental effects on society. Exaggeration in increasing income By Network Marketing, in a way that for new people if shows this job that you with a simple activity would have earned about $ 5,000 per week. Projects that claim 100% bonus will be paid, also in short time, it is completely understood how well the business is unrealistic unless obtained through fraud. If you are not satisfied with the product quality on ordinary trade or suspect that they do trick on you so you can return the merchandisebut in this company does not regain product. In this structure selling price should be less than traditional market or at least should be similar price, something that does not exist. In fact customer buys goods or services that do not need it or if it needs to be motivated to participate in the scheme, it is bought with a price higher than the general market. Keywords: pyramid marketing, network marketing, matrix plan, binary plan COPY RIGHT 2013 Institute of Interdisciplinary Business Research 310
Introduction: the network marketing business was accepted in the world that According to some of the capabilities can be used in Iran.In the pyramid companies the purpose is profit-seeking and its members are taking advantage of the real price of the goods to deliver to customers but in network marketing because the purpose is not profit the customer received the goods in real price.<<the pyramid companies>> and <<the network marketing companies>> are two terms that due to the lack of clear definition of them, some do not distinguish between them.<<being denied receiving any money or its equivalent as a membership fee, Escrow or accept Agent for any other profitable economic activities of the network marketing companies, and being denied a mere human network expansion and attracts the distributors of goods and changing money and provision of imaginary products, sales of place in tree diagram or products that their produce in future is possible>> is Two major differences between network marketing companies with businesses pyramid. In general, pyramid companies have two main objectives: A) attracting more individuals with false promises and B) achieving more profit with new profitable plans. But those who put their pyramid companies in the form of network marketing use this name to pretend a legal qualification for their actions. Their objectives include: 1. Increasing sales rate with reducing costs as a result of removing intermediates 2. Increasing product quality to achieve more customer satisfaction History: in the idea of scientists marketing science, <marketing> in today's lexicon of marketing is in a wide range of All operations research, design, production, logistics, manufacturing, distribution, transportation, sale, insurance, quality control, packaging, services and overall consumer satisfaction in a way that simplify the distribution and transferring of goods to near and far consumer. The official Activities Background of pyramid designer in America that is the first activity origin- it goes back to the designer Charles Pons in 1919. The idea of network marketing was taken from portable formula, in the sixth century BC. CE was introduced to the world by Pythagoras and in the third century BC. CE was introduced by Euclid in famous book "Foundation". The idea was first used by a bicycle manufacturing company in Russia. A plan was set based on which customers could by a bike paying 10 Rubles (instead of 50) if the can COPY RIGHT 2013 Institute of Interdisciplinary Business Research 311
introduce 4 other customers. Such a company was called "avalanche" in Russia and "snow ball" in France. People believed these companies are frauding. Since then politicians, economists and sociologists tried to find a way to use this idea to benefit the public. "Vitamin Company" in California was the first to officially start using multi-level marketing (MLM) in 1930. The company's name changed to "Nutrilite" later in 1939 and sells its products through "Aim Way" company at the present time. Definition of marketing: Marketing and marketing management is one of the important branches of knowledge management that The main function recognizing human needs and address them through the process of exchanging resources. Basic Concepts Marketing prominently deals with the daily lives of consumers from early morning until late at night every consumer of goods and services that are provided to meet their needs.in fact, marketing is defined as a process of social management By which individuals and groups through the production and exchange of goods and services with each other by the main means And mediate called money and in community called market to meet their needs and desires, Therefore, it is necessary first of all to get familiar with the concepts mentioned briefly in this paper can provide a good conclusion. 1 - The first process is the requirement that the shortage is felt by the person. 2 - Wanted: an improved quality of human needs and preferences desires. 3 - Demand: The third basic concepts apply to the purchase and use of goods and vary services. 4 - Goods: Anything that is produced by a particular person or institution is able to meet the needs of individual or collective consumer is called goods. 5 - Trade: the satisfaction of people's needs in their decision to buy and sell goods is done in trade action. 6 - Trade: Trade Marketing is considered as a unit of measure, is a good deal of the bargain between the parties. 7 Market: a place for potential transactions or scientific sense means the gathering place for a number of clients and suppliers that have common needs and from means of exchange or traded in the money itself is being used. 8- marketing has various definitions each of which presented by specialists and experts. For example: marketing means performing actions such as sell and purchase goods, transport and warehouse them. But, in fact, marketing means to deal with markets to COPY RIGHT 2013 Institute of Interdisciplinary Business Research 312
provide for exchanges and having transactions in order to meet human needs. The word "marketing" means to know, find, construct and manage a market. Therefore, by marketing we mean all of these and hence adding the phrase "market management" to the beginning of this word helps us give a more comprehensive definition. Pyramid marketing (pyramid schemes): Pyramid intrigues are lots of time that is in operations although initially considered it just a scam from the first examples of such scams is YakuAysydvruvych Russian mathematician Perelman that lived early twentieth century until World War II and in his book live Mathematics has pointed to the bike shop in Czarist Russia.But the scam was not the first of its kind But there are also reports in 1899 But the biggest financial scams that later became common in many pyramidal firms in 1919 was made by Charles Pons. The first pyramid company named "Pentagons" (having an Italian origin) began working since 1996 in Iran. The company worked based on a pyramid and sold tickets and even goods (in higher levels) to achieve significant profit. When an individual registered, they awarded him 3 points and let him to expand his subsets. Afterwards he took more profit and gained a higher place in the pyramid. Pyramid schemes have appeared in many forms, which are as follows. 1 - Pyramids without providing the product. 2- Reporting chains and chain letters. 3 - Pyramid schemes based on providing product. There is no objective and External product in the pyramid companies or if there is no real value for the company and its directors have determined that it is reasonable. Another pillars of company called pyramid is unlimited expansion Subcategory That result of this lack of constraint to achieve the main branches and major astronomical profits that have no role in earning profit. Two characteristics of pyramidal companies: Is Storage of goods, non-retail (sales among the people). Network Marketing: Network marketing, is a method of distributing goods and services to the final customer. The first network marketing was formed in 1945 by nutritional supplement company the United States. In 1995 in Worldwide was equivalent of $ 100 billion and this figure was reached to $ 700 billion over 10 years. Currently, 44 million customers in more than 138 countries are engaged in this industry and this number constantly annually increases 15%. In order to understand network marketing and e-commerce; First, it is necessary to have a reference to traditional marketing. In a traditional system, usually the producers who COPY RIGHT 2013 Institute of Interdisciplinary Business Research 313
supply their goods to wholesalers and they also made it to the retailer and they sell it to the final consumers. The major share of the price of goods and services, are just intermediaries on the other hand a lot of cost needs the customer know the productand the term propaganda was done in order to sell the product. Marketing is classified into two types, traditional and modern. Network marketing is - if it is properly organized - from modern forms of marketing. The term network marketing or multi-level marketing in the world is defined by two contradictory true that marketing system can be economically profitable and healthy or unhealthy and harmful. Revenue for the network marketing and direct sales of goods for sale is acquired through subsidiaries. In addition to attracting customers to a sales representative, is responsible for training new recruits arrived in order to attract customers. The goal of the all companies is network also the companies with marketing network and companies without it. Network marketing includes the most income of businesses around the world and is considered the most powerful way to reach the customer. Difference between network marketing and pyramid schemes: In pyramid companies the goal is profitable and its members are taking advantage of the real price of goods to deliver to customers but in network marketing because the goal is not benefit customer receives the product to the actual price. Network marketing is the Accepted business in the world. In Pyramid companies finding member is done without selling goods but in network marketing companies, is prohibited network member finding. We in network marketing do not specific or restricted to certain persons to sell a product or storage of goods, that sale of such goods is a sign of a pyramid scheme. The company's products are sold to members of the pyramid is not taken But in a network marketing company, it is subject to the provisions and reject the goods sold is the customers right. According to the Federal Trade Commission America, Pyramid Corporation is a company that allows people to enter new members to the commission. The pyramid companies do not sells the products and collects the customer's money together and do not do anything with itand in most countries, including Iran, are illegal, because In exchange for Attracting people give money and will inevitably broke down and When the pyramid will collapse, But some stay on top of the pyramid are all empty-handed Or in the other words lose their money. Having the product, does not determine legality of the company. Some pyramid companies to backtrack, have referred themselves MLM Company and products in their plan, but because their aim is not to sell the product, its price would be much higher than COPY RIGHT 2013 Institute of Interdisciplinary Business Research 314
the free market, Or get the product at that company is qualified to activity in their business plan that For those do not want or can not, find customers, Money is lost. Pyramid schemes have a common point and with two ways can be distinguished by their network marketing. Common point of network marketing with pyramid scheme is that pyramid schemes claim that People in a short time just by entering networks can have extra income, this way, when people began to speak And do not (purchase of goods or services) to a system that would betray its work. Types of pyramid schemes Pyramid schemes: In this scheme (which is adopted from network marketing) the goal is to attract new individuals to increase members' profits. In this way, people pay money to purchase their membership in the system and usually no product is sold. In this scheme most part of the money is the membership fee and individuals get a certain percent if they introduce new people. The remaining money is put is system's account as the cost of individual services and other expenditures. This kind of membership is also done in other ways some of which are summarized below: 1. Matrix Plan: This system completely works as a pyramid which is down constructed and every individual gains a higher level by introducing new people. 2. Binary Plan: This is one of the most common pyramid schemes. It puts a product in membership process to express fake legitimacy of its tasks and mimic network marketing. Through the product it attracts eager individuals. Then individuals have to pay a certain fee a part of which is the price of product and the other part is considered as the membership fee. Then the individual has to introduce two others to the system and sell the product to gain more profit. Conclusions: Despite claims of pyramid companies, network marketing is not a rapid way to become rich and the individual who enters the system or network may have no earnings most of the time. Earning is achieved only in rare cases. But earning in network marketing does not necessarily and always mean losing all asset and wealth. Network marketing may lead to economic growth in certain conditions if it is presented in a legal form with rational growth speed and useful products (having proper prices). But those companies which do not pay attention to their growth, products, activities and their economic consequences on individuals and their lives will have harmful effects on the society. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 315
References Quoted from Jean Paul Getty 1. Explanation of www.wiki.answers.com on leveraging 2. MLM Secrets explanations on the idea of leverage (Jean Paul Getty) 3. Perelman, Y. Live Mathematics. 1982. Moscow Mir Publishing, Second edition 1986, translated by Bashardous, Z. pp102-103 4. Po, R. 1999. Fourth wave: network marketing. Prima Publishing. United States. ISBN 9-1752-7615-0 5. History of Nurilite Company 6. Emergence of Nutrilite Company 7. Alodari, H. Marketing and market management. Payam-e-Nour publishing. Third edition, December 2006. pp3,5,9 and 11. 8. Business administration (management) scientific association. Modiran Journal, Spring 2010. Islamic Azad University of Abhar 9. Definition and characterization of pyramid companies by Wise Gick. 10. Defining and understanding differences between pyramid companies and other plans. 11. FTC lecture on pyramid companies. 12. Tebyan website, quoted from Ali Khamenei on pyramid marketing. 13. Appeals and verdicts of Seyed Mohammad SadeghRohani on network marketing. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 316