| Jennee Grace U. Rubrico and Felipe F. Salvosa II Multilevel marketing firms are here to stay |
Second of two parts
Veterans in the network sales industry believe the downfall of two high-flying multilevel marketing firms - First Quadrant Philippines Inc. and JC Martin Corp. - came following an order from the Trade department to revise their business plans. This took away cash rewards for recruiting more people into their sales networks, which was how the companies flourished in the first place.
But the two firms, or at least the owners, have made a comeback of sorts. The owners of First Quadrant have shifted to marketing "First Vita Plus" health drinks from Marikina-made shoes. JC Martin, meanwhile, has merged with another corporation, Spice Corp., to become JC Spice Corp., and continues to sell a variety of products.
Repeated requests by BusinessWorld for interviews or statements from First Vita Plus and JC Spice Corp. were not answered.
It is no secret that owners of both companies are related. Women in the management hail from the Tactacan shoe-making family of Marikina, and had been bent on reviving the moribund shoe industry through network marketing.
On the company website, First Vita Plus President Rhodora Tactacan-Tumpalan makes no qualms harking back to First Quadrant's initial success. "In the past, First Quadrant has provided you with necessity, convenience and luxury in the vast array of our consumer products. Through our efforts, the Marikina shoe industry was revitalized and to this day, our world-class products are showcased here and abroad," she states in a letter posted on the First Vita Plus site.
Julie Rose Tactacan-Defensor, who used to be First Quadrant's corporate secretary, is now treasurer of JC Spice. The JC Spice chair is Ma. Theresa D. Asuncion, sister of former environment secretary and losing senatorial candidate Michael T. Defensor, the husband of Julie Rose.
During First Quadrant's early years, Mr. Defensor was a prominent company endorser. In Congress, Mr. Defensor was a member of a group of greenhorns called the "Spice Boys," thus the inspiration for Spice Corp. and JC Spice.
Consumers now wiser
The Department of Trade and Industry observes that many new multilevel marketing and network sales firms have never really taken off following the 2005 crackdown.
Consumers have not only become wiser, they now have a broader set of choices, which include cheap goods imported from China.
"How can they compete when they have been overtaken by developments in retail marketing? Cheap imports have become competitors. People have made their choices," said lawyer Victorio Mario A. Dimagiba, director of the Trade department's Bureau of Trade Regulation and Consumer Protection.
There are so far no "derogatory" reports on First Vita Plus or JC Spice, he said. But complaints on other companies persist.
"This is really a cyclical business," Mr. Dimagiba when asked to comment on the re-emergence of the owners of First Quadrant and JC Martin. "It's easy to create a new corporation."
Forever Living Products Philippines, Inc. and other fellow members of the Direct Selling Association of the Philippines (DSAP) seem to be distancing themselves from such operations.
Pyramid sales firms are really doomed to fail, said Jurgen Gonzales, one of Forever Living's top distributors.
"This is what's being done normally. Most of them fold up in three to four years and then the same owners form a new business," he said.
In contrast, Mr. Gonzales pointed out that his company has been in the Philippines selling aloe vera products for 16 years.
Forever Living, he said, has stuck to its time-tested strategies in recruiting people and marketing products, which have been copied by other companies. "We still promise big income. It's reachable and achievable. But we have to work hard for it," he said.
For instance, distributors still show return checks from Forever Living as proof of earnings, and some recruits are still encouraged to leave their salaried jobs and dedicate their full time to sales. The tack fuelled the multilevel marketing craze a few years back.
New distributors are still required to buy a starter set of 27 products for more than P13,000, and sell them for P22,000. The difference is clean profit.
To endure in the sales business, a company must sell products that are consumable, he said. "If you sell durable goods, there will be no repeat orders," Mr. Gonzales said.
He was quick to add that the bulk of earnings do not come from recruiting people but from product sales. "The aloe vera products are really good, and their efficacy builds loyalty ... We have no competition when it comes to products," he said.
Questions to ask
The DSAP has come up with a litmus test for investors who are thinking of putting their money into networking firms. The eight-point test seeks to help investors differentiate between legitimate and pyramiding schemes.
The test asks the following questions:
- Is there a product?
- Are commissions paid on sale of products and not on registration/entry fees?
- Is the intent to sell a product, not a position?
- Is there no direct correlation between the number of recruits and compensation?
- If recruitment were to be stopped today, will the participants still make money?
- Is there a reasonable product return policy?
- Do products have fair market value?
- Is there a compelling reason to buy?
The DSAP groups companies such as Amway Philippines, L.L.C., Avon Cosmetics, Inc., Cosway Philippines, Inc., Filway Marketing, Inc., Gano Excel Philippines, Inc., GNLD International, Mary Kay Philippines, Inc., Nikken Philippines, Inc., Triumph International (Philippines), Inc., and Tupperware Philippines, Inc.
First Vita Plus and JC Spice are not members.
"People who were probably considering or even about to consider joining multilevel marketing companies obviously will now have an additional burden. People in the business know more or less which is legitimate and which is not, but of course the business is also predicated on getting new people who probably have no idea about the industry and in my opinion those were the people who were affected deeply by such negative publicity and experience in other networking marketing companies," DSAP President Bernardo Mercado said.
Also part of the DSAP's efforts is cleaning up its ranks.
"One way to prevent scams is to work within the organization, withour own people ... even in our organization we need to educate our own sales force," Mr. Mercado said.
The DSAP has also launched information campaigns with the Trade department and the Securities and Exchange Commission (SEC) and has worked with schools and other government agencies to conduct seminars on identifying pyramiding schemes.
The Trade department, for its part, has issued a memorandum detailing the characteristics of a pyramiding scheme. The document has been disseminated to regional offices.
Investor should stay alert
However, it remains the responsibility of the investor to scrutinize the company in which he or she plans to put money.
Hubert B. Guevara, the SEC's compliance and enforcement department director, said, "cammers are using new technology to advertise and propagate their schemes, but there are others who are not tech-savvy."
"People could still use multilevel marketing as a means of getting investments from the public. The general characteristics of what we've identified as possible descriptions of possible 'Ponzi' schemes do not know of any tools. It can be a traditional method or Internet-based. The bottom line is these schemes are illegal and the public should be made aware of these," he said.
As to what the future holds for multilevel marketing firms, DSAP director Enrico Garcia noted that network marketing is a marketing tool that is here to stay.
AIM marketing professor Jose Faustino believes network-based companies should recover, as strong brands continue to do well.
"Any multilevel marketing and direct-selling company that got affected was weak to begin with, so when the problem ensued, it added one more weakness to their brand," he said.
"As long as we have outstanding examples, the industry will survive."
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