Is the network marketing ethical ?

I had heard that network/referral marketing had immensely improved the financial status of thousands of people associated with it. This concept grabbed my attention when I was in the final year of my engineering. It was rage among students who wanted to make millions overnight. How does this network marketing work ? How does it promise to pay you lots of money up to Rs. 6 lacs per week ? Is it kool to be in this business ? Out of curiosity I surfed some known websites of network marketing to read the whole story. These websites mention that the idea of network marketing was developed to sell consumable products directly to customers through a chain of thousands of people associate with it to save the money spent on useless/avoidable advertisements. The part of money saved on advertisements is shared among the associated members depending upon the number of members working below him and distribution ratio of members. These websites claim that after the huge success of selling of products through network marketing in USA, Canada, Singapore and some European countries, they decided to replicate same success in India.

I was impressed of such companies until I became aware of their hypocrisies and how they are misleading young guys when I closely noticed the guys working for two network marketing firms Ebiz and Qwest. These two firms have same rules for their members. The only difference is the amount of membership fees. Ebiz charges Rs 7000 where as Qwest charges Rs 30,000. I take the example of Qwest to explain the reality. One let say A who joins Qwest pays Rs 30,000 as one time membership fees. A can add only two new members let say B and C. B and C are termed as two nodes for A. Similarly B can add only two new members as well as C can. Thus the chain of members expands in this fashion. A will get the amount of Rs 11,500 if he successfully adds 3 and 3 members at his two nodes or in other words, node B and C each adds two new members.

what does Qwest sell through these members ? Gold coins of worth Rs 10,000. Who are the potential customers, the company is targeting to sell product to save the advertisement cost? The members are customers themselves. Have you ever watched an advertisement on T.V. for gold coins ? Obviously no.

Basically a person joins Qwest with the hope that with every addition of 6 members under him, he would be getting Rs. 11,500. If he manages to add 50 to 60 persons then he would be quite safe for the regular flow of integral multiple of Rs. 11,500. This is the only driving force (greed for easy money) that each member at any node keeps persuading a new person to join this firm to become so-called financially independent person. What is the success rate of a person having 50-60 members under him ? If a person doesn't get this figure within months, he is looser here. Simple mathematics. The chain for A is considered active to get Rs 11,500 when the ratio of total members at side X and side Y is in the range of 0.5 to 2.0 . So chances of A being inactive in spite of adding lots of members who pay Rs. 30,000 to Qwest ???

What is actually Qwest doing here ? Qwest takes the membership fees from each member and redistributes only a small portion of their money to those senior members who got multiple of 6 members under themselves. So in above diagram, A gets Rs. 11,500 when B, C, D, E, F, G joins under him. Qwest gets Rs. 2,10,000 as membership fees (A to G ). Qwest gives gold coins of worth Rs. 10,000 to each. So here, Qwest distributes amount Rs. 11,500+ Rs. 70,000 = Rs. 81,500. Qwest makes profit here without creating any value = Rs. 2,10,000 - Rs. 81,500 = Rs. 1,28,500. I have taken an ideal case to explain but in actual scenario Qwest makes profit in range of Rs. 1,00,000 for every addition of 7 members. Who is smarter, Qwest or members ?

when you visit their sites, you will surprised to see these companies are ISO certified and have won many awards. I don't know...does ISO validate the business model on ethics ground ? Qwest site features a group photograph of our finance minister P. Chidambaram with the CEO. I find it ridiculous. There are lots of such firms in India which are having their operation under the guise of social marketing. The government seriously needs to look into this fact.