Amway a Ponzi scheme? ’Buyer beware’ won’t do

Had the hardsell of ‘multi-level’ been seen for what it was by Amway sales agents—a pyramid whose base simply had to keep expanding for business to thrive—a grouse against the firm need not have crystallized into allegations of Ponzi-like operations. Amway’s pitch, however, dangled the lure of a quick buck to be made by signing up as a self-employed hawker of its product range, and that too, with double duty as a spiel conveyor to expand this member-get-member sales network. It was a well-tested distribution model for its pricey health, beauty and homecare offerings, said this Michigan-based marketer ‘since 1959’ when it began its Indian tryst in 1998. It set up a domestic plant in 2015 and boasted of over half a million active sellers in India at last count. While this may suggest business progress, it has also been chased by charges of fraud since 2011. Last week, the Enforcement Directorate (ED) froze assets of Amway India worth ₹758 crore and said its probe showed that in the guise of multi-level marketing, a rip-off was being enacted, one which had left a trail of debts, split families and other miseries. This raises two questions.

First, how Ponzi-like was Amway’s scheme for direct sellers? In a Ponzi investment scam, money from new ‘investors’ is not put to productive ends, but used instead to pay higher-ups large and loud ‘returns’ as the pyramid’s base swells with gullible incomers, a game of delusion that comes apart if expansion slows. What Amway’s joinees had to put in was some money for a bagful of stock items (for on-sale or self-use), while they were advised to go sign up others on the logic that a slice of sales logged by a multiplying ‘down line’ would enrich them. Left unclear, though, by all accounts, was the fate of a new recruit too low down the hierarchy to make headway as the market for its stuff got saturated. Alas, that’s what happened, with many sellers left using up more volumes at home than they could sell. It always risked a Ponzi-style flame-out. By its pyramid design, upper layers were to earn more than the bulk of its agents. To the extent this inequity caught the latter unaware, lured as most were by dreams of fabulous success in a country of limited sales potential, the company can be accused of misleading people if not a financial scam.

Had Amway wares caught on, e-commerce not gotten in the way and the rise of our economy been less uneven, its model might have worked as advertised and low-level sellers wouldn’t have been left in the lurch. Hence the second question: Did Amway fall for hype over the size and spending power of the Indian ‘middle class’, or was it out to acquire a captive base of buyers charged with attracting even more consumers with illusory rewards as bait? At least one study of such structures has shown that only 1% of the sales force can expect to profit. Amway’s own data could’ve checked how good a deal was on offer. By ED numbers, its local unit mopped up ₹27,562 crore over a span of 2002-03 to 2021-22 and paid all its distributors about 27.5% of that as their cut. If it’s a “ ₹2,000 crore business” (as its chief said late last year) with over half a million sellers just within the country to share an annual ₹550 crore or so, most awaiting payback lower down the order would’ve likely got less than ₹1,000 per month. Even if this raw deal had their legal consent, the gap between Amway’s fantasy spiel and their real prospects ought to have forced an ethical rethink at the very least.