While Indian laws are inadequate to deal with direct marketing schemes and their exorbitant pricing, the United States of America already has rules that force companies like Amway to price their products competitively. While considering the operations of Amway in the 1970s, the U.S. Federal Trade Commission had mandated that at least 70 per cent of the inventory of a distributor of Amway has to be sold through retail or wholesale.
“The 70 per cent rule gives the consumer a chance to compare the prices and products of Amway with other products. If Amway’s prices are too high, the customer will naturally pick a similar product of another company,” said a Crime Branch officer who has been closely monitoring the economics of Amway and multi-level marketing companies. “They cannot sell the other 30 per cent at high prices either as customers will be aware of their rates in stores,” he said.
While the government cannot control the rates at which the company chooses to sell its products, legislations like the ‘70 per cent rule’ ensure that direct marketing companies follow competitive pricing if they are to stay in business.
“There is no rule governing multi-level marketing in India. We would also like the government to formulate new rules so that Amway has a set of guidelines that it can follow,” said counsel for Amway K.P. Satheeshan.
In India, Amway sells its products through direct marketing to avoid spending on large advertising campaigns. This, however, has not translated into lower prices for the end consumer.
During a recent raid at the offices of Amway in Kochi, the Economic Offences Wing of the Crime Branch came across a list of 119 items for which the company had been charging prices four to 12 times the cost price. A calcium-magnesium tablet, the production cost of which is Rs.60.76, is sold by Amway for Rs.639 – at 10 times the cost price. Mascara costing Rs.73.14, meanwhile, is sold at Rs.445. Mr. Satheeshan said that the company’s pricing was no different from what other companies that retailed their products did.
“If you take any product in the market, a part of it goes as commission to the retailer, wholesaler, stockist and super-stockist. Amway does not have retailers. Our distributors sell the products directly and the commission they take from the sale is their incentive to sell the items. If you check the company’s accounts, you will see that they make a maximum profit of 20 per cent only. This is not different from what other companies that retail their goods make. Ultimately, it is for the consumer to decide which product they want to buy,” he said.
The Andhra High Court, while examining a petition against Amway in 2007, had found that the company’s operations were not permissible under the Prize Chits and Money Circulation Schemes (Banning) Act 1978.
The court said it was “evident that the whole scheme is so ingeniously conceived that the inducement for aggressive enrolment of new members to earn more and more commission is inherent in the scheme.
“By holding out attractive commission on the business turned out by the downline members, the scheme provides for sufficient inducements for its members to chase new members in their hot pursuit to make quick/easy money.”
Crime Branch Superintendent of Police P.A. Valsan said, “Most of their products are priced very high. The company has the freedom to sell at whatever price they want. It is the consumer’s decision whether to buy the product or not. But people are buying Amway’s products not to use them, but for business purposes. That cannot be done”.
The police also said that unlike the company’s claim that its products are manufactured from the produce of special farms in the United States, many items are actually produced in factories in India. Activist C.R. Neelakandan said that the government should take the chance to examine the loopholes in the law and strengthen legislations governing multi-level marketing chains in the country.
“What drives the sales of the company is not quality, but the money chain that promotes greed,” he said.