Local beauty product producer and supplier, Etcare Beauty Products Sales Pvt. Ltd, defends its line of business and states that it is by no means a pyramid scheme. The skin and health care provider has further taken inquiry steps for the legal clarification of the difference between direct sell and a pyramid scheme as pertained in the country’s trade proclamation.
The proclamation in question is the Trade Competition and Consumers Protection Proclamation No. 813/2013 which at the time of ratification banned pyramid scheme sales in Ethiopia owing to the number of companies which were applying pyramid schemes surging.
“It is prohibited applying or attempting to apply a pyramid scheme of sale, based on the numbers of consumers, by announcing the granting of a reward, in cash or in kind, to a consumer who purchases goods or service or makes financial contribution and where other consumers through his/her salesmanship purchase the goods or the service or make financial contribution or enter into the sales scheme,” the proclamation clearly highlights.
Etcare on its end argues that the proclamation has identifiable gaps in defining a pyramid scheme and direct sells, and the clear difference between the two.
“Direct sales refer to the process of selling products directly to consumers through a network of independent sales representatives, while pyramid schemes involve recruiting participants who are promised payments or rewards for enrolling others into the scheme, rather than for selling products or services,” said Matios Meba founder and managing director of the company.
“Organizations that follow the direct sales system have a known and legally registered address and business license; they pay the appropriate taxes to the government. Those who follow the pyramid scheme, however, do not pay taxes to the government and operate in the air because their address is unknown and they do not have a legal license,” Matios further elaborated indicating that his company cannot be labeled as such since his company engages in producing and distributing locally manufactured beauty and health care products using local raw materials.
Moreover, as the managing director signaled, Etcare only pays commission for only those who sale lots of products not for those who brings members.
“Lack of clarification in the law is affecting our operation as people are taking our business as pyramid,” stated officials of the company.
As Solomon Abay, assistant professor at Addis Ababa university school of law explains, pyramid schemes are illegal but marketers are aware of this hence the business is often disguised as direct sell or multi-level marketing programs (MLM), “The difference between a pyramid scheme and MLM is that there is no real product that is sold in a pyramid scheme, and commissions are based only on the number of new individuals one introduces into the scheme. The main idea behind the MLM strategy is to promote maximum number of distributors for the product and exponentially increase the sales force. In the case of pyramid schemes, money is charged simply for enrolling other people into the scheme and no real product is actually sold. The difference between MLM and pyramid schemes is that MLM offers products whereas Pyramid schemes do not, commissions are paid on sale of products and not on enrollments, and company buys back inventory from participants at the time of termination.”
Solomon said that policy makers should set guidelines that help consumers discern legitimate plans from illegal ones.
“It is important for consumers to understand the difference between the two and be cautious of any opportunities that seem too good to be true.” Solomon added.
As the managing director indicated, Etcare which was established 10 months ago has so far created job opportunities for about 100 people and paid 10 million birr in taxes to the government in the last 10 months. It was also learned that the company has paid 50 million birr in commissions to the sales staff in the same period and has made the sales staff to issue licenses and pay taxes to the government.
