First, is the characteristic called “Front Loading”.

This is where they always come up with a scheme that actually make members invest a lump sum of money to buy products or services which you cannot use within a month or two and neither can you sell them within a short period of time.

At times, the members could even be buying 20 – 30 times more products than they can use in a month. These companies are also careful to practice a non return policy in small prints that members should observe carefully.

A reasonable company that has a policy for the members to buy some goods normally encourage them to buy products of reasonable volume. For example, if a person normally consumes a certain amount worth of consumable products per month, it would be acceptable for that person to buy about 5 – 10 times that amount, this is for their stocks for running the business.

Anything above that is considered a loading effect.

Companies practicing the “Front Loading” characteristic normally entice members with attractive features like instant promotion to top position or being placed in a position of extreme advantage on the condition that the members buy a huge sum of products. They could also entice you with returns that do not require any business efforts.

The marketing plan gives no option for the public who wants to be a member in the particular company that they must buy a huge amount of stocks. However if the marketing plan gives an option for the members to buy what they want at any amount plus they can also opt for a bigger stock, then it would be considered that this practice acceptable because the members have a choice to make. It is important to note that the company should also practice an acceptable buy back policy to ascertain that the members are not forced / duped to frontload and they can withdraw within the stipulated period of time given.

Summary on tell tale points:
- Members are persuaded to buy many times more than they can use in a month.
- Company offer to keep stock for you on your purchase.
- Members should check on the return policy for products of the company.

The next characteristics would be an Investment Scheme (or a Ponzi Scheme) rather than a working program.

This is usually an investment scheme where one is promised a high interest payout, for example, 10% (or more) per month of the invested sum. However, the payment actually comes from the member’s own invested money or from the other members (or victims) whom had invested after him. This scheme looks promising in the initial stage but will soon collapse when there is no more investment coming in to manage the high interest payout.

The investment scheme is not a question of how much a member can work (sell, recruit or train) but rather more a question of how much money a member can “invest” or put into this program.

This scheme is such that you can easily identify from their presentation that they always use these words “You don’t need to sell” or “Just put in money and you can make money”. The presentation is always in relation to the amount of money that members put in. The more money that is put in, the bigger the returns are. Many of these companies don't even have products but a program or a project that invite you to invest and share returns to you beyond normal market range.

Normally, their presentation on their plans is that a member’s returns are 3 times or more of the initial investment within a year or two, using the investment capital as a measure instead of using the sales volume that a member can bring in.

Both the inventory and investment based program will have the characteristic which will be presented now, that is:

”You Buy Now or Invest Now, But Take The Products Later!”

This is one very clear sign of characteristic of a company that uses both the inventory loading and investment scheme where they ask you to put in a huge sum of money that the volume of purchase is so high that you may not have enough room in your house to stock your products, so the company stock your products for you.

Or worse still, the company may not even have enough stock at all to give you the products.

Some companies just give you a piece of paper of value yet to be seen.

Another characteristic is the gambling characteristic or headhunting.

The gambling characteristic is related to the binary scheme which is now heavily used in the market.

Why do we call it gambling? It’s because there’s a tendency that if the plan is utilized by members to perfection, the company will be over paying in excess of above 100% over sales revenue. For example, imagine if the sales revenue is RM1 million, but the bonus payout is RM1.3 million.

That is if the binary matrix placement is in perfection. Therefore the company gambles with the members on this program that the percentage of perfection is at the minimum.

If the members work on a very low percentage, the payout can be as low as 15 – 30%. This is when the members lose out, therefore losing interest and they quit the company.

However, if the members are able to work it out in such a way that the payout is anything above 70 – 80% and beyond, this is when the company may have to close shop and again, when the company disappears, members loses out on their investment.

Such program is popular because their presentation entices members with the fact that you usually only need to work on 2 lines (or legs), and any extra lines will be thrown down to the down-lines to also benefit the down-lines.

Therefore, this program further entices both up-lines and down-lines that they recruit members by saying, “You only need to build one line (or leg) where your up-lines will throw down lines for you on the other line (or leg).”

Throughout the history of companies practicing such program in Malaysia, most companies do not last more than a year or two. Many of them closed the companies just before payout reach their breaking point and keep whatever profits they have made earlier.

Companies who last beyond 2 years are companies who came up with variation to cap their payout. Tactics such as “flushing”, “applying point system” and “applying maximum payout limitations” are used to cap payouts. Some companies even change their plans every 6 months to reprogram the system and apply limitations.

Of course, some company may also terminate top members with the slightest excuse to eliminate some major payouts.

A clear example here is the binary system where the bonus is given on pairing and sponsorship only. Usually, one has to buy lot(s) / business center(s) where the amount (RM) for the lot is fixed. It is also a one time purchase and the bonus is life long (if the company can survive). Products do not play a role and they are usually ridiculously overpriced. However, companies involved in this marketing plan usually will have plan B, which is a conventional plan in order to disguise their scheme.

Summary points:
- A binary plan is always revealed by having to recruit one leg or two legs to qualify before you can earn on the other leg or both. Words used like ‘pairing’, ‘anchor leg’ or ‘qualifying leg’ reveal that this is binary.

The next one is the pyramid matrix system or the kutu system.

Kutu involve a predetermined number of members. For example, if 6 members play kutu, the introducer to the 6 members will get all the money invested. The 6 members will then have to find another 6 new members each for them to be qualified to get their turn to receive the kutu. If they are unable to do so, then their investment previously will just vanish.

This is the initial pyramid system where buying position on the earliest basis is the better. “The earlier you come in, the better and the more you gain”.

These are working purely on the basis that the members who come in later pay the members who came in earlier, and there will always be an end where the last groups of people to join will lose all their money. This is also known as a Ponzi scheme. (A Ponzi scheme is where a company uses money invested by new members to pay to members who joined earlier)

Summary points:
- The emphasis is to come in as early as possible.
- Able to buy more than one accounts, have multiple accounts.