I will assume that you have heard of 1. DIPEK, 2. Multilevel Marketing (MLM), 3. Pyramid Schemes and 4. Ponzi Schemes. In this article we attempt to explain DIPEK and its relationship with MLM and Pyramid Schemes in the simplest terms possible. For simplicity we will have the following questions as guidelines:
- What are the similarities between Multilevel Marketing, and Pyramid Schemes?
- What is DIPEK?
- How does Multilevel Marketing really work? The math and the payback.
- How does DIPEK relate to MLM and/or Pyramid Schemes?
Key words for your Google Search: 1. Multilevel Marketing, 2. DIPEK, 3. Pyramid Schemes 4. Ponzi Schemes 4. Herbalife 5. Multilevel Marketing companies
On the onset, we will distinguish between Multilevel Marketing (hereafter MLM), Pyramid Schemes and Ponzi Schemes by stating that pure MLM is a legitimate business model although controversial, Pyramid Schemes are illegal in most countries and Ponzi Schemes are outright fraud schemes.
MLM and Pyramid Schemes work by recruiting people (we will refer to them as distributors) who mainly earn from efforts of those that they subsequently recruit. Pure MLM pays distributors on commission, not only on direct product sales, but also on sales done by distributors (first level recruits) that they recruit, sales done by distributors that the first level distributors recruit – second level recruits, etc, etc. In an a pure multilevel marketing, there is no registration fee involved. However in most cases there is a requirement that a new recruit must buy a minimum amount of product per month or spend a minimum amount of money per month on services.
MLM business model has faced several controversies and law suits due to the fact that:1. they are not open since they do not clearly disclose their financial statements, 2. their true business model is never explained to recruits and to the public, and 3. they mostly sell dreams and hopes given that they rely mostly on testimonials in a church like setup. Studies have also found out that those in the low end of the chain do not benefit. The model seem to benefit 5%- of the top distributors (those who were first to join) and no net profits for the remaining 95%+ distributors. MLM hardly sell products outside their network (sales are less than 10% outside the network) so it is an easily saturated marketing model.
Under MLM, distributors spend a lot of time trying to sell the products and also in recruiting other agents. If the total time spent by an agent is taken into account in relation to the opportunity cost forgone, then the pay off is very low or hardly exists. This is exemplified by the high rate of attrition, moonlighting, and drop outs from the programme. Most people recruited do not calculate the opportunity cost of doing direct sales and are even unaware of the concept of opportunity cost.
Pure Pyramid Schemes are illegal business structures that work by paying distributors (who distribute nothing) on registrations fees from first level recruits, second level recruits, etc etc. In a pure pyramid schemes, there is no actual product/services sold. The factors that clearly set pure MLM and Pyramid Scheme apart are 1. existence of actual products for MLM 2. requirement to pay registration fees for Pyramid Schemes. Any programme that has both is therefore an amalgam of MLM and Pyramid Scheme.
Ponzi Schemes are those schemes that were called Pyramid Schemes in Kenya that required people to invest some amount of money with over 100% returns on investment in a period of three months. The schemes do not invest the investors money but pay back the investors from monies collected from subsequent investors, then the scheme operators will suddenly close shop disappearing with last investors’ monies. As mentioned, Ponzi schemes are well orchestrated fraud schemes.
DIPEK is a programme by Pillar Technologies, which in itself is a credit card distributor with Orange Telkom, hyped as Direct Intervention Programme to Empower Kenyans and claims to be an initiative aimed at creating investment opportunities for Kenyan entrepreneurs. The programme is further hyped as a partnership between the Government of Kenya, the Government of France, Orange Telkom, Equity Bank and Pillar Technologies to empower Kenyan entrepreneurs.
When talking to us during the launch of the programme in Kisumu, an agent with DIPEK told us that the government of Kenya comes in in the sense that Telkom Kenya and Equity Bank are Kenyan companies. France comes in since Orange, part of Telkom, is a French company. Equity Bank on the other hand comes in in the sense that it operates Orange Money, the payment platform for DIPEK recruits. Orange Telkom comes in in the sense that the products sold are their credit cards. Basically all these so called partners only come in “in the sense that” but no real partnership agreement between Pillar Technologies and any of them. As a matter of fact Equity Bank has since distanced itself from the initiative. That leaves us with one entity, Pillar Technologies. It is true to say that DIPEK is an acronym containing buzz words coined by Pillar Technologies to help in its Orange cards distribution business and nothing further.
DIPEK programme is an MLM in the sense that it sells actual products, the Orange credit cards, with a 0.6% commission on credit used by recruits within a distributor’s network. The minimum amount of credit to be used per month by any distributor is Kshs. 500 so assuming that the first distributor has one recruits, he/she will be assured of 0.006*500 = Kshs. 3 per month. Under this plan, there is a calculation they do that can “easily make a distributor earn one million monthly”.
DIPEK also operates as a Pyramid Scheme by rewording recruiters based on the registration fees of those recruited. To join the programme, one is required to pay Kshs Sh.2, 985 that is distributed as follows:
1. Shs. 1,900 goes to pay the long line of recruiters up to the 12th generation as per this breakdown:
When you introduce person A, he/she is your 1st generation = Sh.500
Person A introduces person B, that is your 2nd generation = Sh. 200
Person B introduces person C, that’s your 3rd generation = Sh. 150
Person C introduces person D, that’s your 4th generation = Sh. 50
Person D introduces person E, that’s your 5th generation = Sh. 50
Person F introduces person G, that is your 6th generation = Sh. 50
Person H introduces person I, that’s your 7th generation = Sh. 50
Person J introduces person K, that’s your 8th generation = Sh. 50
Person L introduces person M, that’s your 9th generation = Sh. 50
Person N introduces person O, that is your 10th generation = Sh. 50
Person P introduces person Q, that’s your 11th generation = Sh. 100
Person R introduces person S, that’s your 12th generation = Sh. 100
2. Shs. 500 goes to your “free” credit when you join.
3. Some of the remaining amount goes to your training material (maybe shs. 385) and the rest (maybe shs. 200) goes to Pillar Technologies.
Just as all the MLM and Pyramid Scheme programmes, DIPEK promises easy money and empowerment without explicitly explaining that at some point in time, the market will be saturated without anyone to recruit. Also, DIPEK does not explain to you that most of your recruits will not be successful since recruiting people requires talent and skills in sales. In addition to sales talent and skills, to be effective also requires one to be good in PR, likable, and generally friendly. Introverts like me cannot make it in this model of business. DIPEK and all other MLM programems also do not vividly explain the extra hard work needed to make it in this model of business; on the contrary, they make the initiative sound easy and as a gold mine. As mentioned earlier, participants of DIPEK (my would have been recruiter can agree), the opportunity cost vs pay off is not calculated. My would have been recruiter has since scaled down his involvement in DIPEK after he realized that recruiting people to join this programme is not a walk in the park as marketed by DIPEK. The one common factor in MLM which is also true in DIPEK is that they come with a lot of HYPE!
A word of advice:
- Anything that promises easy money,
- Anything that promises millions with only a few hours of work yet in reality it requires 25 hours of daily input time,
- Anything that promises millions without special skills except for ordinary marketing and sales skills
- Anything that relies on success stories and testimonies from people you have never met, yet most of those you have met and have been in the same plan have nothing to show for it;
Run away from such things.
I have the views of one DIPEK agent and views from Ben Oloo, a guest author with Kachwanya.com. To avoid making the article way too long, I will post the DIPEK agent’s views at the comment section and also request Ben to post his views as comments.