Report reveals dangers of pyramid selling
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Online pyramid selling, an illegal and fraudulent method of business, lured more than 40 million people involving some 6 billion yuan ($913 million) in 2010 alone, a recent report reveals.
Pyramid selling, sometimes described as multi-level marketing, usually involves the promise of payment or services to entice other people into the scheme without providing any concrete investment or product. In the online world it is often disguised under the catch-all banner of e-commerce and threatens Internet security, according to the report jointly released by the Zhejiang-based China e-Business Research Center and the Beijing-based China Anti-Pyramid Selling Association.
Selling through a pyramid scheme is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a widening base, like a pyramid, of distributors and a hierarchy of multiple levels of compensation.
Pyramid strategies are applied in businesses such as online shopping, paid advertising clicking and online games, the report said.
The report highlighted an example. A shopping website that provides paid information, such as personal financing or distance education, will ask the user to pay a sum of money for membership. After the user becomes a member, they can recommend others to join, and will be compensated if they succeed in recruiting members.
College students, the unemployed and customer-to-customer online shop owners are often involved in online pyramid selling, as they believed they could earn cash quickly, according to the report.
It is an unsustainable strategy that can result in huge losses for its victims and cause widespread social problems, said Wu Xuefei, an analyst with China e-Business Research Center.
