The first experience you had with your company was most likely when you used their products or services. You loved them--or at least, you thought they were worthy of regular use. Then you became a distributor and decided to convince others of the worthiness of those products or services.

When you sell your products, you want to represent them in the most glowing terms possible. Every presentation invariably carries with it the promise that a product is or will do something.

Your integrity is established when the product or service lives up to those promises.

You are also legally liable for your promises.

It's a short hop between maintaining your integrity and avoiding legal liability. Doing one will ensure the other. Staying in compliance with the law is not only safe--it's also profitable, as customers and members of your downline learn that you are someone to be trusted.

 

Product Promises

If someone ever challenges your claim about what you're selling, it will not aid your case to say you were merely repeating what was in the brochure or what you learned at a training seminar. The Federal Trade Commission (FTC) recommends that you personally verify all research studies that you are touting or that appear in your literature.

You are not required to have the expertise to verify the results. Instead, you should ask for a copy of every study and article and read it to make sure it says what you are representing it to say. Not only should "You've seen us in The Wall Street Journal" be backed up by an actual Wall Street Journal article (not a paid advertisement), but the article should also be positive. A study that says, "Product XYZ helps arthritis" should have a conclusion to that effect. A study that is inconclusive and merely states that the product helped a small portion of the study sample population will not back up your claims.

 

Opportunity Promises

In addition to being careful about the promises you make about the product or service you are selling, you must be as careful--if not more so--about the promises you make to prospects or new distributors about their earning potential. This is just as fraught with threats to your integrity and chances to be held liable; what's more, the enforcers, whether they be the local District Attorney or the FTC, are particularly diligent at going after individuals who cross the line in this area.

In December 2002, a federal court sentenced a man to five years in prison when the investments he touted to friends and family were less than promised. He sold investment interests in his factoring business, telling the investors that it was safe because he was lending to "safe," established companies. As the business grew, he started to lend to high-risk companies, who could not pay back the loans. Then, to continue the payments to investors, he resorted to a classic pyramid scheme, paying early investors with later investors' money.

This man's business, of course, had nothing to do with network marketing, but the case is instructive nonetheless. It's important for networkers to understand that the line between legal and illegal was crossed well before the investment opportunity devolved into a pyramid scheme: the man crossed that line when he promised that the investment was safe when, in fact, it was at risk.

Network marketing is, in many ways, like any other business. It takes investment, work, and a certain amount of risk. Don't overpromise the financial rewards. Not everyone will make money. In fact, most people will not make money. If your company has information on average sales or average income, disclose it. If your company has disclaimers, use them. If those are not available, exercise general caution and explain what is necessary to reach the higher levels of income. Yes, you can sell the opportunity, and enthusiastically--just be clear about what they have to put in to realize the full extent of that opportunity.

 

Be Clear on Where the Income Comes From

Make it clear to your new distributors that money is made on sale of product, not recruitment. When you make money on your downline, you are making a percentage of their sale of product. Plans that charge an enrollment fee and then reward participants for getting others to pay an enrollment fee are per se illegal. Do not represent that anyone can make money just by signing others up.

In addition, it is dangerous to encourage others to make money by purchasing product, even if they are buying the product to reach their level of purchases. Most states look closely at how much of a company's product sales are made to nonparticipants. It is fine to have people join to receive a discount on their own purchases as long as that discounted price is separated from the income-producing aspect of the business and there are no other misrepresentations (such as requiring a fee that would in fact offset the discount.)

The truth not only preserves your integrity, it keeps you out of trouble. Do not rely on the company backing you up. One California court has noted that it "often happens in class action suits alleging fraud, the 'major players' are bankrupt or unavailable, leaving plaintiffs to sue the fringe defendant." Don't be the fringe defendant.

 

 

JUSTENE M. ADAMEC, is a
member of the Board of Directors
of Gabriel Media Group, Inc.,
and a partner in a legal practice
concentrating in alternative dispute resolution and business matters.