LLB 00403: CONSUMER LAW

Semester II, 2019/2020

TOPIC 8:
DIRECT
SELLING
SUBTOPICS :
Definition

The Nature of Direct Selling and Pyramid

Scheme in Malaysia

Structure of Conventional & Direct

Distribution Method

Types of Direct Selling

Legal Framework on Direct Selling: Self-

Regulation and Laws
Definition
Direct selling is a retail
channel used by top global
brands and smaller,
entrepreneurial companies to
market products and services
to consumers
 Definition
Sales of goods OR services
conducted in the following
manner;
a. going from place to place
not being in a fixed place of
business; or
Direct Sales Act 1993- s.2 b. Making telephone calls.
‘….a door-to-door sale and a Seeking out persons who
may be prepared to
mail order sale within the enter, as purchasers, into
meaning of this Act’ OR contracts for the sale of
goods or services;

Subsequently enters into

negotiations with those
prospective purchasers
with a view to the
making of such
contracts.
 Nature of Direct
Selling & Pyramid
Scheme

In Malaysia, direct selling or direct retailing is a

1 diversified business with sizeable product categories.

The pattern of direct sales business has expanded

2 rapidly, increasing income and playing a positive role
in the country's economy
The direct seller or retailer initiates contact with the
potential customer instead of waiting for the customer
3 to come to a store or some permanent place of
business
It offers a high growth alternative to a retail system,
4 still lagging behind in accommodating the changing
and busier lifestyle of Malaysian consumers.
Structure of Conventional & Direct
Distribution Method
Manufacturer
Manufacturer

Marketing
company

Direct selling
Sole agency
company

Regional distributor

Distributor
Wholesaler

Retailer

Consumer
Customer
 Types of Direct Sales

Door-to-door Party Plan Multi Level

Marketing
The direct sales company Direct sales company
(MLM)
Direct sales company
Distributors Facebook.com/abcd
The dealer
Hostess Twiter.com/abcd
The consumer Invited guests/ consumers

S c i e n c e Te c h n o l o g y E n g i n e e r i n g A r t s M a t h e m a t i c s
Door-to-door

In this type of plan, the agent or dealer

obtains an immediate discount from
the company, at the point of purchase.
He then makes a profit by selling the
product to the consumer at the
recommended retail price.

The line of distribution in such plan is

simple, involving the direct sales
company, the dealer and the
consumer.
 Door-to-door
Direct sales Commissioned
Consumer
company Agent/ Dealer

Direct
Salaried
sales Consumer
employee
company
Party Plan

The direct seller or retailer arranges

with a friend who shall act as “hostess”
to invite a group of friends for
demonstrations of a product or
products. In the course of this “party”,
orders are received for products. The
“hostess’ receives
merchandise/products as
compensation for the use of her home
and her help in getting their friends
together.
 Party Plan
Direct sales
company

Distributors
dealers

Hostesses

Invited
guests/
consumers
Multi-Level Marketing

This plan allows the direct seller to manage and

service a large direct retail network or distributor
network. Those interested in this plan must first be
sponsored by an existing distributor of the company.
With the help of this distributor, he then builds his
monthly sales volume to qualify for higher monetary
incentives and higher level of recognitions.

At direct distributor level, he functions both as a

wholesaler and retailer, purchasing products in bulk
from the company and distributing them to his
distributors who in turn sells them to the customers.
All income earned by a distributor is based upon the
volume of sales and no other considerations. There
is one standard distributor price for products to
distributors and one standard retail price for
products to customers.
HISTORY & DEVELOPMENT OF MLM IN MALAYSIA

1945 1959 1990-2000 1993 2012

Carl Rehnborg The concept of MLM MLM became a MLM governed by DSAM Code of
introduced the developed in popular marketing Direct Selling and Conduct
concept of MLM in Michigan when Rich mode in M’sia. Anti Pyramid Act
his business named DeVoss and jay Van 1993.
Nutrilite Product Inc. Andel started their
business, Amway.
 LEGAL MECHANISM TO REGULATE
DIRECT SELLING: SELF-REGULATION
Direct Selling Association of Malaysia (DSAM)

DSAM Code of Conduct

• Endorsed by the MDTCA, launched in April
1998.
All members must abide the Code as a
condition of continuing membership.

Consequence in the case where the members

violate the Code- their membership cannot be
renewed
DSAM COMPLAINT HANDLING
PROCEDURE Code Adminis-
Complainant DSAM trator with
• Submits complaint • Liaise with the
complainant and the
Consultative
company for an amiable
resolve Panel

• Liaise with all parties for

an amiable resolve

• Code Compliant Officer

handles complaint Code Adminis-
Company trator
DIRECT SELLING & ANTI PYRAMID ACT
1993
LICENSE
• All MLM companies must be registered and licensed
PART III DIRECT SELLING AND ANTI under Direct Selling and anti Pyramid Act 1997
PYRAMID ACT 1993 • Part II Direct Selling and Anti Pyramid Act 1993
3 types of direct selling business allow by the
law;
• Door-to-door sales
• Mail order sales
• Sales through electronic transaction
KPDNKK
All activities involve MLM companies are
supervised and controlled by the KPDNKK
ENFORCEMENT
• Part VI Direct Selling and Anti Pyramid Act
1993
PYRAMID SCHEME
• Pyramid scheme is totally illegal in Malaysia.
Pyramid scheme got different characteristics
FEATURES OF PYRAMID SCHEME compared to MLM
• Schedule • Part VA of Direct Selling and Anti Pyramid Act 1993
GARIS PANDUAN PERNIAGAAN JUALAN LANGSUNG SECARA PEMASARAN BERBILANG
TINGKAT (MULTI-LEVEL MARKETING) MENURUT SYARIAH

Please refer to this link:

http
://e-muamalat.islam.gov.my/ms/bahan-ilmiah/garis-panduan/145-garis-panduan-perniagaan-jualan-langsung-secara-pemasaran-berbilang-tingkat-multi-l
evel-marketing-menurut-syariah
 PYRAMID SCHEME
Link: Nature Other names
https://dsam.org.m The important Related deceitful schemes have
y/industry/what-is distinction between been described in various
pyramid schemes international jurisdictions as “chain
-pyramid-selling and other letters,” “snow balls,” “chain selling,”
organization, “money games,” “referral selling”
however, is in the and “investment lotteries”.
operational area

Definition Legality

Other
Link Nature
names

Legality
Meaning
Direct selling and Anti
A pyramid is a scheme in which a recruit Pyramid Act 1993
pays (an entry fee) for the opportunity to - Pyramid scheme is
receive future benefits (money or privileges) ILLEGAL
which are primarily derived from that
recruit’s (and/or subsequent recruits’)
introduction of additional participants in the
scheme, rather than from the sale of
products to consumers.
 DIFFERENCES BETWEEN LEGITIMATE DIRECT
SELLING COMPANIES AND PYRAMID SCHEMES
Differences Direct Selling Pyramid Scheme
Pyramid schemes often disguise high entry fees as part of
The start-up fee for all ethical multi-level selling
the price charged for required purchases of training,
Entry fee companies is generally low, primarily to cover training
product inventory etc. Pyramid schemes make virtually all
materials, sales aids or demonstration kits.
their profits from recruiting.
Pyramid schemes are frequently disguised to appear as
Such companies sell a wide range of quality
legitimate direct selling companies. Such schemes are not
Product marketing and selling products to the general public. The bulk of the sales are
interested in marketing these products which are of
on repeat sales form satisfied customers.
dubious value.
Many companies have a 100 percent money-back
Pyramid schemes will not buy back unsold inventory.
guarantee. Dissatisfied users (and there are relatively
Content few) could exchange the products back for money or for
Such schemes will collapse very quickly if there is this
condition for re-purchase of goods
an equivalent amount in other products.
Pyramid schemes are get-rich quick schemes. The nature
These companies are interested in long-term business. In
of the pyramids, in which large numbers of people at the
every country that they operate, this criterion is important
Duration of operation because the companies have an obligation to their
bottom of the pyramid pay money to a few people at the
top, clearly explains why the scheme cannot sustain itself
distributors who are small businessmen in their own right.
for long.
Recognition of achievement is based on efforts. This
Position/ranking in company structure means that a distributor’s income is commensurate with Position could be purchased .
the efforts he/she puts into the business.
Pyramid schemes are not concerned with repeat sales
to users of the products. Profits are made on volume
Established companies depend on selling to cus-
sales to new recruits who buy the products not because
tomers quality products which offer value for money in
they are
order to establish a market.
useful or attractively priced, but because they must buy
them to participate in the scheme.
Thank You