Source: First Financial
On January 8, 2019, the State Administration for Market Regulation and 13 other departments carried out a 100-day joint rectification storm in response to the chaos in the "health care" market across the country. Following Quanjian, Hualin and Infinitus were investigated one after another. But this is just the tip of the iceberg that has opened up the chaos in in the direct sales industry.
First Financial reporter found on the service platform of Sansheng Company, a domestic veteran direct sales platform that claims to be "the most standardized in China's Internet Marketing", that the company has recently suspended its membership system and a large amount of network information that disclosed the company's insider information was deleted. However, its "consumption and wealth plan" similar to pyramid schemes continues to spread nationwide and is used on other direct sales platforms.
Sansheng (China) Health Industry Co., Ltd. (hereinafter referred to as "Sansheng Company") is one of the earliest companies in China to obtain direct sales licenses, mainly engaged in health products, cosmetics and furniture products. The industry has weak growth, but the company's performance has been able to double continuously in recent years. One of the major secrets may be described as the "Tao Te Ching" in "Tao Te Ching" "Tao gives birth to one, one gives birth to two, two gives birth to three, and three gives birth to all things."
During the six months of becoming a member of Sansheng Company, the First Financial reporter found that the so-called zero investment, zero risk, and high return Internet e-commerce "consumption and wealth plan" claimed by the company is actually a similar pyramid scheme that attracts people, pays membership fees, and rebates at all levels. It has many members involved and involves huge amounts.
In recent years, with the rise of social e-commerce and the era of Renren’s micro-business has arrived, the fission-based dissemination of sales activities has provided a breeding ground for the growth of pyramid schemes, avoiding the supervision of direct sales enterprises and physical outlets by relevant departments. Many well-known direct sales companies have crossed the legal red line and are suspected of engaging in similar pyramid schemes.
Wu Changhai, deputy director of the Institute of Capital Finance of China University of Political Science and Law, believes that there are many people participating in pyramid schemes and the amount involved is huge. He suggested that the "community-stakeholder business model" be regulated to regulate the negative impact of the company's behavior and to supervise business models that violate the laws of business value and are unlikely to make profits.
The veteran direct sales company is suspected of pyramid schemes
In June 2018, Sansheng Company held a mid-year conference. The company's performance from January to May increased by 158% year-on-year, and the conference scene was unprecedented. Wang Fang (net name), executive sales director of Sansheng Company, known as the "dark horse girl young marshal in the Internet direct sales kingdom", delivered a speech on the award.
She choked and said, "A working girl like me, who can stand on such a stage as a middle-level company, and complete the transformation from a native chicken to a phoenix, can only be interpreted by the word loyalty."
Dedao Cloud Creation System is one of Sansheng Company's 14 marketing teams. It uses the Internet as the main sales channel. It is the fastest-growing sales force in the company in recent years. The number of members has reached hundreds of thousands. In 2018, a total sales performance of 2.1 billion yuan was achieved, a tenfold increase in two years. In 2019, a sales target of 5 billion yuan was set.
Wang Fang is the first person to drive a Mercedes-Benz in his hometown. "For the week after picking up the car, my husband was like a possessive, sitting in the car every day, rubbing it from the inside to the outside with the best towel, and from the outside to the inside." Wang Fang said that she thanked her team and even more for her decision to join Sansheng five years ago.
Executive Sales Director is also called Erdian Manager. According to the company's internal training materials, Erdian Manager's monthly income is more than 2 million yuan. Those who are at the level of diamond manager or above no longer need to do the market themselves, they only need to receive commissions and dividends from the performance of the offline.
But not everyone can get this point. Most of the members of Sansheng Company have gained nothing after paying high membership fees. Except for stocking up a bunch of Sansheng Company's products at home, they also need to study courses in WeChat groups and live broadcast rooms every day and listen to the manager's sharing.
After paying 1,700 yuan to become a member of the ordinary card, the reporter was pulled into many WeChat groups such as "Chasing the Wind Group" and "Diaosi Counterattack Group", and shared inspirational stories with the "family" and "teachers" of the three lives and learned the reward system and investment promotion rhetoric.
"Let me find a way to upgrade VIP as soon as possible. If you don't upgrade, you will miss countless opportunities to spend money! Never save money for the company!" The teacher urges members in the group every day.Diamond Card VIP is the highest level of a Sansheng member. To become a VIP, you need to pay a membership fee of 39,800 yuan. Compared with the membership fee of
and Quanjian 960 yuan, the threshold for membership of Sansheng Company is higher and the level rewards are more complicated.
According to the rules, if member A recommends a Puka member B, A can get a direct recommendation reward of 500 yuan from the 1,700 yuan membership fee paid by B; if B continues to recommend C, A can get 150 yuan from C; if C recommends D, A can get 90 yuan... until the eighth generation.
Of course, you may not be willing to be a Puka member because the rewards of VIP members are much richer, including recommendation awards, consumption rebates, counter-attack awards, management awards, etc., with many names. You can get a 15% commission by developing the offline business alone. You can get 10,000 yuan for two VIPs. You can earn back the cost of buying members by recommending 7 VIPs.
But this is just a small amount of money. To make big money, you must rebate it layer by layer and continuously develop in a split manner. For example, the management award stipulates that managers can get 10% of the total income of their third generation members below, plus 5% of the total income of their fourth to eighth generation members. As long as each generation develops 5 members, the manager can get about 650,000 yuan per month with just management awards.
, and the manager is divided into 8 levels, from one-star manager, two-star manager to five-diamond manager.
"You must know how to borrow strength. The strength of the team is infinite and the market will multiply infinitely. If you persist for one or two years, you will definitely have your own wealth channel, keep making money, realize financial freedom and time freedom, and live a rich and leisurely life." The teacher shouted to hundreds of "family" in the live broadcast room.
Although direct sales companies such as Sansheng Company have direct sales licenses from the Ministry of Commerce, there are obvious differences between direct sales and pyramid schemes. According to Chinese laws, pyramid schemes are activities that require participants to pay fees or purchase goods in the name of selling goods, and form levels in a certain order, and use the number of development personnel as the basis for remuneration or rebate to lure and coerce participants to continue to develop others to participate, defraud property, and disrupt economic and social order.
"Although some platforms have direct sales qualifications, they obtain membership qualifications by paying membership fees and grading members, and determine rebates based on levels and caps. They are essentially out of touch with goods or services and have the characteristics of disguised pyramid selling." Tang Chunlin, a partner of Beijing Yingke Law Firm, told First Financial News.
Is it a pie or a trap to get rich in consumption
Many people join the three lives and are attracted by "queuing up to make money", which is the so-called consumption to get rich, "turn consumers into consumer merchants!".
"Our company's first unique queuing reward for sharing money. After you join, even if you don't recommend people and have no performance, you still have money to get. As long as you take the lead, the people behind you will have to share money to you." This is the so-called easy-to-start business plan promoted by marketers of Sansheng Company.
The company reward rules provided by the reporter's previous company show that "consumption awards are completely risky and you don't need to build a market by yourself. As long as someone joins later, the company rewards you with 8.4 yuan per month, and 1,000 people will be 8,400 yuan." She used avatars of beauty to expand the market by adding WeChat and QQ friends.
But for six months, the reporter never received a consumption award. The previous company then told the reporter that it would cost an additional 350 yuan to buy the product to receive the consumption award, which was unpaid. It was recommended that the reporter upgrade to the VIP as soon as possible and receive a larger queue award - the matrix award.
matrix award does not require you to achieve your own performance. As long as you join the new VIP franchise, you can pay for it. The dividends will be 700 yuan per order on the 1st-5th floor, 300 yuan per second for the 6th-10th floor, and 50 yuan for the 11th-16th floor. "Three or three times the increase is 3.2 billion yuan! Even if you only complete one percent, there will be 32 million!"
However, like the reporter, many members have never received the so-called risk-free and investment-free queue award.
Lawyer Cao Jinyi, director of Beijing Tour Law Firm, told the First Financial reporter, "The traditional pyramid scheme is to calculate the reward. If there is no one to pull the head, others will send him offline and share money, which is a reward system that is separated from the physical goods and is suspected of illegal fundraising."
He believes that the key to judging illegal financial activities is to see whether there is physical circulation. As long as there are components to be assigned offline and there is no qualification for financial products, it constitutes a false transaction. The company raises funds under the guise of direct sales, while consumers pursue investment returns rather than the product itself.
On January 9, 2019, Wang Fang's coach Zeng Hong shared "From the Standardized Operation and Look at the Development Trend of Direct Sales" on YY Live. He repeatedly emphasized that physical goods are the key to compliance, and the collection of membership fees must be matched with equivalent company products, otherwise it will become a capital market. Like other teachers, Zeng Hong did not file a direct sales trainer with the Ministry of Commerce.
"The pyramid scheme platform may bypass the recognition of financial pyramid schemes or even fraud by giving away products to meet the conditions for direct sales, but the membership fees paid are significantly deviated from the value of the product itself. "Financial scholar Bunaxin told the First Financial reporter, "The operating cost of pyramid scheme network is high, and a large number of pyramid scheme personnel do not create value, but draw profits from layers of the network, and eventually rely on blood transfusions from the bottom new members. A few top-level members have huge wealth, and their model is unsustainable.
First Financial reporter compared the prices of Sansheng products and well-known brands on the market and found that Sansheng products are obviously high and lack market competitiveness.
Take the Silizi series of daily necessities of Sansheng Company as an example. The price of Silizi a piece of facial mask is 90 yuan, which is flush with the prices of top international brands, and is about 10 times that of some affordable and best-selling brands. Silizi's 15ml eye cream priced at 1,068 yuan, which is twice the price of imported high-end brands. A reporter from the First Financial Daily found that on Taobao, Silizi products are rarely sold.
In the Sansheng Company's promotional video, "Silizi uses pure German technology, every drop is produced in Germany, and all the raw materials come from European farms." The company's German partner is called Sch?tze Co., Ltd., and the company's president is called Connie Zhong.
However, the information about this company was not found in public information. A reporter from the First Financial Daily found that the so-called German partner is actually a domestic cosmetics sales company established in 2015 - Shenzhen Qianhai Deshan Health Flour Co., Ltd. The legal representative of the company is Zhong Ying, and is applying for a trademark named Sch?tze Germany.
At present, Sansheng Company has launched a total of 119 products, including health products, cosmetics, daily necessities and household goods, of which only 61 are registered with the Ministry of Commerce. One of the major features of
company's products is that they are good at capturing market hot spots, such as health products spirulina, squalene, colostrum, and aloe vera capsules, all closely follow the popular concepts at that time. In recent years, the company has also launched home products such as hydrogen-rich water machines and far-infrared negative ion mattresses, with prices as high as 8,980 yuan and 17,600 yuan respectively. These products have neither been registered with the Ministry of Commerce nor their effects have been scientifically verified.
is already expensive and has no fair judgment on quality. To buy many members who are not wealthy, Sansheng Company needs a creativity to convince them. That is to tell them that this is not consumption, but making money. The more consumption, the higher the points, the faster the promotion, the higher the reward. For example, if you consume 10 sets of far-infrared negative ion mattresses, you can be promoted to a manager, and then you can get the capital back from the offline through various rewards.
Wu Changhai, deputy director of the Institute of Capital Finance of China University of Political Science and Law, told the First Financial reporter that some online business platforms have rebates the members by making consumers become members, and eventually stick to consumers. Consumers could have compared shops, but were blinded by the mentality of getting cheap. This is an unfair competition.
In April 2018, six ministries and commissions including the China Banking and Insurance Regulatory Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the Ministry of Commerce, People's Bank of China , and the State Administration for Market Regulation jointly issued a document reminding the public to prevent the risks of the "consumption rebate" platform.
file points out that some third-party platforms, under the banner of "entrepreneurship" and "innovation", require that the joiners pay the entry fee and "hit people" to join, and obtain commissions by developing downlines. The above behaviors are characterized by illegal fundraising, pyramid schemes and other illegal activities. The operating model of such platforms violates the law of value, and once the capital chain breaks, participants will face serious losses.
Why do direct sales companies frequently cross the legal red line
Wang Fang once vowed to "live better than anyone else." She claimed that "I lost my father at the age of 10 and my family lost my male labor force. Wang Fang often heard her mother crying and said that it would be great if she was a boy."
After graduating from high school, Wang Fang took the train to the south alone and went to the city to explore, and had a series of experiences of working in a factory, working as a salesperson, and starting a sales company. After failing to run a traditional business in 2013, Wang Fang joined Sansheng Company. With her strong spirit, she quickly became the recommendation champion and became a rising star in the team.
If you upgrade to another level, Wang Fang can also go to a prestigious university like Quanjian’s dealer, not the School of Continuing Education, but the Advanced Training Class of the School of Economics and Management EMBA.
According to the company's recommendation information, Gao Ning (net name) is one of the founders of Dedao Cloud Innovation System and the administrative sales director of Sansheng Company (Sanyan Manager) from a rural family from Sichuan Guang'an . After graduating from university, he was unwilling to be a math teacher and chose to start a business. But starting a business is difficult, and he barely makes a living. It was not until 2010 that he joined Sansheng Company and founded the company's current online business direct sales model. He often uses his own example to promote how to get rich through consumption.
The reporter's Sansheng membership WeChat group has a level of up to 8, with more than 400 members, from all over the country and all walks of life, many of which are retired elderly people, housewives, fresh graduates and individual business owners. There are also many members who engage in micro-business or various financial pyramid schemes on multiple platforms at the same time.
"Pyramid schemes seem to be huge profits, with low investment and low thresholds, which are very attractive to people who have low economic income and skill levels, or who want to get rich quickly." Bunaxin said, "If the economic situation is not good and residents' income decreases, the potential population of pyramid scheme activities will increase greatly."
He believes that once you enter a pyramid scheme organization, individuals will develop a sense of spiritual dependence on the organization, and it is impossible to distinguish whether the instructions issued by the organization leader are reasonable and legal, which will eventually cause harm to society.
In August 2018, Tencent Security released its semi-annual Internet financial security report. The report believes that various online malls and offline malls with the slogans such as "consumption rebates" and "consumption is saving money" have begun to become new variants of pyramid schemes.
For example, Zhejiang Wanjia Shopping Network, which was investigated and punished in 2013, divided its members into ordinary members, VIP members, gold medal agents, gold medal agents, and regional agents according to qualifications and conditions, and implemented hierarchical remuneration, with 1.9 million people involved in the case, with an amount of up to 28.7 billion yuan, covering more than 2,300 counties and cities in 31 provinces across the country.
Recently, direct sales giants of health products with direct sales licenses, Quanjian Group, Hebei Hualin, Wujili, etc., have been investigated one after another. Quanjian Chairman Shu Yuhui and 16 others were arrested by the court for suspected organizing pyramid schemes. In January 2013 and August 2018, Sansheng Company was also exposed by the media for suspected pyramid schemes.
These phenomena make people wonder why direct sales companies have repeatedly crossed the red line of the law.
2014 was a bleak year for direct sales in China. Due to negative news such as e-commerce impact and "suspected pyramid schemes", direct sales companies generally suffered a decline in performance. Like Sansheng Company, many of the direct sales companies that obtained licenses in 2006 have now disappeared.
However, the rise of social e-commerce in recent years has allowed direct sales companies to feel the dividends of the Internet. Using live broadcast platforms, social tools, and video websites can greatly improve the efficiency of sales personnel. But at the same time, in the era of Renren's micro-business, the fission-based dissemination of sales activities also provides a breeding ground for pyramid schemes, and easily avoids the supervision of direct sales enterprises and physical outlets by relevant departments. After the outbreak of the Quanjian incident, on January 8, the State Administration for Market Regulation and 13 other departments held a meeting to carry out a 100-day joint rectification nationwide in response to the chaos in the "health care" market.
"Any business model will ultimately be maintained by profits, and producers, sellers, consumers and other parties share the profits of the product. If it is just to consume consumers' principal and rely on the offline to continuously replenish and go online, such a model cannot be maintained." Wu Changhai said.
He believes that pyramid schemes have the characteristics of crowd stakeholders, with a large number of participants, and a huge amount of money involved. He suggested the issuance of the "Regulations on Supervision and Management of Business Models in Public" to regulate the negative externalities of company behavior and supervise business models that violate the laws of business value and are unlikely to make profits.
