This article is to discuss about the GoldQuest International Ltd’s numismatic coin selling strategy. GoldQuest International Ltd recently merged with Qatana Ltd. Qatana distributes products like luxury jewellery, timepieces, coins and medallions. The website is very professional, the business they are doing is legal and they claim to have offices around the globe.
Their primay business is to sell numismatic coins and its basically a mint company. This company has launched a MLM strategy to sell its coins. It is not something new, but a variant of ‘Multi-level Marketing’ (MLM). But, in no place in their website this MLM is discussed. Only their products are detailed. For your information, MLM and its variants are banned in India.
Some of the credentials they claim:
An ISO 9001:2000 certification for GoldQuest International.
Government registration (Goldquest International India Pvt Ltd).
Mrs Nalini Chidambaram was engaged by the company on the legal side. [ Quoted by its communications person, Ms. Preetha ]
Source: The Indian Express - Posted online: Sunday, July 30, 2006 at 0000 hrs IST
ISO 9001:2000 is one of a family of quality management standards for any organization’s process. It neither gurantees nor evaluates the legality of the business. A corporate doing illegitimate business can opt for ISO process methodologies. Mrs Nalini Chidambaram being involved on the legal side doesn’t guarantees either. Previouly lottery was registered as a legitimate business with Government of India, and now in Tamil nadu, Government has banned it as illegal because of the social repercussions.
Now, let me explain this variant of MLM:
First, you need to buy a numismatic gold coin by paying greater than or equal to Rs 35,000. You will be given a coin that costs 1/6th of the money you are paying some coins are even lesser in value. To earn the remaining 5/6th of the money you have spent, you can refer two persons by this same concept. You and the two persons you have referred are formed as a binary tree. [Hightech definition given for completenes you may skip it] A binary tree is made of nodes, where each node contains a left pointer, a right pointer, and a data element. The root pointer points to the topmost node in the tree. The left and right pointers recursively point to smaller subtrees on either side. Now, you are the root and two persons you have refered are your child.
Now your child can refer two persons each, if they can’t you can help them! Subsequently when the total referals on your left side becomes three and the right side becomes three you will get a cheque for Rs. 10,000. In your left 6 persons and right 6 persons you will get 20,000Rs. In your left and right 9 each, then Rs 30,000. The tree will keep on growing and you will keep receiving cheques. Everything sounds to be legitimate, it doesn’t comes easy and you need to talk to people and convince them, only then you get a cheque. Its not easy money, they say.
Now lets get into details: In a business, at any point of time you take stock of the situation the stakeholders should be beneficiaries. Now let us assume that,
Level of binary tree = n; Number of leaf nodes = 2 power(n – 1) ; Total nodes = 2 power(n) -1 ; Now, 2 power(n – 1) > (2 power(n) -1) / 2.
From the above statement, the result is: Always, the count of leaf nodes is greater than 50% of the total count. Those in the previous level that is (n-1)th level would not have acquired the minimum requirement of 6 referels. 25% of people will be in this level. So the leaf nodes and one previous level counts to 75% of the total count. That means at any point of time in the MLM structure above 75% of the people would not have collected their first cheque. That is they are in a loss by 5/6th of the amount they have paid.
Now the n-2 level would have got Rs.10,000 still they are in loss. Similarly n-3 level would have got Rs. 20,000 cheque and again in loss. So, put together the head count comes to 93.75%. n-3 level would have got Rs.30,000, when you count along with coin this level has achieved breakeven. With this the count comes to 96.88%
The remaining 3% of the person will be in profit. This statistics is for a complete binary tree and this is the best case analysis. This is not possible in real world scenario. Then this statistics will get worser! For the person who invested money, you are safe when you have referred 9 persons and thereof you will be in profit.
From a social perspective, this business is more worser than lottery.
- At any point of time, only 3% of the person getting profit and the other 97% in loss doesn’t do good for any business.
- Socially, you may also loose your reputation among your family and friends.
People will loose confident in you and may start avoiding your association.
- The coin distributed is not pure gold as they claim and said to be German silver coin coated with gold.
As some Government’s have already banned this kind of business strategy to sell the products and in particular GoldQuest International Ltd itself is banned in some countries (Ex: SriLanka). Anytime Indian Government may also wakeup and ban this businees directly, as it capitalizes desperate ordinary citizens who strive to make rapid money by unconventional means. Now there is a ban in place for MLM you need to read between the lines to find out.
Section 2 C of the “Prize Chits and Money Circulation Schemes (Banning) Act, 1978″ act says, “‘money circulation scheme’ means any scheme, by whatever name called, for making of quick or easy money, or for the receipt of any money, or valuable thing as the consideration for a promise to pay money,on any event or contingency relative or applicable to the enrolment of members into the scheme, wheather or not
such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions;”
Reserve Bank of India deputy general manager SP Negi says, “These companies primarily establish a pyramid and the new members are offered various allurements to join the chain. We have seen that one of the companies is offering a return as high as Rs two crore once the member reaches the 10th level.” Negi says these schemes are meant to operate as a never ending chain. “But this does not happen and the members last in the pyramid, whose numbers happen to be the largest, will ultimately turn up losers. Members higher up in the chain are not engaged in any productive work.”
Astounding truth is that, high profile names are associated with this business. Ranging from Vice-presidents from creamy layer software companies to ordinary trainee engineers in call-centers have become prey for this. Industries not immune to this are IT, BPOs and private banking sectors.
By following the history, any business that gives extradinary returns will not last long. In this business how does the cash flow is handled? All of the MLM representatives (those who tried to contact me), I asked for a copy of balance sheet of GoldQuest International Ltd to know about the cash flow, until now none could provide it.
So to conclude with my opinion, this an intellegent marketing strategy (a type of MLM) by a corporate to sell its product and a cancer among the society.
References:
http://goldquest.com/
http://timesofindia.indiatimes.com/articleshow/29399110.cms
http://gov.ua.nic.in/society/acts/banningact.htm
http://www.indianexpress.com/sunday/story/9571.html
http://www.qatana.com
http://164.100.24.208/debate/debtext.asp?slno=5894&ser=&smode=
