Herbalife pull misdirection on wholesale customers
Misdirection (n): Misdirection is a form of deception in which the attention of an audience is focused on one thing in order to distract its attention from another.
I’ve been buried under a mountain of work so I’m a bit behind on BehindMLM at the moment (geddit?), but by now most following the MLM industry will have seen the press release regarding the Nielsen survey Herbalife recently commissioned.
Before we get into that though, we first need to put the Nielsen survey into context. Last we checked in on Herbalife they announced back in February that they were going to ‘more clearly identify the wholesale customers among its 3.2 million distributors from April’.
For reasons unknown, that never happened. Or it might have happened, but the results were never made public.
Completely missing the self-imposed April deadline, on May 2nd Herbalife CEO Michael Johnson then announced that Herbalife would be
announcing significant changes to the nomenclature used by the company in the next 30 days.
Anticipated to be the introduction of a “wholesale customer” class into the Herbalife compensation plan, to the best of my knowledge it never happened either.
What did happen?
Around the same time as they were supposed to be releasing figures on their wholesale customer numbers, Herbalife approached Nielsen to conduct a survey on the consumption of Herbalife products by the American public.
Rather than simply introduce a wholesale customer class (something that would take Herbalife a whole 10 seconds to do) and release figures on how many “failed distributors” made the switch, Herbalife instead are now harping on about said Nielsen survey.
The survey, held over April and May 2013
was conducted among a nationally representative sample of entirely adults, aged 18 and over in the U.S., and balanced by key demographic indicators from the U.S. census, including age, gender, race, personal income and geographic region.
With a sample size of 10,525 consumers, the survey had a margin of error of +/- 0.96%.
3.3% of the general population reported that they had purchased Herbalife products within the past three months, indicating that Herbalife currently has approximately 7.9 million customers when projected to the total U.S. adult population.
Well that’s it then, Herbalife clearly isn’t a recruitment driven pyramid scheme. Case closed and we can all move on.
The Nielsen study found that 87 percent of the 349 respondents (out of 10,525 total respondents) who purchased Herbalife products for personal use in the past three months self-reported that they did not purchase it from the company as a distributor.
Herbalife customers would include their distributor network, which totaled approximately 550,000 in the U.S. as of the end of the first quarter 2013.
Proclaiming the legitimacy of Herbalife on the back of the Nielsen survey is problematic for a few reasons. The first being that, as quoted above, distributors are reported as consumers.
This introduces an abnormality into what would otherwise be a standard consumer survey in that the possibility that disproportionate amount of Herbalife distributors might reside in the areas the survey was taken.
Rather than exist on the merit of the product itself (which is what would happen without the attached income opportunity), potentially you’ve got a bunch of “consumers” existing because they were promised riches if they recruited enough distributors.
Consumers? Absolutely… but what, if anything, that has to do with proving the legitimacy of Herbalife is beyond me.
Another problem is the inclusion of customers who didn’t purchase Herbalife products from the company as a distributor.
Claiming 87 percent who purchased Herbalife products didn’t do so from the company as a distributor does not address whether or not they purchased the products, as a distributor, from other distributors (their upline).
In a pyramid scheme, this would be happening quite frequently as new distributors would be encouraged to purchase product from their upline to self-qualify for commissions (earnt by recruiting new distributors who then purchase the same product the recruiting distributor just bought).
Why is this important?
Revenue. Determining whether or not Herbalife is a pyramid scheme has nothing to do with how many Americans are consuming Herbalife products but rather the revenue going into the company and where it is sourced from.
No matter what Herbalife distributors do with the products they purchase, or how many Americans consume Herbalife products, if the revenue going into the company is coming from affiliates, this indicates that it’s a pyramid scheme.
And this brings us back to the issue of wholesale customers.
Deliberately confusing the matter, Herbalife insist that distributors who earn no money and do not recruit are customers. These distributors, the company claims, are only distributors to enjoy a wholesale discount on the purchase of Herbalife products.
The problem with that is there’s no distinction between failed distributors and your actual wholesale customers. Herbalife know this and continue to this day to deliberately keep actual customer figures obfuscated.
The potential for obfuscation is precisely why the wholesale customer class is used in MLM, as it bars those looking to simply purchase products at the wholesale level from earning via the compensation plan. These customers thus are infact true customers and not distributors.
This is why back in February that Herbalife’s announcement it was going to actually track wholesale customers was so important. Separating Herbalife distributors from actual wholesale customers and then making public the proportion of revenue each class directly pays into the company would prove once and for all that Herblife is viable at a retail level.
Well, it would if the distributor generated revenue was less than the retail and wholesale customer revenue combined.
Given that the introduction of a wholesale customer class would have taken Herbalife all of 10 seconds to implement (well ok let’s be fair, all of ten minutes) and that they first made the announcement almost six months ago now, one can only conclude that
- Herbalife did indeed crunch the numbers and knew that creating a wholesale class would provide irrefutable proof the company is infact a recruitment chain pyramid scheme, or
- hat they have no confidence in their so called “wholesale distributors” switching over to a class that is cut off from the income opportunity (thus proving that they are in fact failed distributors who cannot recruit).
If there’s any other justification for Herablife announcing they would create a wholesale customer class in April and then quietly drop the subject and instead run around commissioning surveys full of misdirecting facts and figures, I’m all ears.
Johnson concluded, “We believe the results of this study substantiate our belief that many of those who attack our model lack a clear understanding of the direct selling industry, and Herbalife in particular.
Cut the bullshit Johnson. You want to prove Herbalife is not a pyramid scheme? Create that wholesale customer class and release the subsequent revenue ratio figures.
Stop messing about and wasting everybody’s time.
You might be able to confuse the matter and string along the financial industry with irrelevancy but as far as the MLM industry goes we’re still waiting and watching. Pulling stunts like the Nielsen poll whilst continuing to fail to deliver on wholesale customers only further reaffirms the view Herbalife will do whatever they can to bury the issue.
A California congresswoman asked the Federal Trade Commission to investigate allegations that Herbalife Ltd. operates a well-disguised pyramid scheme that victimizes “our country’s most vulnerable populations.”
Rep. Linda T. Sanchez (D-Cerritos) said in a letter to FTC Chairwoman Edith Ramirez that she was “troubled that this company may be harming consumers,” noting allegations that Herbalife’s independent distributors are compensated more for recruiting new distributors than for sales.
Whether the FTC gets involved remains to be seen but why wait for them to reveal the revenue flow of the business? Herbalife could easily do it themselves in less than half the time it took for the ink to dry on Cristiano Ronaldo’s recent sponsorship contract.