Herbalife make front page of Australian news
When you’re knee-deep in network marketing analysis and reporting day in day out, week after week sometime it feels like you’re covering a niche somewhat detached from the rest of the world.
Other than the odd critical article that appears in the mainstream media, a paid advertisement a company or one of their affiliates might run to try to generate some buzz, or the implosion of giant scams, it’s rare for MLM and the rest of the world to intersect.
Today, something a little different…
As I do every morning, I fired up my favourite news portal and staring me smack in the face was none other than Herbalife’s logo:
Perhaps not the most flattering of headlines to have your logo above but a bit of exposure for the company nonetheless… dunno if it’ll convert into any sales for Herbalife affiliates though!
I’m an Herbalife user and lost 15 pounds with little exercise. I signed up as a distributor to get the discount, ( currently get a 42% discount). You can get up to 50% total.
Recruiting though is a tough process as you have to talk to one on one with people. They must be willing to change there eating habits and lifestyle or they won’t stay on board. You don’t work at it you won’t make any money.
http://pyramidschemealert.org/a-european-court-rules-herbalife-is-an-illegal-pyramid-scheme/
Herbalife ruled a ponzi by court.
“Dishonest chain recruiting”.
Belgium used 7 years before the case was finally decided in court. Herbalife may have changed something in its customer requirements during that period of time.
Belgium has similar Consumer Protection Laws as the rest of EU, based on the EU Unfair Commercial Practice Directive from 2004/2005, implemented in all the countries in 2009.
wow norway , belgium took 7 years to adjudicate this matter !
there seems to be confusion the world over in defining what constitutes direct sales as opposed to the traditional methods of distributing products to the end consumer.
there also seems to be a bias and opposition by the traditionalists to accept direct sales as an effective and more mass based selling concept since it is proving to be a major blow to their bottom lines.
the main idea of ‘selling’ focuses on retaining the established consumer base and creating a new one at a competitive speed.
the basic idea behind direct selling wherein the consumer is offered profit sharing to remain loyal to the brand and further promote it for additional compensation has caught the fancy of the new age consumer/marketeer.
i disagree that it is endless recruiting , since most products have a finite shelf life and ‘re-purchase’ is a governing principle of the market. as long as recruitment is not essential or compulsory for the making of profits by a consumer/partner , there should be no reason to complain .
Well, to be complete blunt, pyramid scheme alert is run by a Robert Fitzpatrick, who’s anti-MLM in general principle.
He thinks all MLMs are illegal fraudulent pyramid schemes somehow legalized on a thin footing and allowed to live (which was a big mistake he’s trying to correct). So you have to take his info with a grain of salt and his POV/bias. He has good info, but it’s not a widely shared viewpoint.
Oh please, the confusion lies with those trying to mask the fact that they are running pyramid or Ponzi schemes.
In MLM if you aren’t selling a product to an end consumer or this isn’t making up the majority of revenue in your company, you are probably doing something you shouldn’t be.
Affiliate revenue isn’t retail and they don’t count as retail customers, end of story.
As for recruitment, if all you’re doing is selling memberships with 0 retail, this is about an obvious pyramid scheme as they come – regardless of what token irrelevant products are attached to that membership.
Leave the “traditionalist” conspiracy theories at the door please.
see , you use the word ‘probably’ which is a giveaway that there is indeed confusion about the parameters that define a crystal clear red ribbon MLM.
internationally which MLM has passed the ‘majority of revenue from retail’ test ? i believe even the darlings of the industry like amway will call in sick if such a rigorous test is announced.
why is retail only to fresh customers considered retail ? what about the network of loyal consumers who by free choice purchase this brand repeatedly?
if an MLM forces such internal consumption by insisting on a periodic minimum purchase by it’s affiliates for staying with the program , even i would consider it a dishonest sale.
but what if there is no binding on the affiliates to make any minimum purchase or sale ? purchase and sell
according to your ability and interest and reap the rewards accordingly. no pressure.
what if an MLM offers a particular amount of reward points each month for staying with the program .these points are not redeemable in cash .you can only exchange them as discounts if you are purchasing or selling a company product.
if you chose to use these reward points good for you, or they can stand around uselessly in your account before being thrown out in a reasonable time period of say an year.
in such circumstances how can purchase of a product by an affiliate be considered a dishonest sale.
Again, the only confusion that exists are from people involved in pyramid and Ponzi schemes trying to justify their participation.
Otherwise it’s clear cut. The us of “probably” is not for grey areas, it’s because half the time people are simply ignorant of what they’ve gotten themselves into and how what they are doing qualifies as participation in a pyramid or Ponzi scheme.
But, as someone who was involved in Speak Asia, you of course take it as wriggle room for the justification of pyramid and Ponzi schemes under the guise of “confusion”.
There is no test. Practically speaking if >50% of your revenue isn’t retail sales to customers you’re running some sort of scheme (what exactly depends on the compensation plan specifics).
Who said anything about “fresh customers”?
In MLM that’s what the definition of retail always has, is and will be – the sale of products to retail customers not involved in the compensation plan.
Otherwise company’s try to deploy compensation plans full of internal consumption that just wind up being pyramid schemes.
So long as they’re not affiliates, what about them? They’re still retail customers.
A repeat sale does not negate one being a retail customer, being an affiliate does.
and this is where the majority of company revenue comes from to pay out commissions, than it’s a pyramid scheme (you have to effectively recruit new affiliates who are forced to purchase product in order to earn commissions of their purcahses).
If the revenue is affiliate driven (internal) than it’s not retail and is still a pyramid or Ponzi scheme (dependent on the compensation plan).
If other affiliates (on multiple levels) are earning commissions of your purchases and there are no retail sales occuring to retail customers (over 50% afiliate funded revenue) than it’s a pyramid scheme.
“Dishonest sale”, “fresh customers” – you do love to introduce terminology into the discussion and pretend to have a discussion about why these terms are wrong, when you yourself alone introduced them.
Affiliates buying product isn’t a “dishonest sale”, it’s not retail.
In MLM you need to be selling retail and this needs to make up the majority of your company revenue. Anything less and you’re running a scam, what type of scam depends on your compensation plan.
There is no confusion, only weak flittery arguments from those that participate in Ponzi and pyramid schemes.
then how come EU has a problem with herbalife and the US doesn’t ? Then how come amway is legal in the US and facing trial in India for being a money circulation scheme ? c’mon , except for the kingdom of your mind ,i see govts of the world grappling with this problem .
‘was involved ‘ ?????
besides, except for some allegations , nothing stands proven against SAOL . don’t worry about it .you are painfully unaware of our money circulation act . there is no legal meaning of the term ‘ponzi’ in India . we will get there eventually , but then law does not function with a retrospective view .
can you name the MLM companies which after detailed analysis by any govt agency , have proven that more than 50 % of their sales are retail . this should be an easy list for you .
this statement is a shocker . i,m afraid not more than a handful (?)of companies could stand up to this challenge . so over 90% of MLM around the world must be illegal . tell me , has amway passed this acid test.
kindly clarify which govt and which govt authority gave amway the all green with regard to this ‘practical’ test ? dont flit over to SAOL , answer only keeping amway in mind.
Ah legalities and practicalities, the old “but the authorities haven’t come knocking” argument.
Practically speaking it doesn’t matter whether the authorities have come knocking or not. Either you’re selling products to genuine retail customers or you aren’t.
Blahblahblah, but I’d guess it’s because there’s questions about the revenue makeup of Amway India and whether or not retail revenue makes up the bulk of their income.
Well, except their damning business model. There is that little bit of evidence.
Blahblahblah, doesn’t change the business model.
Blahblahblah, doesn’t change the business model – or the definition of Ponzi scheme – or mean that Ponzi schemes don’t exist in India.
You’d have to ask govt agencies for that information, it’s not made public.
To those who regularly participate in Ponzi and pyramid schemes, no doubt.
Now you’re just talking out of your arse. Cheers.
Look you’re continiously melding legalities and practicalities. I discuss things in practicalities, the authorities deal in legalities. I don’t need a court of law to tell me if an MLM company is an effective pyramid/Ponzi scheme – only their business model.
If after analysis of their business model reveals the potential of a Ponzi/pyramid (as opposed to flat out being one, which is often the case), then it comes down to analysis of revenue (retail/affiliate). Those inside the company usually have a good idea of this, failing that I can only raise the question.
None of this has anything to do with legalities and courts – as was demonstrated by the recent Zeek Rewards case. Analysis of their compensation plan revealed it to be a Ponzi scheme nearly a year before the authorities and courts got involved.
On that note, any further mention of Amway or any other MLM company will be sent to the spambin. This article is about Herbalife.
Spending YEARS in court before a final decision shouldn’t be uncommon in India, either?
Instead of discussing viewpoints here, we can simply look at the court orders. I found the one from November 2011 here:
scribd.com/doc/76678476/Herbalife-Belgian-Court-Decision
Herbalife in Belgium was clearly recruitment driven, paying much more incentives for recruiting distributors than for recruiting customers. If you pay a sales force 5 times more when they recruit new distributors than when they recruit customers, most people will focus on the work that pays the most.
In Herbalife, it was possible to pay for positions by ordering certain amounts of products, e.g. 4,000 points of products per month would qualify for a “position” as Supervisor.
Herbalife paid commissions even for the “Starter package”, a product package which normally should be sold for cost price.
I don’t have time to read the order right now, so I only picked a few examples from the order.
In general, Herbalife’s claims was that MLM is legal, and that the other party had the burden of proof to show anything illegal, i.e. “Some of the distributors are actually customers, and the other party has to show evidence that they’re not”.
Herbalife’s second strategy was to ask for reasonable terms to correct the problem, and that strategy worked.
Herbalife’s third strategy was to file a counter claim against the other party for defamation. That seems to be a typical reaction in MLM? 🙂
A more “balanced POV” is usually more effective than a “strong belief system”, in terms of number of people interested in the information he’s trying to provide.
A strong belief system will only attract people with a similar belief system, and it will be impossible for anyone to introduce other ideas or viewpoints.
That source this time mostly had factual and neutral information about the court case, and that type of information will always find a wide audience.
Here’s another article from Robert Fitzpatrick, analysing the November 2011 court order.
http://www.falseprofits.com/files/8e0ca25551b4ef31cc56d28907106431-33.html
I would say Herbalife and the rest of the MLM opps are illegal.
http://www.consumer.ftc.gov/articles/0065-multilevel-marketing
^^ Taken from the link above.
This is what they told me when I joined Herbalife:
“Focus more on getting people to become distributors rather selling the product retail. Oh you can make money selling the product retail but recruiting members pays ALOT more and faster”.
They told me to focus on recruiting. I just use the product for myself but its way overly priced and I won’t continue when my year membership is up, why ?? because I won’t get 42% off that i get now unless I buy 3k worth of product first. Not gonna happen.
what can you possibly mean by this .’practically’ it matters the whole world whether the authorities come knocking or not.
we are talking about real businesses in a real world. is this a pot luck kind of situation? just plain bad luck if you get busted, while the world is spilling over with illegal MLM?
Is this 50% retail rule a laid down law in any country or is it just a practical thumb rule to discuss on blogs.
if it is a laid down law , does this mean herbalife has proved this balance in the US and has failed to do so in the EU ?or are they just protected in the US and fair game in the EU ? i think these issues are not simply about LAW or PRACTICALITY but depend by a large measure on the type of govt and economy of the country in question.
don’t over simplify things regarding the MLM industry there are many shades of grey here. soapbox please answer this , china has recently opened it’s doors to companies like amway and nuskin [?] , is this 50% retail rule a part of the written laws ?
in india by the looks of it , the new regulations will strictly enforce the ‘no compulsory recruitment’ clause and leave pricing , periodical purchase requirements out of the loop.
sorry , when there is no current law in india which defines the requirement of retail sales vis a vis internal consumption in MLM, how can amway be charged with breaking it?
This is in fact merely a case of the over zealous judiciary in Andhra Pradesh strechiiiing the money circulation act to cover any company which has any sort of recruitment in it’s scheme. which is why the supreme court ordered the trial court to not take cognisance of the AP court orders in both the amway and saol matters.
we have a clone of robert fitzpatrick in andhra pradesh , going by the name of shyamsunder of corporate frauds watch.
norway it’s so damn nice of the belgian govt to allow herbalife an opportunity to take corrective measures .a mature and reasonable approach as opposed to throwing a bunch of policemen at the public at large.
since you have procured an order for us to read i return the compliment with justice chandrachuds standing order clarifying the extent of the money circulation act .i look forward to your interpretation .
http://indiankanoon.org/doc/1926500/
soapbox stop throwing your spambin at people. it’s gravely impolite. feel free to transfer this to any thread of your choice.
@anjali
Whether the authorities come knocking or not is irrelevant to the analysis and discussion on this website, save for the context of catologuing when it happens.
BehindMLM reviews and discusses business models and MLM companies, what the authorities do is their business.
The sooner you seperate practical discussion and analysis from what the authorities do and legalities, the easier this becomes.
It’s common sense, based on having the majority of revenue coming in at a retail level.
You can blab on about laws in the US, EU and Chna all you want, I reiterate we discuss and analyse things from a practical standpoint here.
In an MLM company and less than 50% of your revenue is retail? Something isn’t right.
I don’t recall an MLM company anywhere in the world having issues (except where MLm is explicitly banned) that had >50% retail revenue generation.
And there’s no illegal MLM (unless explicitly blanket prohibited by law), just Ponzi and pyramid schemes. If you aren’t running one, chances are you won’t even know you’ve been investigated – and if you do and are cleared, the general public certainly wont find out about it.
They only find out if you’re running something dodgy. Don’t run something dodgy (<50% retail) and you've got nothing to worry about.
Well you tell me why they’ve been hauled into court then. Whilst there might be no explicit retail percentage precedent in India to determine whether or not MLM companies are pyramid schemes, they are obviously using some guideline to determine so.
As I understand it pyramid schemes are illegal in India. The courts certainly don’t decide this based on nothing. I’d suspect the authorities and courts just do what we do, have a look at the revenue makeup and decide if it’s an affiliate funded or retail majority.
Follow the money, it’s pretty simple. Practically speaking it doesn’t matter where a company is based, a business model determines whether a company is a Ponzi or pyramid scheme, not its geographical location.
The European Union use 50% as one of the rules (or actually “guidelines”), in the definition for promotional pyramid schemes. Page 22 in this PDF:
ec.europa.eu/consumers/cons_int/safe_shop/fair_bus_pract/ucp_en.pdf
The 50% rule is not a laid down law in itself, it’s only a part of the definitions. A company can pass the test with less than 50% retail sales.
Herbalife failed to pass the test because of clearly over priced products, sold primarily to distributors rather than to customers. It’s a recruitment driven scheme selling the opportunity itself as “International Business Kits” to distributors.
It’s rather off-topic, don’t you agree? This thread is about HERBALIFE, not about “State Of West Bengal & Ors vs Swapan Kumar Guha & Ors on 2 February, 1982”. 🙂
“On-topic” will usually mean:
* Within the context of the article, with related topics (the article is about HERBALIFE as the main topic).
* Within the context of previous comments (the situation for Herbalife in Belgium was mentioned in post #2, as a “related topic”).
* Within the context of this website (we’re discussing business models and MLM companies, not the laws in each and every country).
I’m not able to see any logical connections between Justice Chandrachud’s interpretation of the PCMC Act in India in 1982, and Herbalife’s situation in Belgium 30 years later. 🙂
It’s a red herring, of course.
The Herbalife news from Belgium seems to be one year old, from Nov/Dec 2011 and Jan 2012.
I didn’t find any updated news about it, so Herbalife has probably accepted the verdict.
SEC Enforcement Staff Opens Inquiry Into Herbalife | Fox Business:
http://www.foxbusiness.com/news/2013/01/09/sec-enforcement-staff-opens-inquiry-into-herbalife/
soapbox your contention that the 50% rule is commonsense and hence accepted as a world wide standard is not acceptable because thousands of disguised MLM pyramid/ponzi schemes are in business without being anywhere close to this 50% mark.
i can bet your ass even old stalwarts like HERBALIFE and amway cannot prove this 50% balance conclusively.
MlM has drawn a lot of flack worldwide and is viewed with suspicion by people [the majority] who are not involved in it. i find it unbelievable that any MLM, like HERBALIFE USA, which can prove that it makes more money from retail than from recruitment will keep quiet about it and let people go begging to govt agencies for this information.
No. they would be screaming this from the rooftops!
since i am yet to witness such a sight i say this 50 % rule while being perfectly logical, is nonexistent in reality. unless you can name a company that has successfully passed this test by an independent regulatory authority, i say all such claims are bunkum.
you may have a perfect empirical solution in your head ,but that doesn’t mean it will work on the ground without some tweaking.
if MlM has to survive legally across the world we need some other practical solutions for this conundrum .in india i have heard whispers of a 60/40 balance between inside money and outside money, though i am unable to track it down on a paper source . in a related article on the net i saw acceptance of even a 70/30 balance [should have copy pasted !] .
actually recruitment should have some maximum capping so that the schemes like HERBALIFE do not snowball into collapsible pyramids . it will give a clear message to all participants that retail is where the money is. and hello increase retail margins you stingy MLM’s like HERBALIFE.
norway kindly note the repeated references to HERBALIFE in my post. am i on topic now ?
Yeah, cuz that’s totally what I said.
Having at least 50% retail sales and being legit in MLM is common sense and nothing more. I have no idea about world-wide standard and all the other nonsense you mentioned.
Yep. Point?
Bet away, but it’s a pointless excercise without facts and figures, which these companies usually do not remit unless the authorities come knocking.
With the SEC involved now they’ll have to prove it. Pity we won’t know the outcome either way unless they can’t prove it and the SEC take them to court.
Now you’re getting into the viability of MLM in general. That’s a pretty big can of worms and a discussion that I don’t feel is going to be particularly fruitful.
From my perspective the business model of >50% retail in MLM is legit but whether a company fits this model or not can only be ascertained by the authorities (or via facts and figures provided by those involved in the company).
Each company has to be taken individually and blanket statements (such as those often used by hardline MLM supporters or critics) are usually irrelevant to the discussion at large.
PS. You’ve misunderstood the 70/30 article, that’s 70% retail and 30% affiliate revenue, not the other way around.
By definition, I think 50/50 (or to be more accurate 51/49) in favour of retail (outside) sales is, as you say logical, and should be adopted.
Once again though, whatever percentages are set or not set by courts around the world I’ll continue to adhere to the logical figure of at least 50% because I review MLM business models from a practical viewpoint, not a legal one.
I’m no lawyer and BehindMLM is no court – but that doesn’t mean practical analysis cannot reveal whether a company is an effective pyramid or Ponzi scheme – long before anyone is investigated, shutdown and taken to court.
Speak Asia and Zeek Rewards are two of the most recent high-profile examples.
this is what i take away from this conversation :
1 ] the 50% rule is no rule at all , but merely the personal perspective of soapbox and he entitled to it .however since he cannot put it to a test , since no MLM company publishes it’s consumption data on a public forum , this is just a useless yardstick he has stocked up on .
2] if Herbalife shit hits the fan in USA it will be time for the MLM industry to take a wake up call before it is too late .however as per the linked article by NHRA ‘The probe won’t necessarily result in any enforcement action, but it adds pressure on Herbalife a day before a meeting ‘.
3] if Herbalife gets in trouble then how long can other companies like amway stay protected .it’s too late in the day to de-recognise MLM .the network industry in the US is pretty strong and has a powerful lobby, they need to sit down with the authorities and set some new norms for the industry at large . the rest of the world will wag it’s tail and follow .
4]some of my suggestions for Herbalife and similarly affected MLM’s would be
a] cap the number of recruits allowed per participant and review this capping on an annual basis
b]rework the pricing process from top to bottom!for retail to work the pricing has to be at par or less than similar products in the market
c] do away with forced product purchase . make it voluntary and force the authorities to then recognize it as retail or something close .meaning , use it as a negotiating tool
d] increase retail margins to make this the exciting end of the business .increase your product range on a continual basis to keep the freshness and interest alive in the retailers as well as the customers .
5]it is apparent that different nations are going to have individual benchmarks for their MLM . so we should wish them best of luck and leave them to it !
this is a laypersons overview and the experts are invited to add their twopence for whatever it’s worth
this from bloomberg , today on Herbalife:
http://www.bloomberg.com/news/2013-01-09/bill-ackman-s-short-sale-puts-herbalife-in-cross-hairs.html
FTC comes across as poor joke !
It’s based on common sense. You can ignore commonsense, which you yourself have described as logical but I suspect this is not a wise course of action to take in the long run.
I would naturally applaud the US government to set a percentage down in law of which retail revenue via sales must make up however until that day, all we’ve got is common sense.
Commonsense that dicates should the majority of revenue be generated internally by those earning income from said activity, upon closer analysis it’s almost guaranteed they’ll fit the practical definition of a pyramid or Ponzi scheme.
In the absense of local and international laws you cannot ignore the necessity of retail sales in MLM. Hell, even if the US declared tommorow that 100% internal revenue was legal I’d still be slamming opportunities that were 100% obviously internally funded pyramid/ponzi schemes.
Why?
Because practically they are insustainable and a blight on the MLM industry.
(I’d also be quite content to slam less obvious scams but they are naturally harder to prove, moreso are the ambigious businesses that could go either way based on affiliate activity.
Herbalife failed to breakdown there sales according to Charlie on FBN: