FTC to be coaxed into Herbalife investigation?
Despite the Herbalife PR machine churning out news of sports sponsorships and the hiring of new executive staff, along with the theatrics that continue to be played out in Wall Street, a storm has been brewing between Herbalife and consumer groups in the US.
At the forefront of these groups are those who charge themselves with watching over the Hispanic population in America, a core market central to the ongoing expansion and success of Herbalife there.
Back in 2007 Herbalife revealed that the national Hispanic market contributed to 61% of their US business. What that percentage is today isn’t clear, however it’s clear that a vast majority of the company’s current operations and marketing targets Hispanics (the sponsoring famous soccer stars for example).
As of late this has caught the attention of Hispanic consumer groups and politicians who represent large proportions of Hispanic constituents. All of which express concern over Herbalife’s targeting of the Hispanic community.
Back in May the Hispanic Federation write to the FTC and ‘requesting that the regulator investigate Herbalife, a multi-level marketing firm that sells nutrition products‘.
This was then followed up in June by a letter to the FTC from congresswoman Linda Sanchez, who noted concern over “allegations” that Herbalife ‘victimizes our country’s most vulnerable populations‘ and that ‘independent distributors are compensated more for recruiting new distributors than for sales‘.
Around the same time we also had New York City councilwoman Julissa Ferreras sent her own letter to the FTC expressing concerns.
Ferreras, ‘a Democrat who represents a heavily Hispanic district in Queens’, wrote
I am writing to urge the Federal Trade Commission (FTC) to take a look into Herbalife. Herbalife has been accused of operating an abusive pyramid scheme that targets minority groups, especially Latinos, and falsely promises large profits.
As a Council Member in a heavily Hispanic district in Queens, I am especially concerned about the impact this company is having on my constituents and the Latino community in New York.
Latinos in my district, and across the country, are falling prey to Herbalife’s targeted recruitment.
Recruitment begins when victims are asked to join alleged nutrition and wellness clubs. In my district alone, there are dozens of such clubs. Herbalife representatives use these clubs to take advantage of people with little or no business experience.
By making false promises of profit and ignoring all associated risk, Herbalife representatives “recruit” club members into becoming distributors of Herbalife products.
Since Herbalife’s success depends on this aggressive
recruitment, new distributors are then pressured into recruiting additional members.
Latinos and others in my district are being unnecessarily harmed by these aggressive recruitment techniques. By promising large profits and minimal work, Herbalife preys on vulnerable immigrant communities.
Since the evidence of consumer harm is widespread in my district and across the country, I believe it is critical for the FTC to conduct a thorough investigation and protect consumers from these malicious recruitment tactics and false promises.
If Herbalife is acting illegally by making false income claims to vulnerable Latinos in my community, then they need to be held responsible.
To date, Herbalife’s response to criticism (largely attributed to Bill Ackman’s efforts) has pretty much been “haha you don’t can’t prove anything, (insert carefully prepared PR dept spiel). Nyah nyah nyah!”.
In what appeared to be a genuine effort at transparency and addressing the issue of retail revenue, back in February Herbalife announced that they would
more clearly identify the wholesale customers among its 3.2 million distributors from April.
April came and went however and to date, Herbalife has yet to release any data. Given the Herbalife compensation plan fails to make any differentiation between wholesale customers and distributors who don’t recruit, it was expected that the company would introduce a proper wholesale customer option for consumers.
This is important because Herbalife currently claim distributors who don’t recruit are wholesale customers, which they clearly aren’t if they have signed up as distributors and are able to earn commissions via the compensation plan.
For reasons only known to themselves, Herbalife has continued to stall and despite repeated promises, have failed to take any action on the wholesale customer issue.
The company did tout a Nielsen poll in June which it claimed clarified the matter, however all it really did was misdirect attention away from it. Herbalife refused to make public the statistical data behind the survey results, only making public a select few concluding statements they issued.
These letters to the FTC from Hispanic consumer groups and politicians representing large Hispanic communities though? That’s an entirely different kettle of fish.
Pushing the panic button and no doubt terrified that more members of the Congressional Hispanic Caucus would pen letters to the FTC, Herbalife CEO Michael Johnson (right) personally flew into ‘Washington to stop them‘.
After Johnson learned that Loretta Sanchez was planning to circulate a letter to be signed by other caucus members, the 58-year-old executive flew across the country to try to dissuade her.
Johnson told caucus members that Herbalife products help combat obesity among Hispanics and that selling Herbalife is a great business opportunity. Johnson also said if the company were shut down people would be stuck with product they could not sell.
Johnson’s House call appears to have been in vain, other caucus members are still planning to follow the lead of colleague Linda Sanchez (D-Calif.), who last month wrote a letter to the Federal Trade Commission asking it to investigate whether Johnson’s Los Angeles nutritional supplements company was a pyramid scheme — and one that hurt her Hispanic constituents, a source inside the caucus told The Post.
Caucus Chairman Ruben Hinijosa (D-Texas) and Rep. Loretta Sanchez (D-Calif.), Linda’s sister, are two who have grown concerned about Herbalife, the source said.
The caucus insider said he was not impressed with Herbalife’s arguments. “They claim that Ackman is manipulating facts, but we are never shown facts that support what they are saying,” he said.
One would think that if Herbalife’s business practices were above board, the company would of course welcome scrutiny from the FTC, however that doesn’t appear to be the case.
Things will now no doubt get even more panicky over at Herbalife, after news broke yesterday that the FTC has agreed to meet with those that have written to them these past few months.
Consumer advocates are planning to ask regulators on Monday for their commitment to investigate allegations that Herbalife is a pyramid scheme.
The National Consumers League — the first group to call for an investigation in a March 12 letter — asked for the meeting with the Federal Trade Commission, according to sources. The Hispanic Federation, the League of United Latin American Citizens (LULAC) and Consumer Action are also expected to attend.
The activists are set to meet with Lois Greisman, the FTC’s head of consumer fraud. Jessica Rich, the new director of the Bureau of Consumer Protection, may also be there.
At least six different letters have been sent to the FTC asking it to probe Herbalife’s practices.
Should Herbalife be worried?
“I’m mad,” said LULAC’s National Executive Director Brent Wilkes. “I’ve seen Latinos ripped off by banks and others, but this scheme really takes the cake.”
After talking with Herbalife “and not getting the answers I wanted to hear, I concluded they are defrauding upwards of 300,000 Latinos a year,” he said.
Another consumer activist planning to attend the meeting said, “We think the problem is getting worse, and we think that the FTC is really important.”
If the above tone is anything to go by it would certainly seem so. But perhaps not…
Several sources told The Post that they believe the FTC is reluctant to launch an investigation of Herbalife because of the company’s financial resources and legal firepower.
Herbalife – the MLM industry example of “too big to fail”?
Guess we’ll have to wait and see what goes down Monday. Perhaps Johnson can gatecrash the party and reveal those Herbalife wholesale customer figures he’s been keeping under guarded lock and key…
its always suspicious when political groups gets involved.
What? They were sleeping all along and became agitated only AFTER ackman shorted herbalife shares? Political motivations are always shady business.
I would like to hear it directly from the ‘cheated ‘ distributors. If these hispanic/latino politicians are SO pained, and claim to have representation of their communities then why haven’t they launched a signature campaign against herbalife from within their community?
If they have so much concern , they need to back it up with some data showing how abused their community is by herbalife .
they say 300,000 hispanics are cheated every year? how about collecting 3000 hispanic distributors signatures?
I think FTC’s advice to these politicians that a plaintiff suit is probably the best way forward, stems from mistrust of the motivations of these groups.
That wouldn’t have been a professional behavior? You will need to go UP in the system to get some results, to the ones that have the authority to decide rather than DOWN to the masses affected by something.
That strategy is called “drown them in information, to keep them occupied and to prevent them from doing something else”.
I don’t think FTC has that function at all, i.e. acting as an “advisory board for politicians”. I don’t think they will evaluate how motivated people are either, or the type of motivation that drives them.
Consumer Protection organizations clearly have legitimate motives. Other organizations representing affected groups clearly have legitimate motives. Politicians clearly have legitimate motives. None of them are part of a conspiracy, each of them have independent and individual motives that can be identified.
A reply from FTC to the politicians similar to this would probably be something to remember:
It would be much much MORE professional if they approached the FTC with demands for investigation into herbalife, armed with 3000 signatures of their poor little hispanic community who has been soooo abused by herbalife.
what are they basing their request for investigation on? oh! we read ackmans hypothesis that herbalife is a scam and we are impressed so please investigate?
Where are the complaints from the affected people ? if the hispanics are tooo timid to complain what are their political leaders for?
Do the groundwork, gather the people build a basis for your request for investigation! the FTC or even any business house for that matter cant be at the beck and call of every motivated group with a grouse.
haha very funny 🙂
FTC wont be caught dead penning this kind of stuff but they can always SAY it, cant they, person to person?that’s what the new york post is insinuating anyways, i dint say it!
Here’s hoping that come monday,the FTC makes some comforting noises and gently guides these bleeding hearts straight back home where they belong.
Is it really “political” though? When leaders of a subgroup demands a more detailed investigation?
It’d be much like Sikkim leader such as Prem Das Rai, asking EOW to look into TVI Express scam, wouldn’t it? Is it really POLITICAL (i.e. Sikkim politics) or just possible crimes?
Professionalism isn’t about making as much noise as possible, but about analysing the case, knowing the system and pulling the right strings.
I don’t think FTC has a solid case. The core issue is about whether or not Herbalife runs a pyramid scheme type of business. Herbalife’s primary defense is confusion about distributors / retail sale. It may be some “reasonable doubt” involved in that part.
Pyramid scheme cases are difficult to prove, much more difficult than e.g. Ponzi schemes. That’s why there’s relatively few pyramid scheme cases per year on a federal level.
FTC can’t simply “throw in resources” investigating every company they’re asked to investigate. In the Herbalife case, I don’t think they have enough material to open a full investigation.
HERBALIFE’S COMPENSATION PLAN
The lowest distributor levels do not participate in the compensation plan directly, they’re only participating in a discount program (discounts rather than payouts from the company). The first level in the compensation plan is the “Supervisor” level.
Levels:
1 25% discount, “recruitment feeder”
2 35% discount, “recruitment feeder”
3 42% discount, “recruitment feeder”
4 50% discount, 1st level in the CP
5 50% discount, 2nd level in the CP
6 etc.
Most people are focusing on levels 1, 2 and 3, for whether they are consumers or participants. Those levels are only “feeder levels”, not a part of the pyramid scheme itself.
The feeder levels do not participate in the CP, e.g. earning money on recruiting other participants. They simply don’t qualify as “participants” before they have been upgraded to “Supervisors”.
“Supervisor” is the first level where you buy a position that holds the right to earn commission on recruitment, the signature of a pyramid scheme.
Anyone analysing Herbalife for pyramid scheme issues should probably use the model I have described here = separate the distributors into participants and non participants. Then they will probably find the pyramid scheme they are looking for from level 4 and up.
The lower distributor levels are simply “distractions”. They are OUTSIDE the potential pyramid scheme, but they can pay for an upgrade and become participants. They can theoretically work their way up via sale to retail customers, but I don’t think that is very common.
The ackman presentation is an absolute must watch for anyone even thinking about joining MLM.
if premdas rai or anybody asked sikkim police/EOW to look into any alleged scam the police would say ‘we understand your concern sir, but we need complainants to come forward for us to launch an investigation. However we promise to keep an eye on the company and would you like a cup of tea?’
Political groups can express concern and create media interest, but cannot force agencies to launch investigations unless the agency does not have direct complaints from the affected parties.
The system of the US is different, but as far as i see the FTC does not launch investigations unless there are pressing reasons for doing so. Hispanic politicians crying wolf, without any observable support of their community, does not fall in the realm of ‘pressing reason’ in my view.
Uh, I’m going off memory here but isn’t there proposals before Indian parliament as we speak seeking to change this? Granted regulators are always going to be reactionary but India really drags the ball with regards to regulators being proactive in launching investigations into blatant scams.
The Herbalife business model and compensation is reason enough for doing so. As it stands the company appears to be largely affiliate-funded revenue wise with little to no retail activity. To date Herbalife has failed to reveal true retail revenue as a ratio vs. affiliate revenue.
Given Herbalife target Hispanic communities and rely on the community to sustain their US operations, it’s no surprise Hispanic consumer groups and politicians are leading calls for an FTC investigation.
If Herbalife generate more retail revenue than affiliate revenue, what do they care if there’s an FTC investigation opened up on them? There’s already an SEC investigation underway (although admittedly Herbalife’s problems don’t appear to be in the realm of the SEC’s expertise).
If an MLM company blatantly appears to have a lack of retail how an investigation gets started is irrelevant, only that one is started. India would do well to adopt such a system and hopefully parliament passes one soon enough.
Whether herbalife cares or not about an FTC investigation is not the point. whether FTC cares enough to launch an investigation on the flimsy grounds of politicians raising a furor ,is the moot point, and will be known soon enough .
i agree with norway that proving anything decisively in court could be a long dirty war and without any CLEAR illegal behavior like FHTM and it’s annual cash fee, which is blatantly in violation of legal MLM, FTC may not be eager to stumble into a all out war with herbalife.
If ackman is so sure and the hispanic politicians are so sure, they can surely round up a few distributors and file a lawsuit? As against 3 million distributors of herbalife worldwide if these handful of people are convinced that herbalife is an illegal pyramid, then they should take the responsibility and take legal action, and not dump the baby at FTC’ door.
there may be informal discussions by politicians and citizen groups and in the press but no such proposal is before parliament.
if at all the police /EOW are to be given suo motu rights to investigate any alleged MLM scam , then FIRST there will have to be clear legislation for MLM , and a nodal agency like FTC which regulates this sector.
Work has just started on these issues, but the final results are still a few years off. Till then, all that is needed for an investigation to be started in india is a single complaint by a single person and it is just as bad as having no complainant.
It is very easy to set up a single complainant and attack any MLM company. People like shyam sunder take advantage of this situation with unfailing regularity.
Again, who raises the concerns is irrelevant – whether there is merit to the concerns is all that matters.
This is about MLM regulation, not distributors individual claims. They are at any time free to file their lawsuits if they wish.
Just as whether or not an affiliate makes money has no bearing on the legitimacy of a compensation plan or business model, so too is the inverse true. It’s completely irrelevant (at least within the context of an official FTC investigation into Herbalife’s business model).
The bigger picture is where the interest lies, primarily in whether or not Herbalife generate the majority of their revenue from retail customers or affiliates. That’s as complicated as this is.
Herbalife refuse to make these figures public, raising ongoing and unaddressed suspicion. Hell, they won’t even create a wholesale customer class because they know it will kill the grey area they operate in, that being a pyramid scheme but keeping their revenue ratios secret through obfuscation.
I and many are tired of these loopholes. Whatever it takes the FTC need to plug them. If that means going to court to establish clearcut guidelines then so be it. The loopholes, psuedo-compliance bullshit and grey area business practices plaguing the MLM industry need to stop.
I suggest you research what the FTC is before making such silly statements.
Should be soon once Department of Consumer Affairs and Ministry of Corporate Affairs reach some a consensus. Who knows how long that will take.
With each scam that targets investors though the urgency for Indian MLM regulation reform only grows more apparent.
Government agencies are supposed to be neutral and objective, and to look at both sides of a story before they can make any decisions.
That’s why I analysed the case for “potential weak points”, rather than building up more information pointing in the same direction.
The first 3 levels in the distributor hierarchy will fail the role as “participants”. They don’t have the right to earn commissions from a downline, only sales profit from potential sales.
The first 3 levels are neither participants nor retail customers. That’s a weak point in a pyramid scheme case. Herbalife will not directly qualify as a pyramid scheme.
Remember that you are using the MLM version of pyramid scheme rules, where the percentage of retail sales can be used as an “indicator” for whether or not a business model potentially is a pyramid scheme. But the law doesn’t use a similar rule as a “primary indicator”.
DISTRIBUTOR LEVEL 1-3
* Are they retail customers? NO
* Are they consumers? YES
* Are they resellers? YES, to a small degree
* Do they sell to downline? NO, I doubt that
* Do they earn commissions? NO, only “discount”
* Are they participants? NO
* Do they recruit? Probably
* Do they earn commissions from recruitment? NO
* Do they earn MLM commission and bonuses? NO
A few simple questions like that will show the role of the first 3 levels of distributors.
* They will fail the test of being participants in a pyramid scheme because they simply don’t meet the required criterias.
* They have been recruited, so they can clearly be a part of other participants’ “consideration”.
* They can be indirectly “contributors” to a reward system in a pyramid scheme, without being part of the scheme itself.
* Whether they’re consumers or resellers isn’t really important. Pyramid scheme rules isn’t about that anyway.
* Whether or not some of them are earning something from retail sale isn’t important. “Pyramid scheme rules …”.
DISTRIBUTOR LEVEL 4 AND HIGHER
* Do they pay “consideration”? YES, clearly
* Will they be rewarded for recruitment? YES, clearly
* Are they participants? YES, clearly
* Do they sell to a downline? YES
* Do they sell to external consumers? N/A
* Are they consumers? PARTLY
TO FIND A PYRAMID SCHEME
The pyramid scheme is probably there, but to find it one will need to identify things correctly, e.g. what to look for and where to find it.
The criterias for pyramid schemes are:
1. Chain recruitment system
2. Consideration
3. Prospected right to earn rewards
4. Rewards derives primarily from new participants being introduced to the plan
Introducing a level 1-3 distributor isn’t recruitment of a new participant, it’s rather a consideration from the recruiting participant.
The illegal part isn’t about whether people are external customers or internal participants, it’s about whether or not the participants gives consideration (e.g. buying over priced products themselves, or encouraging others to do so).
This was just an example. Herbalife will need to be analysed in other ways than looking at distributor to customer ratio.
Motive will play a role as it has in the past. At which point the simple question comes up, why isn’t there a wholesale class if these distributors aren’t interested in the business opportunity.
You want to claim failed distributors are retail customers? Fine, then prove it. Cut them off from the comp plan and then after a few months tally up your true retail revenue vs. affiliate revenue.
Herbalife refuse to create such a class, despite promising to do so. It’s an open and shut case.
Motive will play a role as it has in the past. At which point the simple question comes up, why isn’t there a wholesale class if these distributors aren’t interested in the business opportunity.- oz
it is very difficult to get inside people’s heads, and ascertaining ‘motive’ behind consumer behavior is a subjective thing .
on another thread a contributor named max has raised a point i can agree with – ‘ potential retail customers will choose to buy their product with incentives attached rather than without, if there is nothing at all to discourage this.’
you cannot point a gun at customers heads and say – we will allow you to purchase the product at a discount only if you absolutely promise NOT to attempt to resell it, and to make sure ,we will ensure you cannot receive benefits from any sale by giving you a different classification .why would a customer agree for LESS ? he would prefer to keep all possible choices and probable benefits .
on the topic of the epic FTC/hispanic groups meeting:
http://worldnewsviews.com/2013/07/15/shares-of-herbalife-are-surging/
The Federal Trade and Motivation Analysis Commission will normally not have any problem with that. They can simply look at the TYPE of activity and the people involved in it, and come to the conclusion that they obviously can’t have the right motives. I do that all the time. 🙂
An income opportunity isn’t a consumer incentive. It CAN be used to trick consumers into buying something they normally wouldn’t have bought, but it’s not an incentive for purchasing a product in itself.
There’s simply 2 different sets of motives involved there, and they don’t work well together with each other. The 2 different sets of motives are typically in conflict with each other.
Having an income opportunity attached to a product typically makes the product itself become more expensive. That should normally be in conflict with consumer motives?
Having mandatory “qualifying purchases” typically makes an income opportunity become less profitable, except when the system is repeated through a whole downline and you are higher up in its upline. That should normally be in conflict with income opportunity seeker motives?
That combination of the 2 conflicting sets of motives will only attract specific types of people, e.g. “wannabes” who can see the potential earnings sometimes in the future and “dreamers” who will like to believe in different ideas.
So the typical MLM ideas are actually in conflict with both consumers’ motives and income opportunity seekers’ motives. It’s mostly designed for irrational people with irrational motives.
do consumers always buy the cheapest product on the shelf?
if there are two bottles of shampoo and B is 20 % costlier than A , then what motivation do you ascribe to the the people who purchase B?
maybe a friend suggested brand B , maybe the advert was glossier ,maybe she got a pay raise and wanted to splurge – buying B made her HAPPIER!
buying the costlier product is not against the consumers motive because she’s buying a feeling with it and shes happy .more than shampoo she was peddled HOPE . and it is the same with any other overpriced product in MLM with an income opportunity [all MLM’s do NOT overprice]
That combination of the 2 conflicting sets of motives will only attract specific types of people, e.g. “wannabes” who can see the potential earnings sometimes in the future and “dreamers” who will like to believe in different ideas.
yup norway ! tell that to those hispanics !it would be infinitely more rational for them to ferry ackman’s kids to school or spit polish his shoes , and earn minimum wages to boot!
how irrational of them to wannabe like ackman or be a dreamer of different dreams !
they should buy the cheapest products available and show perfect consumer behavior, live the most rationalistic life possible and not dream differently, proving they are NOT wannabes, let ackman fight a battle for them that they dint start , and in general JUST LUMP IT!
if it is rational to bet on stockmarkets , then it is definitely rational to try to make money selling products through a network . many people make a decent living from it and its not nice to insult them.
There is no justification for the running of a pyramid scheme.
If you wish to offer your customers a discount set up a wholesale customer class where they are cut off from the compensation plan. End of story.
You can waffle on and go on as many tangents as you want. That’s ultimately what it comes down to.
No, but you were talking about “incentives”. A higher price for exactly the same product isn’t exactly an “incentive”?
I ignored your version where you tried to introduce the idea “product A vs product B”, because that wasn’t what I was talking about.
MLM typically makes products become more expensive for a consumer. It’s an inexpensive method to EXPAND a business into new markets, but a costly method to OPERATE (for the consumers, for the income opportunity seekers).
As a general business idea, “cheating and misleading” isn’t exactly a sustainable idea. And Herbalife seems to be based on that idea.
Cant agree with that. There are many MLM’s with very low operating costs which provide reasonable income to opportunity seekers.
There are several MLM’s in india where for monthly sales targets as low as 500/1000 rs, for daily use, sensibly priced items like soaps, detergents and even edibles [which are usually absorbed by the distributors for their own personal family use], people are making a honest living.
Don’t credit the part about ‘cheating and misleading’ to MLM. Wherever there are sales, there will be cheating and misleading. This is not something invented by MLM or herbalife.
You’re mixing in all types of different motives that can’t rationally be grouped together as “typical consumer motives”?
Try to limit the scope to PRICE, QUALITY, AVAILABILITY, SERVICE LEVEL?
PRICE AS AN INCENTIVE
A higher price CAN stimulate some consumers, but it’s more typical about lower prices. Non MLM will normally handle all parts of the market, by dividing the market into High, Medium and Low and other similar divisions.
They will first introduce a new product at a high price, to meet the needs of the part of the market where people want “the best available as early as possible”, e.g. those people lining up in queue outside Apple Stores when a new product is released.
Then they will reduce the price to meet the needs of the volume market, and after some time they will reduce the price to meet the needs of the lower parts of the market, where low price is essential. And after that the product will need to be replaced by newer models, technology or ideas.
MLM has very few retail customers in general. It’s typically about income opportunity seekers recruiting other income opportunity seekers.
If PRICE had been an incentive, it would have been reflected in a higher number of external consumers.
QUALITY AS AN INCENTIVE
Does MLM generally offer better quality than other business models? Or do they have a lot of misleading information, to trick people to believe they’re buying something “valuable”?
AVAILABILITY AS AN INCENTIVE
This one is rather obvious. Before people can be interested in a product, someone has to make it available in the market first, e.g. most people won’t bother to travel from Norway to Costa Rica on a weekly basis to buy bananas, even if they’re very interested in bananas. It simply isn’t worth it.
Does MLM make the products become more easily available than other business models?
SERVICE LEVEL AS AN INCENTIVE
Does MLM offer a higher service level than other business models? Service can be all types of “additional value”, from initial information to return policy etc.
The model will occasionally offer some new “friends” popping up in the neighbourhood, eager to invite you to barbecue party, where you later in the evening (after a number of drinks) will be presented for the newest opportunity. It wasn’t exactly that type of incentive I was talking about. 🙂
CONCLUSION
I didn’t exactly find rational motives here for a consumer, but I haven’t analysed each and every detail.
You can add other types of rational motives for consumers, but try to identify first whether or not they really are rational and can be used as general examples for “consumer motives”?
“Other markets will attract irrational people too”?
That’s clearly true, but I was trying to analyse “consumer motives” and “consumer incentives” in MLM.
A consumer CAN have different types of motives, but having an income opportunity attached to products will actually miss most consumers’ motives, and only meet the motives of income opportunity seekers.
Your friend “max” failed to analyse the reality. He has probably surrounded himself with “like minded people” for too long, and has lost contact with reality. If you send him my analysis, he will probably be brought into some type of “psychological condition” for weeks or months. 🙂
Better to have them cheat each other instead by roping them into Herbalife comp plans instead, right?
The most effective strategy against Herbalife will be to temporarily unfocus from the pyramid scheme issue, and focus on misleading marketing = how the opportunity actually is being sold.
Herbalife clearly has a weak point in that part, and it’s even supported by it’s own defense arguments against pyramid scheme accusations.
Herbalife has already claimed that the lowest level distributors actually are consumers, people who have joined Herbalife just to buy products at a discounted rate. But its distributors are actually falsely selling the discount program as an income opportunity.
“Become a distributor” is actually a discount program. If marketed, it should typically focus on how much money people can save rather than potential earnings. You don’t “earn” anything by buying products at a discounted rate. Herbalife doesn’t pay any sales commission either if the products are sold to external customers.
The income opportunity where people can earn sales commission and recruitment commission starts at level 4, “Supervisor”. It will require a significant product purchase to buy a position like that.
THE PYRAMID SCHEME ISSUES
FTC will not start a full investigation or bring the case to court if they don’t have a solid case. Currently the 3 lowest distributor levels in Herbalife needs to be clarified before FTC can have a solid case.
The problem isn’t within the distributor to retail customer ratio, it’s in the 3 lowest distributor levels. That part needs to be clarified before anyone can establish whether or not Herbalife actually is a pyramid scheme.
@M_Norway
Aren’t they related? If it’s a pyramid scheme the opportunity is being sold and marketed. If there’s genuine retail activity it’s the products.
Trouble is at the moment there’s no way to accurately establish this, due to deliberate obfuscation by Herbalife in their continued failure to set up a true wholesale customer class.
The wholesale customer class is the “discount program”, and in failing to set one up no matter how you cut it, Herbalife are clearly on paper at present an affiliate-heavy pyramid scheme.
You and me are basically calling for the same thing.
Herbalife said they’d do it back in April but haven’t. Why is rather obvious and in my opinion is more than enough reason for the FTC to get involved.
FTC has probably been involved since February/March. Herbalife has made some changes, e.g. dropping some lead sales solutions.
But FTC doesn’t have a solid pyramid scheme case. It’s a bad strategy being too focused on that part.
FTC can’t “investigate” a case to become solid, it has to be solid right from the beginning. If they’re starting to investigate like that they will get a flawed case because of lack of neutrality. And the pyramid scheme case simply isn’t solid enough at the moment.
The type of case that will be relatively solid could be about misleading marketing. It sounds less impressive than pyramid scheme, but it will actually make the snowball start rolling.
HERBALIFE’S RECRUITMENT METHODS
Herbalife is dependant on having the lowest distributor levels as a “pre-recruitment system”. Its entire sales strategy is built upon having a system like that.
Income opportunities are much easier to sell step by step, e.g. sell a $10 video, sell a $57 “starter kit”, sell a $200 “qualifying purchase”, sell a $500 upgrade purchase, sell a $2,500 “full upgrade”.
Methods like that will trick the brain into accepting things it normally wouldn’t have accepted. It has already said yes to some small commitments, and will more easily accept the bigger ones. The brain is simply designed to create patterns for behavior, and to repeat those patterns over and over again.
Methods like that will also make some people drop out relatively early, they have some built in “resistance” against methods like that, e.g. they are not too eager to follow any type of instructions (they must WANT to follow them first). So you will get rid of some “potential problems”, and mostly have the “easy victims” populating the lower levels.
SOLUTION
I’m of course missing some parts, but missing parts will normally be found if you identify known parts first
A permanent restraining order against specific types of misleading marketing will solve most of the pyramid scheme issue, e.g. an order clearly identifying what the distributors will need to inform new recruits about.
“This is not an income opportunity, but a discount purchase agreement. You can upgrade to Supervisor status and earn commissions. The total cost for that upgrade is $2,350 in product purchases, in 1 or 2 months. You will later need to buy products for $500 per month to keep the status as ‘active distributor’.”