Babener weighs in on FTC Vemma lawsuit
Well-known MLM attorney Jeffrey Babener has been in contact, with his views on the recent FTC illegal pyramid scheme lawsuit filed against Vemma.
Oz,
a more detailed article is coming for our website…in the mean time, here is a succinct and informed article on Vemma…
Feel free to share it….This one is from someone who actually has tried cases and represented major companies…
best,
Jeff Babener
For those unfamiliar with the MLM legal landscape, Babener (right) is
the principal attorney in the law firm of Babener & Associates.
For more than 30 years, he has advised leading U.S. and foreign companies in the direct selling industry, including many members of the Direct Selling Association (including Avon, Herbalife, USANA and NuSkin).
Writes Babener;
On August 17, 2015, the FTC filed a complaint in U.S. District Court in Arizona, seeking a permanent injunction against Tempe-based Vemma International Holdings, Inc., a long-time direct selling marketer of health-related products.
The FTC was successful in obtaining a temporary restraining order, which shut the company and froze its assets.
Further proceedings for a hearing on a preliminary and permanent injunction and other relief were set to the future.
Such a scenario has been a common approach for the FTC. The most recent actions resulted in permanent injunctions against BurnLounge and Fortune Hi-Tech Marketing.
The primary accusation against Vemma is that its program focused on recruitment rather than sale of product to the ultimate user, thus rendering the program a pyramid scheme and a deceptive practice under FTC legislation.
In addition, the FTC has charged that Vemma is deceptive in its earnings representations.
FTC vs. Vemma Litigation Bullet Points:
1. (a) This case affirms the BurnLounge standard requiring emphasis on sales to ultimate users, which includes nonparticipant retail customers and personal use in reasonable amounts.
Primary motivation for distributor purchases should be destination to ultimate users and not to qualify in the plan for compensation.
(b) Contrary to some industry comment, autoship is not under attack, but rather the method of its promotion and implementation and amount, which suggests the primary motivation for purchasing is not for sales to retail customers/ultimate users or reasonable amounts for personal use, but rather to induce purchasing to qualify for commissions in the plan.
(c) A similar analysis is applicable to up-front fast-start packages.
2. The FTC alleges several accusations that Vemma is not complying with the BurnLounge standard, and, thus is a pyramid.
(a) Emphasis not on use or retail but purchasing to qualify.
(b) Distributors are told to give away product.
(c) Little evidence of retailing or emphasis on retailing or teaching or training to retail.
(d) Up-front emphasis on buying fast-start packs of $500-$600, plus sign up for $150 per month autoship to qualify for commissions, rather than service an actual need.
(e) The FTC asserts that the Vemma program emphasis was about distributor purchasing and getting recruits to do the same, rather than sale of product in reasonable amounts for the needs of retail sales and personal use by distributors.
(f) And the FTC no doubt had complaints from parents of college students, and parent lawyers, for targeting vulnerable college age students with promises of fast wealth from working “the system” of buying and recruiting. The FTC complaint focused heavily on accusing Vemma of abuse by target young individuals.
Clearly, this is a sore point for the FTC, and it has been a concern of some industry observers even prior to the FTC case. The last time this criticism was made was when Equinox and Trek Alliance were shut by the FTC for the same reasons.
In a way, this action is Equinox Redux.
3. The FTC does not condemn, nor attack the MLM model (nor personal use), but rather goes out of its way to call out Vemma practices, which it contends makes Vemma an illegitimate pyramid. (See the FTC press release and complaint for FTC’s highly perjorative characterization of the facts)
“…. an alleged pyramid scheme, Vemma Nutrition Company, that lures college students and other young adults with the prospect of getting rich without having a traditional 9-to-5 job.”
“Rather than focusing on selling products, Vemma uses false promises of high income potential to convince consumers to pay money to join their organization,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.”
4. Vemma is accused by the FTC of deceptive earnings claims, potentials and hypotheticals as to how distributors could earn substantial income.
Vemma published an earnings disclosure, but it was inadequate and deceptive to show the entire picture by limiting disclosure to earnings of active distributors rather than disclosing earnings of all individuals who signed up, of which the vast majority had no income.
5. Autoship: Rumors of its demise are exaggerated. In the future, autoship will continue as a form of orderly ordering … the legal key will be “tracking” how that product is consumed or sold to ultimate users.
After the Vemma case, all other cases will demand “tracking” evidence to determine what will clearly become cases that are “fact driven.”
6. As the FTC v. Vemma action unfolds, the outcome will be “fact driven” on the issue of “primary motivation” for distributor purchasing.
The FTC has made it clear that it believes that the facts show that Vemma operated a “recruitment” machine that targets college age students with promises of wealth for merely using the system to “buy and recruit” rather than “sell and use,” i.e., per BurnLounge, the product was incidental to the opportunity.
The FTC’s complaint does its best to present a factual picture that the Vemma program implementation and distributor purchasing patterns are dominated by “recruitment and qualify” motivation rather than sales to be used by “ultimate users,” whether they be outside retail customers or distributors for personal use.
7. Of course, Vemma will argue a completely different characterization of the facts. Vemma will be obliged to prove the opposite. The “facts” will determine the outcome.
If the FTC allegations on incomplete earnings disclosure are correct, the FTC has a point that merits correction.. But certainly not a shut down.
If the FTC is factually supported that distributor purchases are “dead ended” to garages and basements or given away, then there is a real pyramid problem.
However, if Vemma can demonstrate that distributor purchases actually make their way to “ultimate users”, whether retail customers or personal use in reasonable amounts, then the wholesale ordering mechanisms of fast start packages and autoship subscriptions are not really a challenge for pyramid analysis.
The entire direct selling industry has been offering fast start packages and autoship ordering for a half century. If product is making its way to a destination to be used by ultimate users, then a program is a legitimate direct selling/MLM program, and not a pyramid.
8. How will the facts play out?
Without extensive discovery, it cannot be determined at this stage. (Presumably, in its sealed filing, the FTC provided significant fact scenarios to support its position).
However, if extensive discovery is needed at this point, a temporary restraining order and preliminary injunction seem inappropriate on the pyramid issue, particularly for a company, Vemma, whose roots, including its predecessor company from which Vemma was “spun out”, New Vision, go back almost 25 years. Nevertheless, this is a reality of this matter.
Historically, the FTC has done a good job on the “fact gathering” even though it has been wrong on or misstated the state of pyramid law. (It was roundly rebuked by the U.S. Court of Appeals for the Ninth Circuit for its stated legal position that distributor “personal use” should not be considered in pyramid analysis.)
9. How long will this litigation process take? Had the FTC merely asked for injunctive relief and a preliminary injunction, Vemma would be in a stronger position to see through the litigation.
However, the fact that the court ordered an asset freeze and appointed a receiver, does not bode well for Vemma. And although a preliminary injunction hearing was set for a very short period of time after the temporary restraining order, case history suggests that most companies, including Vemma, are not prepared with factual testimony preliminary injunction hearing on short notice.
The net result is that companies often stipulate to continue the temporary restraining order for months while they gather evidence. And the remainder of the litigation may go on for months or years, all the while that a company is shut down and not in control of its assets.
Similar scheduling scenarios for companies such as BurnLounge, Fortune High Tech Marketing, Equinox, Trek Alliance, spelled a death knell to the future of those companies, all of whom became a “dead man walking”.
In the last two decades, MLM companies, which have been subject to a receiver and asset freeze at the commencement of FTC litigation, have not emerged “alive”.
If Vemma survives the process, it may be viewed by some as an outlier. Unless Vemma can immediately compile a mountain if evidence to refute the FTC fact allegations on “product movement”, it is more than an uphill battle.
10. Lessons learned for the future for MLM companies…and for which they should start “yesterday”:
(a) Track product to its final destination. Bottom line, is that companies should be able to document that product makes its way on to “ultimate users” and is used.
(b) Marketing emphasis should always be on product first, and opportunity second.
(c) Employ procedures to avoid inventory loading.
(d) Employ procedures to mandate and guarantee retailing.
(e) Do not make claims of wealth, fast wealth, easy money or sure fire systems, nor effectively invite the FTC to inquire into a program based on earnings hype and systems based on distributor “purchasing” rather than distributor “selling” and “using”.
(f) Do not boldly target demographic markets that the FTC might view as vulnerable to hype and abuse. Such groups may be young people or poor populations.
(g) Do not play fast and loose with earnings disclosures. To be transparent, always indicate the percentage of new sign ups who have no earnings, ie., what percentage of new distributors actually make any money.
In FTC vs. Vemma, who owns the facts?
BurnLounge set the standard for years to come. The decision in case after case, including FTC vs.Vemma, will be “fact driven”… is distributor behavior driven by product sales to the ultimate user or is it driven by recruitment?
In the end, he, who owns the facts, will prevail.
Stay Tuned.
There’s a lot to take in there, with the language used very lawyers (apologies to regular readers used to a more relaxed style of prose).
I do agree with most of Babener’s essay, taking exception however with the notion that Vemma needs to time to demonstrate retail sales.
Companies often stipulate to continue the temporary restraining order for months while they gather evidence.
Unless Vemma can immediately compile a mountain if evidence to refute the FTC fact allegations on “product movement”, it is more than an uphill battle.
Vemma was founded in 2006, and what’s more was a continuation of another MLM opportunity.
B.K. Boreyko is no stranger to the industry having tasted Amway decades back.
Am I thus the only one who has a hard time contending that Vemma needs time to gather evidence of retail sales?
Either they have them or they don’t. And any evidence proving their existence should be ready to go at a moment’s notice.
In any other industry sales are trackable and instantly verifiable via backend reports. Why isn’t the MLM industry held to the same standard?
If Vemma don’t have evidence of retail sales taking place good to go, then they don’t have them and are a product-based pyramid scheme.
The only outcome of delays, under the guise of “we need more time”, is the fudging of figures and manipulation of available data to wormhole Vemma’s way out of their current predicament.
That might work, it might not – but it doesn’t address the fundamental issue of a lack of provable retail sales figures.
If today, right here right now, Vemma cannot answer the simple question of “how much of your $200 million in revenue for 2014 was provable attributable to retail sales?”, then this already over.
They’ve had nearly a decade to track retail sales and subsequent revenue, with the only logical reason they haven’t being that Vemma’s retail sales aren’t significant enough to report – which plays right into the FTC’s product-based pyramid scheme allegations.
To that end I’ll leave you with an update from Troy Dooly, published earlier today:
Vemma Update – The legal team has been assembled and are now in place.
In order to present a strong case the team has requested additional time to prepare a strong case.
My understanding the additional time requested is one week.
I don’t believe any extra time is warranted, a week or otherwise.
As of next Thursday, the FTC lawsuit against Vemma will have been unsealed for ten days. Vemma can’t prove the existence of significant retail sales in ten days? How long does it take to run a retail revenue report and print it out?
Oh right, turns out “wink wink, nudge nudge retail” isn’t trackable.
Let’s get this show on the road already, and if Vemma can’t prove this existence of retail sales then so be it.
I have accepted most of it. I have covered many of the same arguments from a different perspective / different focus.
He has many more points than we have discussed. 🙂
vemma is not seeking time to demonstrate retail sales.
vemma is seeking time to prepare a case wherein it will try to convince the court that affiliates on autoship were buying for self consumption.
after the omnitrition dicta which declared that bonafide product sales could only be to outside retail consumers, the burnlounge decision came as a major relief for the MLM industry which recognized self consumption as a bonafide product sale.
now a ‘part’ of the MLM industry which depends on recruiting autoship sales, wants to push the envelope and make product based pyramid schemes legal.
not happening.
wonderful article by mr jeffrey babener, thankyou.
but, mr babener has not clarified his OWN view about autoship self consumption.
Very realistic and non-partial look at the laws and issues involved.
I agree with you, Oz, that Vemma should have been able to prove that “10 retail rule” and “70% rule” were being enforced and provide audited proof upon request. It’s obvious that Vemma (and most of MLM industry) was only paying lip service to ethics and such.
If Vemma needs “time” to prove retail, it has no retail, and is actually crafting a “narrative” where, as Anjali put it, “trying to convince the court that affiliates… were buying for self-consumption”.
But they will have a hard time of that, as their promo motto was “some to drink and some to share”, thus clearly the idea is “giving what you bought away (to qualify for commissions)”.
exactly. how do they do their taxes? lmao
“10 retail customers rule”
The problem with the “10 retail customer” rule is that it’s not about real sale of products to external consumers. Distributors don’t really have 10 retail customers, they pretend they have.
* If they have a downline, sales to people in downline qualify as sale to retail customer.
* If they don”t have a downline yet, they can get some family members, friends or upline to act as retail customers — some insignificant amounts will qualify as sale.
The last method can still be used if the rule specify “external consumers”. It’s always possible to find people willing to act as consumers for a small gift.
“70% rule”
The problem with “70% sale or consumption” rule is that distributors produce false statements, pretending that they actually have sold or consumed huge quantities — just to qualify for commissions.
They usually manage to sell it or give it away later, but that’s a different story.
The company can then use those false statements against them when they try to return unsold goods, i.e. the company will only cover refund for 30% of the products.
“Buyback policy”
The problem with buyback policies is that they often have restrictions, e.g. they may only cover products ordered directly from the company.
So they don’t work if people order products from upline.
RESULT
Companies will get false documentation “proving” a healthy retail sale.
Return of unsold products will be heavily reduced.
THE MAIN PROBLEM
Those rules were designed by Amway in the 1970-ies, not for the purpose of consumer protection but to disguise the recruitment driven model.
They haven’t been designed to solve a problem but to disguise it, to protect the company but not the distributor.
When those 3 rules are combined with NDA agreements, then people can’t complain about it either. Critical blogs operated by former distributors will be sued.
CONCLUSION
“Amway rules” simply cannot be recommended as a solution. They can easily be used to harm the distributors / protect the company from lawsuits and regulatory actions.
I am the only one who finds it ridiculous to try to prove retail sales when it’s not the intention of the affiliate to be a ‘salesman’ in the first place.
To back up my claims with external sources …
AlJazeera:
(new topic, but related to the same)
AlJazeera (same source):
The weakness in that one is that it’s all from one single original source — “The Revanchist” (YPR Pariah blog). I usually back up with multiple sources.
Some of his claims are probably “Vemma specific” = not representative for MLM companies in general.
AlJazeera (same source, same topic):
You’re not the only one. 🙂
But those rules actually have a function, “when used in the right way” from a company’s point of view.
They will increase profit, reduce refund costs, reduce the number of complaints from dissatisfied distributors, protect the companies from lawsuits and regulatory actions.
well…..yeah. that’s why they can’t do it. lol
interesting to see they seem to think that no one would have sat through any presentations for sme first hand knowledge.
The “external customer vs. internal consumption” issue.
One reason for why those Amway rules can be used to disguise a problem rather than to solve it is that there’s no legal difference between “internal consumption” and “external consumption” (no legal differences for the consumption itself).
Purchases from upline can be genuine, consumption motivated purchases, or they can be motivated by the right to earn rewards. There’s no way to tell the difference without closely analysing motives, “reasonable amounts”, “purchase patterns” and similar factors.
It certainly cannot be proved by looking at law theories, compensation plans, terms and conditions. It can be detected but not proved. A reasonable person will accept methods like that, but they won’t hold in court.
“Consumption”
It will be rather ridiculous to believe that Vemma distributors drink Verve in a different way than normal consumers. And if they do, it won’t make any legal difference anyway.
“Reasonable amounts”
Vemma distributors may have a much higher consumption of products to a much higher monthly price than normal consumers. That may make a legal difference, but it will not prove anything in itself.
“Opportunity + product”
There is a legal difference between “100% product” to external consumers (no income opportunity attached) and “monthly qualifying purchases” by internal consumers. It will not prove anything in itself — a “qualifying purchase” CAN be motivated by legitimate consumption motives.
“FACT DRIVEN”
There’s no way to tell the difference between reward motivated purchases and normal consumer purchases without closely analysing relevant facts.
Reward motivated purchases can easily be detected, but may be extremely difficult to prove in court.
Backing up my previous post with external source …
The post started with “internal vs. external consumption”. There are some legal differences, but it will be extremely difficult to prove any “illegitimate, reward motivated purchases” (don’t read that too literally).
The post ended up on “fact driven”. Jeff Babener focused on “fact driven” multiple places in his article, so I can refer to that article as an external source.
In my version, it simply means that “Not all MLM companies operate illegal pyramid schemes. For a court to be able to determine whether a business plan involves an illegal pyramid scheme, the court must look at how the company operates in reality” (from memory, BurnLounge appeal).
In reality = it must be based on identifiable, relevant facts.
It normally means the type of facts recognized by Federal Rules of Evidence.
That’s the correct legal standard. MLM companies are presumed to operate completely legitimate businesses, and most of them probably do (until the opposite has been proven). They deserve the same level of fairness, respect and protection by the law as any other company or individual.
Adding a source for Federal Rules of Evidence …
federalevidence.com/rules-of-evidence
I analysed “something” in a Herbalife thread in March 2014.
Post #10 Wikipedia, overview
Post #11 FRE Expert witnesses
Post #12 FRE Relevance of evidence
(Post #11)
behindmlm.com/companies/herbalife/ftc-herbalife-investigation-they-had-it-coming/#comment-225523
SHORT EXPLANATION
What I checked in March 2014 was partly related to TelexFree. I tried to look into potential defense strategies and methods, e.g. the function of expert witnesses.
I actually looked at the judge, “what the court seemed to accept“. There’s no point in having expert witnesses if the court doesn’t believe them.
I don’t really focus on rules. I focus on the decision makers and what they can accept / how they make decisions.
Then what is an affiliate? An affiliate in affiliate marketing pulls in customers to order from the main company/site. S/he is marketing, and thus is a “salesperson” by definition.
If it is NOT their intention to sell, then they should not have joined as affiliate and be participating in the comp plan, and just order the drinks FROM the affiliates who recruited them… without joining.
If they joined, clearly they intend to benefit from the comp plan.
there is a video up on vemma attorney kevin thompsons page, by a certain richard bliss, which takes deep affront to the fact that the FTC wants network marketers to ‘peddle the products’ instead of ‘building their network’ and ‘compounding’.
according to him this is because the FTC are just people with jobs, who do not understand network marketing.
even troy dooly has a strange request of the DSA/FTC/govt:
neither richard bliss nor troy dooly mention the fact that network marketing/MLM is a ‘Mechanism For Selling Products via Multilevel Distribution’.
the fact that they don’t address this, but concentrate on ‘compounding’ and ‘recruiting’ show where their priorities lie, and when guys like these talk to the MLM public they transfer this thought process to them.
i think both sides need to get their butts kicked. people who over glorify retail and treat recruitment as a bad word, deserve a kick.
people who ignore the products and their retail but go on and on about recruitment, should also offer up their ass for a kick.
the burnlounge appeal order is such a ‘Buddha’ order, offering a middle way for both sides of the argument.
the industry should build on that, instead of throwing tantrums like a spoiled child.
‘we want vemma’ is not a good legal argument, considering that vemma is a product based pyramid scheme. bliss, dooly, and vemma affiliates are not addressing the pyramid issue at all.
Richard Bliss Brooke is a veteran MLMer… Who had gotten OUT of MLM.
He has a brand, I think it’s OxyFresh and he has an organization around it and him getting out of MLM was a big deal not too long ago, few months, maybe a year.
The problem is is MLM had lost the focus on retail sales. There needs to be a balance between the “multilevel” vs. “marketing”. MLM lost that balance long time ago.
Building an organization with nothing sold (except to self-consuming salespeople) is NOT a business. It’s inventory loading pyramid scheme.
i hear you norway. a long time back on a herbalife thread, i had also raised doubts about the efficiency of these rules, and the difficulty in accepting their veracity because they can be fudged.
but if not this, then what? can you suggest better rules to prevent MLM from deteriorating into product based pyramid schemes?
also, our belief that millions of MLM reps across the world, are all liars and cheats, who sit around creating false sales data, may not be a fair interpretation. such a viewpoint may be a reflection of our own cynicism, rather than the actual reality out there.
at the moment, we have not been able to create better safeguards than the amway rules, so while we wait for better solutions, its better to temper our cynicism with some faith, and run with it! 🙂
@K Chang
Richard Bliss Brooke is the founder of his own MLM company called Life Shotz.
Babener the guy who advised Telexfree? hes now an authority?
Amway Safeguard Rules are simply unenforced. Seem to recall that Herbalife was under a consent order with State of California to keep retail figures. Don’t believe they ever complied. FTC doesn’t really have enforcement powers besides launching lawsuits / complaints.
Koscot and Omnitrition criteria can be bypassed, muddled, bent, and so on through modern product-based pyramid schemes.
The Koscot criteria are:
(1) A scheme, plan or program;
(2) For which a participant paid money (or something of value) to join;
(3) For the right or chance to get paid with money (or something of value)
(4) Which is contingent upon the introduction of additional participants into the scheme, plan or program (see 1) who also paid to join (see 2).
(1) is easy to muddle by naming it all sorts of things, profit sharing, affiliate marketing, etc. as well as “free affiliate option”.
(2) is often “bundled” with the starter kit to disguise the purchase.
(4) is often obfuscated with complicated formulas, tree structures, point values, and so on.
Same address as OxyFresh. THey’re both his.
Nope, but those rules only makes it more difficult to detect the bad ones. And I actually do believe that the majority doesn’t have 10 real retail customers (external ones, profitable sales).
I pointed out specific problems, and when combined with NDA and other signed agreements will be harmful to most distributors.
A 10 customer rule is meaningless. It has most likely never worked as pretended. It will lead to that distributors will be required to purchase products each month (so some other distributor can generate a “sale”).
Thanks Oz,
The full article on Vemma as posted August 31.
mlmlegal.com/vemma%20v%20ftc.html
Vemma vs. FTC
Guidance for the Direct Selling Industry
Welcome to the Future
By Jeffrey A. Babener
© 2015
thankyou mr babener for a very informative and educational article.
instead of blabbering about ‘how great vemma is’ on social media, vemma affiliates should read this article to know something about the industry they work in.
troy dooly may need some education too, before he offers his opinions to MLM reps:
that’s inaccurate information about burnlounge. burnlounge had two programs 1] independent retailer 2] mogul program.
no judge in the burnlounge case reversed any TRO.
the mogul program was alleged to be a pyramid scheme and shut down.only the lower independent retailer program, which was not alleged to be a pyramid scheme, continued and failed very quickly:
in the case of vemma, the entire scheme is alleged by the FTC to be a pyramid scheme. there is no ‘distinct part’ that can be allowed to continue, so mr dooly is stringing affiliates along with some false hope.
@Jeff Babener
Thanks for the article. It was exactly what we needed in the long term, something based on real experience rather than on theories.
I was looking for something like that, but I didn’t know exactly what I was looking for. So I spent some time trying to recognize it first.
Most people were probably looking for something different, e.g. for bright line rules and how they work, focused specifically on the ideas they already have accepted about “how things work”.
You offered much more than that. And that can be very useful in the long term.
there is one point in mr babeners analysis, i cant Get.
he advises MLM companies to:
i understand that product can be tracked. i understand that the ultimate user can be located. but HOW does one prove that the products is being USED/CONSUMED?
for instance, in vemma, the affiliates can be presented as ultimate users who purchase on autoship for self consumption.
how do we know these affiliates are consuming the products and not pouring them down the sink?
if the motive [provable by facts] for affiliates buying the product is self consumption, it can be assumed that they are consuming the product.
however the converse is impossible to prove.
how does one prove affiliates are consuming the products, and hence the motive for purchase was self consumption?
My position is that MLM is, in and of itself, a product based pyramid scheme. Therefore, it can not deteriorate nor improve.
When this point is accepted, you get answers as to why people, such as Dooley and Bliss, do what they do. Why companies can’t produce proof of retail, why so many scammers are involved, why recruitment is the focus.
well, ‘this point’ is not accepted by the courts, the SEC, the FTC, the lawmakers, because they consider MLM to be legal.
i agree that on the face of it, people may muddle MLM with product based pyramids because they appear pretty similar.
but people who can read and interpret articles like mr babener’s, will understand what it takes to distinguish MLM from illegal pyramid schemes.
that said, you are absolutely entitled to your opinion, and if you think MLM is bunkum, that’s fair enough and your view is welcome.
Yes MLM is legal. I am suggesting that it doesn’t work, practically and logically, if the law is followed.
In order for MLM to function, it must operate as a pyramid scheme. If it follows the law, it would cease to exist.
I was a little vague in that post …
I have been testing short quotes from the article as part of discussions in two other threads. Those discussions haven’t been specifically about Vemma, but about how to prove pyramid schemes in court.
BurnLounge indicated a lengthy process based on evidence from both parties to be tried in court, not a quick “The law says …” process based on bright line rules.
So the vagueness was related to that. I was still testing how to include parts of it in my own comments as a “tool”.
to test whether something can work ‘practically’ one must observe it in practice.
if by ‘practically’ you mean it is not practical to engage in MLM, because most will not make an income, there is truth in that. but many make small to medium incomes, and MLM can work in practice.
my own observation says MLM can work practically within the law. i see self consumption and i also see retail. i know my personal experience is not a measure of ‘facts’ but neither is your assumption that all MLM are only product based pyramids.
to test whether something can work ‘logically’ we must check for flaws in the logic.
using MLM products at a discount, referring it to friends and family, recruiting a distribution team under yourself, seems a pretty logical enterprise to me. i do not see the logical flaw.
just because a lax self regulatory environment, has caused many ‘intended’ MLM to stray into product based pyramid areas, does not mean MLM CANNOT work within the limits of the law.
The flaw is in the method itself. It’s too vague to be tested logically, so you haven’t tested it that way yourself either. You have made it untestable, i.e. you’re trying to mislead yourself and others.
“I do not see the logical flaw” isn’t a good tactic. It will only say something about what you personally can see, e.g. “Stevie Wonder didn’t see any flaws when he looked at my explanation”.
If you use it too often, then people can use it against you, e.g. “Anjali didn’t see any flaws, so it’s probably pill rotten” — as a negative quality standard.
QUESTION
Can you show us that it actually can work in reality, e.g. by adding some substance to your theory?
Substance = a company, a payplan, a product, a number of distributors, a number of customers, any other relevant factor you like to include. Try to make it realistic but simple.
The only thing the method tested was some random but related ideas, and that it seemed pretty logical to you. 🙂
The conclusion in your reasoning was “seems a pretty logical enterprise to me”. You didn’t really test anything of importance. You didn’t answer the “can’t work” question either.
Flaws:
1. You failed to identify clearly what you tried to test. It pretended to be a test about whether MLM can work practically and logically if the law is followed. But it wasn’t.
Since the first element failed, it will be meaningless to test other elements.
What it DID prove is that people can accept all sorts of BS if it looks favorable enough to what they truly want to believe in.
to cut your [long] story short,
as long as the lawmakers, the FTC, the SEC and the courts Believe that MLM is a viable legal business enterprise, which works practically and logically, i shall treat your premise as merely argumentative.
i will humor you, no doubt, but your’e mainly like – blah.
if you go back to my posts from long ago, on herbalife threads etc, i’ve always felt MLM based on buying club ideas [with consumer protections] are the best.
the FTC today, with its attack on autoship based MLM opportunities, seem to be guiding the industry in the same direction.
it’s back to the amway model.
This Amway model?
“Buy from yourself, and teach others to do the same.”
I simply TESTED your explanation logically.
You suggested that method yourself. 🙂
Then you should probably stick to that argument? “Regulators and courts see MLM as a legitimate business model that can work practically and logically”.
The other explanation was really confusing. It didn’t make any sense at all.
Lawmakers, SEC, FTC and courts wouldn’t have supported that one.
I believe that idea repeatedly was shot down? 🙂
I haven’t managed to come up with any solutions that can work either.
Illegality is normally about harmfulness to individuals or to the society as a whole. It doesn’t make much sense to shut down something that actually has a useful function.
I believe the focus should be on that idea. “Make sure it has a useful function, and that it will be seen as not very harmful by a reasonable person”.
you are very kind sir.
my idea was not only repeatedly shot down, i was friggin Thrown Out of this site! 🙂
no, not your interpretation of the amway model, but the courts interpretation of it in circa 1975.
the court found that amway emphasized on the selling of products, had reasonable consumer protections, and was not doomed to collapse because it was not an endless chain.
the court found that amway products were fairly priced and had market demand.
amway had non commissionable recruitment, and only 25% distributors had any inventory purchase requirements.
To M Norway:
Thanks for the kind comments:
Probably, my next couple analysis articles will be on two subjects:
1. Paying commissions on product intended for give away/sampling. Is this product really a sales tool.
Is this, aka BurnLounge payment on sales tools?
2. Is a program with 100% distributor purchases, in reasonable amounts,for personal consumption, a legitimate MLM in which primary motivation is product and not recruitment?
Is the deciding factor on motivation that product is purchased in an amount that is reasonable for one month of personal/family use.
To some extent, this is an approach of some consumable buying club MLMs… The FTC seemed to endorse buying club MLMs in its 2004 Staff Report Opinion on MLM… ie., no inventory… All purchases, autoship or otherwise, are in the capacity as a customer.
All distributors sign a separate agreement and the only thing they can buy is an at cost sales kit… And then they enlist customers, who wear a separate hat, to purchase direct from the company in discrete orders or autoship, There is no inventory and no fast start inventory packs.
Will post at Mlmlegal.com and in e newsletter at MLMnewsglobal.com
No, in my view 100% internal consumption, cannot be a legitimate MLM for these reasons [i may add more reasons later]:
1] how can a qualitative decision like ‘reasonable amount for self consumption’, be decided by a court with Such Finality that it can be the basis of legitimacy for a self consuming MLM?
‘reasonable amount of self consumption’ of Anything will be dependent on many factors such as age, sex, biology, income level, family size etc of Individuals.
so, how can some ‘reasonable amount’ be arrived at, with a high degree of Correctness?
2] how can you clearly interpret the Motivation of a consumer when the product and income opportunity are meshed together? motivation is a qualitative idea, without some Hard Facts for guidance how can anyone decide the motivation?
a consumer can be Motivated to purchase a product for it’s value, no doubt, which brings us to the next point:
3] in a 100% self consuming MLM, What is the Test for determining whether the product has any real value or is fairly priced?
an MLM can sell a coffee, much higher than median market rates, and claim that their coffee has a unique mushroom ingredient that makes it special. how can such a product be tested for its ‘value’ without any sales outside the MLM?
most MLM claim to sell ‘unique’ products, which will make quantifying their value a nightmare for the regulators and the courts.
4] the 2004 FTC letter to the DSA, while endorsing buying club MLM’s, commented sharply against autoship. mandatory autoship in any kind of MLM, buyers club or not, will take MLM very very close to product based pyramid schemes.
5] WHY does the MLM industry desire mandatory self consumption autoship? Why does the MLM industry desire absolutely no retail requirements? is it that the industry does NOT desire to Sell Products either internally or externally? is it that the Motivation is easy money? IMO, the MLM industry is not special, that it can demand a private world, free from real market functioning.
6] the amway model, seems like a good solution, it requires no set percentage of retail and embraces self consumption. let’s run with that!
“Buy from yourself, and teach others to do the same”
This is not my interpretation. I was quoting one of Amway’s mottos to it’s affiliates.
Vemma:
“Give away / sampling” was a tertiary function = not very important, and impossible to prove = “sales tools” won’t be used as an argument.
Autoship had two functions:
* product purchase for consumption “drink some and share some”
* potential “pay to play” consideration
My idea of “sales tools” is something like this (example):
I will simply look at how it can be used, the primary function of the product, and whether it realisticly can be sold in retail to consumers.
BurnLounge’s products were described like this, as “incidental”:
Didn’t Amway shy away from that back in 2000’s? All those Amway Support Organizations were really dragging Amway into a bunch of lawsuits…
But further, allowing such items, mandatory or not, as “business expense” would only encourage other companies to push e-items, such as Zeek Reward’s “bids giveaway” ploy to disguise their Ponzi scheme.
It also seem to easily conflated with “product-based pyramid scheme” where products were used to disguise movement of money.
Omnitrition case had Omnitrition telling Weber et all to GIVE AWAY $1000’s of vitamins every month to participate in comp plan. Isn’t that just a way to create “fake sales” in order bypass the Amway safeguard rules, i.e. 10 retail and 70% reorder rules?
Should those people be in “preferred customer” plan, and thus, CANNOT be compensated by recruiting, thus ensure they CANNOT be even ENTICED into doing so?
Allowing companies to reclassify distributors as customers and vice versa, such as what Vemma did (and a certain other company whose name start with “H”) just encourages them to “massage” the numbers any way they see fit. If they didn’t recruit (enough) they’re a customer. If they recruit enough they’re a distributor, is outright cheating the system.
AMO Amway Motivational Organization is still alive, according to a “lead capture page” with a Top 20 list of the international AMOs.
onlinemlmcommunity.com/the-top-20-amway-motivational-organizations-systems-and-lines-of-sponsorship/
You will most likely find relevant answers on his website.
mlmlaw.com/law-library/guides-reference/multilevel-marketing-primer/
A few answers from me, not based on his website.
High degree of correctness isn’t really needed. A court can’t make any decision based solely on that factor anyway.
“Reasonable amounts” = “what a reasonable person will see as reasonable consumption for an average consumer”. If relevant, make adjustments for vulnerable groups of consumers.
It will normally be reflected in other parts of the business practice, e.g. in the marketing. “The primary focus of the business as a whole”.
And courts do actually accept reasoning of that type.
A court will not need to clearly identify the motivation of the consumers. It has rules in place for how to determine “what’s right and what’s wrong”.
Presumption standards:
legal-dictionary.thefreedictionary.com/presumption
I can answer that one too …
You’re correct. MLM is just like any other business, and will need to follow the same rules.
You may find some state rules specifically designed for MLM (I believe you have linked to Louisiana rules one time) — but rules like that exist primarily because of lobbying activity and they don’t really change anything (they specify some minor details).
The two first questions there will be impossible to answer. They are business questions, not legal questions, and they are about what other people prefer and desire.
The third question is about the same. The fourth question is about motives. The answer to that one is “yes, easy money or higher profit may be the motivation”.
Another relevant set of rules is “legal burden of proof”
en.wikipedia.org/wiki/Legal_burden_of_proof
en.wikipedia.org/wiki/Legal_burden_of_proof#Legal_standards_for_burden_of_proof
.
Hoping someone will answer this:
If I have a preferred customer paying the wholesale price, how much money do I make on the sale?
Pick any product. Verve? Laundry soap?
Normally you won’t make anything. Compensation plans are not designed to reward that type of sale, they are designed to reward you for purchases in your downline.
The more consumption among people in your downline the more money you will make.
The preferred customer has a different function. You will not make any money on them, but you will get rid of some of your own inventory and you will create a real sale. It will look nice in your customer to affiliate ratio if you can add a real customer like that.
The general question, “a product specifically designed to give away as samples”, will make the product a sales tool = not a valid sale / not commissionable / not a source of profit for the company.
It’s a fake sale. The one who designs an idea like that will not feel very comfortable defending it in court.
Vemma’s products were not sales tools. They were real, consumable products designed to be consumed (or whatever people like to do with products). FTC will not use “sales tools” as an argument.
BurnLounge was a different case. Some of the products probably had some retail value, but the purchase pattern revealed that Moguls primarily paid for the opportunity to earn rewards.
as far as i can see, the BFYATOTDTS methodology was dropped many years ago, around the time that amway got into trouble in the UK?
amway today, provides free product and retail training to reps, according to posts on the net.[i have purchased amway products at retail, and i am not a heavy duty shopper, so i assume amway retail does exist]
also, i am referring to the amway ‘model’ which was interpreted by the court in 1976, to NOT be a pyramid scheme.
i am not giving any blanket approval to the amway ‘company’ and whether it follows it’s own model, or has fallen off the wagon, at different points in it’s history.
the amway ‘model’ as it stands by itself, is what i see as a good model for MLM. non commissionable refundable membership and no inventory requirements. emphasis on selling products outside and inside the MLM, without emphasis on any autoship.
troy dooly has put up a great video today on his FB page [cant copy it].
basically, he’s advising MLMers to tone down on the Bling.
he says not to focus on cars and watches and lavish lifestyles, but use the MLM opportunity to create incomes for education health and family security.
he says people should stop jumping from opportunity to opportunity, but stay and build.
he says the focus should go back to the products and selling and building teams.
he says a lot of other good stuff too, check it out on his FB page.
i guess the MLM industry gets a bad rap, because of they way it projects itself, as a bunch of loud mouthed, pushy, flashy people.
time for re-packaging and re-marketing! the MLM industry is just another way of earning a livelihood. why should it dress up like a rascal and swagger around?
great job mr dooly!
I don’t think there is any such test. “Fair value” is simply an IDEA, similar to “reasonable amounts”, “reasonable person”, “average consumer”.
Sale outside a network doesn’t really prove anything about “fair value”. It can be one of the indicators, but not a determining factor.
It can actually indicate the opposite if you combine it with the right set of facts, e.g. a high number of consumer complaints can indicate that the consumers outside the network have been the targets of a deceptive trade practice, while the affiliates inside the network have profited from it.
Sale outside the network doesn’t prove anything in itself. It must be combined with other factors before it can clearly indicate a fair value of the product.
“Fair value, reasonable amounts, etc.”
Ideas or standards like that can be highly useable if you apply them correctly to a set of facts.
Everything can’t be measured in exact quantities or be calculated mathematically. But they can be relevant anyway, even if they cannot be determined with a high degree of certainty.
A court will fail its duties if it ignores relevant factors and focuses solely on factors that can be measured exactly. So those vague methods do actually have an important function.
@Anjali
You have got answers to most of your questions in post #40. It won’t be any easier for Jeff Babener to answer them either.
The questions were relevant enough in themselves, e.g. there’s nothing wrong in asking questions about “how can some ‘reasonable amount’ be arrived at, with a high degree of Correctness?”. I identified a few not-so-relevant questions too, and they didn’t get any answers.
i think we both agree that a court cannot deem a 100% self consuming MLM legal, just because distributors are purchasing ‘reasonable amounts for self consumption’.
i think we both agree that motivation of consumers can be understood by examining the business a whole. and when the business is examined as whole, a logical question which arises is how come people are only interested in buying the product on commissionable autoship and not otherwise?
thus mr babeners question:
is a vague premise. motivation cannot be decided on the mere fact that the purchase is in reasonable amounts.‘Reasonable amount of self consumption’ does not provide enough information to decide motivation.
We can agree on that reality. MLM doesn’t really work that way in its current shape and form, it’s heavily focused on “Selling the Dream”. But Jeff Babener focused on the legal aspects only, that it CAN be legal.
It will not generate much income for distributors, i.e. they can’t inflate prices so they can be able to reward recruitment. Reward sources will need to be found in cost reductions rather than in inflated prices. The focus will need to be on consumption rather than on rewards — just like any other buying club.
Buying clubs actually do reward members for bringing in other members, e.g. book clubs may offer books as rewards. Or they may offer other types of rewards, but the primary focus isn’t on the rewards.
Jeff Babener will primarily focus on the legal aspects, how HE sees it as an attorney. So he’s probably interested in whether others see it in a similar way.
I didn’t understand that one.
I follow the idea that “to be able to understand details, you must first understand the whole”. I don’t really “follow” a rule like that, I will usually apply many different methods, and that’s one of them.
Motivation of consumers or distributors will not only be reflected in purchase patterns and autoship orders, it will be reflected in other parts of the business too. The emphasis of the whole business will be on recruitment rather than on “reasonable consumption”.
Motivation of consumers is a small part of it. A court must analyse that part too, if any of the parties bring it up as a part of the evidence.
Vemma will be interested in proving “normal consumption among consumers” as a part of its defense arguments. FTC will try to prove the opposite, that consumers bought those products so they could receive the right to earn potential income.
I am tired of all this talk about Internal Consumption vs Retail vs Recruiting.
Let’s lay the cards on the table and at least agree to a few key points. IMO, this is why the MLM Model as it has been sold over the past 40 years is NOW Broken.
I believe that MLM was once a legitimate Business Model.
There was a time when the average person was limited as to where they could shop and that gave the retailers the advantage (supply and demand). If you lived in the country and old Joe at the Local Chat n Chew didn’t carry a certain product or brand, you either ordered it from the Sears and Roebuck catalog or you did without it.
In the larger cities, the department stores and chains dominated retail and they could keep the prices higher due to lack of competition. Some say that Penny’s and Sears competed with each other but still maintained great margins (price fixing comes to mind) for the benefit of the other.
But that was before Walmart, eCommerce, Costco, Sam’s Club and China entered the picture.
Today, Amazon can deliver products at a fraction over actual cost. Walmart was one of the first companies to buy products using Chinese labor. Show me a company that is growing who is still maintaining the margins they enjoyed back in the ’80s or ’90s.
Brick n Mortar companies go out of business everyday and at a higher rate today then before. There seems to be room for ONLY ONE Brick and Mortar company in each category.
Best Buy is still around but almost all of the other competitors are long gone (Circuit City, CompUSA, etc).
WHAT IS THE POINT?
POINT #1 – – MLM ADDS COSTS TO THE DELIVERY OF ANY PRODUCT. PERIOD!
I could explain how this is the case but I believe most everyone already understands.
If MLM Products are OVERPRICED, the average person is not going to have success selling them to a friend.
POINT #2 – – The truth is most people do not see themselves as sales-types.
If the products are overpriced and most people are not sales-types, how are these companies growing their sales?
SIMPLE!
POINT #3 – – SELL THE OPPORTUNITY. But remember, most people are not sales-types. With the MLM Model, that doesn’t matter. Just teach your downline to be Professional Inviters (that’s what the Pros call it). Just invite your prospects to our meeting or conference call and we will recruit them for you.
I would estimate (not just a number pulled out of the hat either) that over 50% of the typical MLM company’s monthly sales comes from the INITIAL PURCHASE of the newly recruited distributors. I hear that number is as high as 80% with some MLM companies.
Then, add autoships to lock in the residual income for those at the top and you have the current MLM model of doing business.
And, as OZ (and others) has pointed out many times, this equates to nothing more than a Product-driven Pyramid Scheme.
And finally – – POINT #4 – The Professional MLMer
In the old days, people were advised to keep their Full-Time Job until their Part-Time Business was generating enough money to quit. This allowed the distributors to BUILD WITH INTEGRITY, HONESTY AND WITH STRENGTH (focus on retail).
Since the majority of the sales force was part-time, they could focus on retail customers and teaching others to do the same. It took longer to generate any meaningful income but that was ok since they were taught upfront to give it 5 years minimum. Yes, 5 Full Years!
WHAT CHANGED?
A large number of regular folks joined MLM with companies like Excel, NSA and Quorum. Tens of thousands of honest, hard-working folks joined the MLM industry and built up Full-Time Incomes with each. When these companies eventually went out of business, these distributors had to quickly build their incomes back to a level where they could afford their newly acquired lifestyle.
SOLUTION? Recruit all of the other Full-Time distributors who just lost their checks too.
If you were an MLM company that was just starting out, how would you build your distributor base?
Would you do it the old way….slow and steady, or simple recruit the leaders away from their current deals with the promise of upfront guarantees, stock options, infinity bonuses, leadership positions, inside placement deals, speaking fees, fly-in reimbursements …..WHATEVER….fill in the blank.
We know the answer to that question.
The end result is Top Distributors have cut their time frame (for success) down from 5 years to about 5 months or less.
So, unless the FTC makes the decision to allow for selling THE DREAM ALONG WITH OVERPRICED PRODUCTS, the industry is basically like a Tree where the roots are dead but the leaves don’t know it yet.
Any questions?
I linked to Babener’s “MLM primer” article in post #46. That was my primary answer to your post. My other answers were “additional answers”.
Jeff Babener is first of all an MLM attorney. He will primarily communicate through his own website, e.g. by posting blog articles about relevant legal questions. So he’s not really here to answer detailed questions / engage in lengthy discussions.
His Vemma article was probably a TEST, e.g. a test to see whether “other parts of the market” could be interested in that type of legal analysis / quick overview of the case.
“Other parts of the market” includes us. We are neither clients nor attorneys, but we can create a lot of “noise” in the market.
As a test, any type of feedback may be relevant, as long as people post genuine questions or comments. But it doesn’t mean that he personally should need to answer all types of questions or reply to every comment. He’s probably more interested in the TYPES of questions than in the details.
It means that you will need to accept answers from me. Some of your questions are rather “risky” for a lawyer to answer, because the answers may be different from case to case.
interesting post.
the first part of your post, comments chiefly on the changing of the market over time, but i did not see any direct relevance to MLM.
of course competition has increased, but the size of the market has also increased, consumerism has increased, disposable incomes have increased, consumer demand for choice has increased.
disposable incomes have increased, in part , because manufacture and supply of competitive products create new jobs, creating incomes to be disposed in the market. so, demand and supply chase each other’s tail.
long ago there were fewer MLM’s and fewer people involved with MLM selling. now, MLM has increased the number of MLM sellers has increased, but the market has got more depth and reach too.
by your view, now that amazon ships stuff cheaply to customers, there should be no requirement for offline brick and mortar selling anymore. if costco exists then an upmarket sears cannot exist profitably. this is untrue, because people have different choices, shopping habits and budgets.
of course, increased competition means that weaker players will get chased out of business. but businesses have failed from from the beginning of time. if more businesses are shutting down today, it’s probably because there are so many businesses to start with.
you have no ‘facts’ to show that just because a face cream is available in costco, no one will buy a high end face cream or an MLM face cream .
you are using a ‘common sense’ approach, but people don’t shop or consume based on commonsense alone. consumerism is about ‘feel good’ factors too.
in the vemma italy case, italian regulators found that 20% of income came from the initial [joining package] purchase, and over 60% income was generated from autoship packages.
your information may be faulty.
i don’t think that people today are told to quit their jobs the moment they join an MLM either? if anything, people today are more informed and less gullible than people of older times, and will not give or take such silly advice easily!
what does working Part Time have to do with retail sales? in fact, a person who has less time to work at MLM, will spend more time recruiting than retailing, because recruitment can create more income with less effort?
what you should say is that the Focus has changed from retailing to recruitment. it has nothing to do with people then or now, or part time and full time efforts.
IKEA? I don’t think the margins are exactly the same as in the ’80s or ’90s, but the concept itself is based on the same idea.
A market can be divided into 3 parts:
* High end, less sensitive to prices
* Middle part
* Low end, very sensitive to prices
Most companies will try to overlap two parts, e.g. “medium to high” or “medium to low”. If you look at “medium to high” parts of the market, the margins will be relatively unchanged.
I only looked at “price sensitivity”. Consumers will normally move upwards in the market, from low to medium when income increases / they have got tired of chasing prices.
anjali – Most of what I said came right out of Sam Walton’s books on the subject of retail. So, I will not debate what he proved long ago about the trend in retail.
<<<<<<<<<<<<>>>>>>>>>>>>>>>>
Bottom-line: I laid out the simple reasons why MLM companies are now working with a Broken Model. Overpriced products don’t sell in this economy especially since anyone can search the price of ANY product with a click of the mouse.
I didn’t say ALL Brick n Mortar stores are going out of business. Well, a lot of them did. Have you checked out the many vacant stores in strip malls recently.
I did mention that there is only room for ONE winner in each category and used Best Buy as an example.
Did Vemma have the high buy-ins in Italy? AFter an MLM company has been around for awhile, the auto ship volume will become a higher percentage of overall sales, of course.
However, we are talking industy-wide, most of them do not reach that stage.
I was expecting you to get most of what was posted.
MLM adds cost to the delivery of the products and that will not work today. But of course, MLM is not about Retail Sales is it? That is the catch-22 of it all.
Vemma (and most MLM companies) has a problem. That problem came under scrutiny once the FTC responded to the many complaints filed over the College Campus Marketing fiasco.
MLM Companies are fine as long as they fly under the radar. However, once their organizations/sales reach a certain level and the complaints become significant, the FTC will investigate. And when they do, they typically don’t like what they see and take action.
Vemma and their distributors are in denial about these facts. I know there are some who actually know what I posted is true but are so invested in the model that they cannot get out. The addiction to quick, easy money and the thrill of the chase is just that strong.
Norway – I was mainly referring to the products that are typically sold through the MLM model: energy drinks, diet, skin care, household cleaners.
The cost of getting a product from manufacturer to consumer is much higher with the MLM model than with other retail methods.
That is my statement. Would you agree with it?
Let’s start there.
Norway – I did a quick search for “Ikea Profit Margins” and found this:
CUT price on thousands of items by as much as 50% –
In other words, with the worldwide economic slowdown gaining momentum, price is KING.
Correct. The MLM model is “outdated” in many ways. It doesn’t have the same function it once had in distribution of goods to consumers. It’s primary function now is to “Sell the Dream” to an endless chain of inexperienced income opportunity seekers.
But high price alone isn’t the only problem. Consumers can generally accept a wide range of prices. But one thing they can’t accept is to be seen as an unimportant part of the business — the lack of consumer focus.
behindmlm.com/companies/total-life-changes-shipping-delays-acceptable/
I’m not familiar with that local price war. Price wars last for some time before it returns to normal. They will often result in a new range of products designed specifically for that situation.
IKEA pay 3% royalty to a Swiss foundation ING-KA (or it did it earlier), so the margins are actually higher than the official ones.
en.wikipedia.org/wiki/Ingvar_Kamprad#Stichting_INGKA_Foundation
Smirnoff Vodka didn’t reduce its prices when a competing brand tried to start a price war. It introduced 2 new products for that purpose, one low-end and one high-end (to give the impression of a range of qualities and prices).
It isn’t about price, it’s about how the consumers see the brands – about the consumers’ perception of price, quality and taste. A price reduction can actually harm the sale, make the product look less attractive to a group of consumers.
There’s a difference if you’re selling baby diapers and Chivas Regal Royal Salute 21 year. One of them is much more price sensitive than the other, because the consumers see them in specific ways.
i did a simple search for bath soap, and found many, many, products with a 300% difference in price. there are people buying the lowest range and the highest range and the entire spectrum between them.
just because i could check the price range with a click of the mouse, will not draw me to the lowest price range. i will make the choice according to my perception of a correct value of soap, and my perception of the value of a particular brand.
if you think MLM should be comparable to costco, and supply low cost products, you are mistaken.
MLM can supply more ‘unique’ products at a median market range, as long as they can show that their products have real market demand via retail.
i agree with you that many MLM today have ridiculously priced products, where the price has been inflated, just to pay commissions and make everyone rich fast. these are the companies which will thrust joining packages on you and put you on autoship, because their products wont sell without these forced purchases. i agree with you on this.
i do not agree with you that MLM increases the cost of delivery which inflates the price of the products and hence will have no market today.
products from amway/herbalife/mary kay etc have products that are neither too cheap nor too expensive, and they can afford distributor discounts of upto 50%, which is a good margin for business.
anjali – :i do not agree with you that MLM increases the cost of delivery which inflates the price of the products and hence will have no market today.”
Really? I take it MATH is not your strong suit then. Where do you think the EXTRA MONEY TO PAY UPLINE comes from.
Somebody help Anjali understand why the MLM model ADDS EXTRA COST to the delivery of products from manufacturer to consumer.
Anjali – do you reside in the USA? What is your business background? I am just trying to get a reference point as to why you are not understanding this basic concept. In general MLM topics, you make a lot of informative posts on other topics.
No, I am actually 100% correct and by not understanding this basic point, you are missing the REAL REASON why the MLM Model is Dead.
Here is where you are wrong.
I remember Monavie had a great run selling Acai Juice for something like $75 per bottle. From what I understand, it was a Category-Creator in that space.
The distributors were selling a ton of it and that made SELLING THE DREAM easier as you could lead with this one-of-a-kind product. And since there was no competition, price was not an issue (nothing to compare it to).
The Monavie distributors could then UP SELL with the concept of becoming a distributor to purchase at wholesale pricing. Then, you could UPGRADE them by showing them how to invite others to the local meeting and receive overrides.
Monavie was one of the first MLM companies to embrace the Social Media method of marketing. The Facebook pages started to blow up with posts about this Magic Juice and the health benefits derived from drinking it.
Sales exploded! Checks for distributors did the same!
ENTER WALMART AND SAM’S CLUB:
Sam’s Club apparently saw an opportunity to capture a growing market and introduced their version of the Acai Juice at about $19.95
I noticed non-MLM types posting on Facebook they were buying THEIR Acai Juice from Sam’s Club at one-third the price. At first, the Monavie distributors tried the “our formula is unique” approach but that didn’t last long as the ingredients of both were then posted for everyone to compare.
It made these Monavie Distributors (who were using Facebook to sell the products and dream) look silly, naive and in some cases, they were accused of conning their friends for a buck.
So, are you telling me that pricing had no effect on the sales at Monavie?
It was in all of the papers. 🙂
CNN ran this story back in November 2012: Is Monavie just too expensive to sell in this economy?
ireport.cnn.com/docs/DOC-879838
I just did a quick search on this topic and found this article:
sequenceinc.com/fraudfiles/2014/10/why-products-offered-by-multi-level-marketing-companies-are-so-expensive/
Here’s a snippit from that article:
Anjali – The POINT to all of this should be clear to (almost) everyone. The lack of retail sales within the MLM industry is an issue.
I noticed that almost ALL of the articles and posts on the subject were dealing with the RESULT vs THE CAUSE. By that I mean, the focus was on Auto Ship and Internal Consumption instead of talking about the CAUSE AND EFFECT.
SIMPLY PUT – The reason why retail sales are a non-event in the MLM Model?
1. MLM Products tend to be OVERPRICED.
2. Most people don’t see themselves as Sales Types.
Add to this:
3. It is easier to SELL THE DREAM and much more profitable too
Sell a bottle of juice to a friend and earn $20 vs Selling the Opportunity to that friend and earning $200
THE MLM MODEL IS BROKEN. Stop trying to fix it with duck tape and focus on the root cause for its failed model instead.
Norway – I’ll give this one more shot and then I will turn these boards back over to you and Anjali.
Hey, I get it. There are companies out there that sell to high-end consumers and companies that sell to lower-income consumers. I think EVERYONE understands that point.
BUT THAT IS NOT THE POINT OF MY POST.
You can read my response to Anjali as it makes my point.
ONE EXAMPLE
Buying your Diamond from Tiffany’s vs Costco
Basically the same diamond – Tiffany’s $16,600 vs Costco $6,600
Interesting Article: abcnews.go.com/GMA/Moms/story?id=1197202
Snippet from article:
The worldwide economy is weak and that is after an unprecedented low-interest rate environment (8 yrs) and 10.6 Trillion of QE debt added over the past 6 yrs (since Obama).
So, explain to me and everyone else on this board how a Model that ADDS COST TO THE CONSUMER is going to work.
I build sales organizations for a living. I deal with the manufacturers and the agents who sell for them. I get to see the movement of products from creation to end user.
The MLM Model CANNOT compete with the NEW METHOD of moving merchandise from manufacturer to consumer.
In fact, the entire retail industry is trying to figure out how to survive (and barely doing so) in this tight money environment.
Bottom-Line: The MLM Model ADDS COSTS to the end user.
Would you agree?
I hear what you are saying and agree wholeheartedly. The model can not deliver products at competitive prices because there are too many middlemen.
Once again, you missed the point of my post entirely.
I invite you to go back and read my post again and I hope you will see the error of your comment to it.
If not, no biggie as I am not posting to convince you or anyone else. I am simply sharing my experiences with others in hope of adding another point of view to the conversation.
However, with rare exception, I am not posting my opinions but rather stating the facts.
I really didn’t think I would get much push-back from my post about the MLM Model ADDING COSTS to the consumer. That is a fact and can be proven using simple bath and a basic knowledge of the process of product creation and delivery to end user.
Hoss – you get it.
If we don’t start the conversation about the FTC vs Vemma court case, we will miss the ROOT of the problem. It is a classic CAUSE AND EFFECT scenario but Catch-22 also comes to mind.
PROBLEM: LACK OF RETAIL SALES TO THE END USER (who is not part of the MLM scheme)
TYPICAL SOLUTION (RESPONSE): We need to teach our distributors to maintain at least 10 Retail Customers.
SOUNDS GREAT in theory but it will NOT work. Why? The answer to that question is what I have been trying to point out to this board.
THE MLM MODEL ADDS COSTS TO THE PRICE PAID BY THE CONSUMER.
In this economy, Price (for the same or similar product) is KING.
CONCLUSION: THE MLM MODEL, just like the typical Mom and Pop Retail store at the local strip mall, is DEAD!
ONE REASON: They cannot compete with the NEW MODEL on price.
SECOND REASON: Most people DO NOT see themselves as Sales-Types and could NEVER overcome the Price objection.
I know Top Sales Reps that are having trouble dealing with the Price Objection today. Their clients are finding the SAME OR SIMILAR product or service online at a better price.
If the agent wants to make the sale, they have to meet or beat THAT LOW PRICE.
And, we are NOT talking about selling an inferior product vs the higher qualify product folks. We are talking about selling the SAME OR SIMILAR product at the higher price.
That is almost impossible to do today due to the information available to anyone with access to the internet.
no, i do not agree.
in traditional selling there are high costs of marketing and sales, which include high administrative costs, high advertising budgets, margins to distributors and retailers etc.
in MLM the above costs are paid out to distributors as commissions.
if MLM products were not competitive, herbalife would not be in the top 5 preferred weight loss products [i checked late last year].
if MLM products were not competitive, the court would not have found amway products fairly priced.
do MLM companies sell over priced products? yes they do. the purpose of such MLM is not product sales but recruitment schemes. that is why their distributors face price resistance in the market.
your blanket assumption that MLM only sells over priced products and cannot survive market competition, is probably based on your personal bias and experience.
i am from india, and my personal experience is of MLM’s which sell great health insurance products, great ready to eat products, great consumables like tea, detergents, and personal care at very competitive prices.
i also see the stupid berry juice type MLM which are ridiculously overpriced, but that does not convince me that all MLM is impossible.
sweeping generalizations about the entire industry are not fair in my opinion.
also, you need to revise your opinion a bit about MLM products having to beat lowest market prices to succeed. by your own example, the same diamond can have a different value at costco and tiffany’s, and both ends have a market, as as well as the whole market in between.
Anjali – You are from India and have personal experience as an MLM distributor?
Which company do you represent?
I stand by my previous comments on the Pricing Model of MLM, btw.
Nothing in your most recent post added anything that would cause any reasonable thinking person to think otherwise.
I ask again: Where do you think the EXTRA MONEY that goes to pay 5-7 Levels of overrides to your upline comes from?
I have already answered that the MLM model is “outdated” and doesn’t fill the function it once had (if it had one) in distribution of goods to consumers. That’s the same point, only other words..
Paying multiple level of commissions, with no value in exchange for the commission, will add costs. All the different bonuses will add costs.
“Add costs” should primarily be about which function it has, that the cost is unnecessary and not a needed function.
Norway – when I say ADD COSTS I am referring to EXTRA COST with no real value or function other than paying OVERRIDES to the upline. Period!
That is the MLM Model. That is the main reason why the products are OVERPRICED. Get it?
Norway – are you an MLM distributor like Anjali?
Nothing personal here – – I am just trying to make sense out of your reasoning?
i don’t represent any MLM company.
and i stand by my interpretation of how pricing in MLM works, btw.
nothing in your posts had any facts, it was based on your opinions and experiences.
are you saying, your opinions are reasonable and others opinions are not?
you know what, this is a he said/she said kind of discussion, it will raise tempers but not raise any agreement.
if you think MLM is a non viable business, it will shut down over the next few years. currently many MLM’s are running as viable businesses, so currently your view is not substantiated. you may be right in the future. wait for it.
I have never been attracted to that business model or to the idea itself. 🙂
It’s a method to cheat consumers of a specific type, the ones with very little business experience and business knowledge.
I’m not very attracted to the idea of having a “downline” of inexperienced people or any type of “followers”. I’m not eager to become one of them either.
Anjali – thanks for the ….well…..response.
So we are clear, I am saying the MLM has an EXTRA EXPENSE in their method of delivering products from manufacturer to consumer.
They have to pay the cost of overrides to the UPLINE in addition to the Retail Sales Commissions.
Something tells me you are buying into the “save money on advertising by paying for word of mouth advertising” attempt at explaining the MLM Model.
The typical MLM company pays 40% (plus or minus 10%) to the upline when a product is purchased by the downline (be it retail, auto ship, wholesale or initial package)
I am saying that 40% is EXTRA COST that Costco, Sam’s Club or Amazon does not have to pay. Sure, some of them have affiliate plans but nothing even close to 40%. Are you aware that the average markup at Costco is 10%.
ARe we in agreement on this basic point.
Hey, I don’t want to assume that we are, that is why I ask.
Norway – Thanks for the response. MLM, or sales and marketing for that matter, is not for most folks as they do not see themselves as sales types.
You understand the MLM model better than most. At one time, I believed in the concept due to lack of business experience and being somewhat naive and uninformed about MLM law.
I have learned a lot by following the posts on this board and that is the only reason I have added a few of my own.
i am saying MLM is not, and should have no ambition to be, costco’s or sams or amazon.
the whole world does not buy at costco’s or amazon.
sorry, but no.
OK. We are finally getting somewhere in this discussion on MLM Pricing vs other Retail options.
So, you do not deny that MLM companies add the 40% they pay to the upline to THE COST OF THE PRODUCT PAID BY THE RETAIL CUSTOMER.
Thanks for confirming at least that point.
actually we’re not. for some strange reason you want to compare MLM ‘retail’ to wholesale retail of costco, or online shopping of amazon.
some MLM’s function like costco’s, where you can pay a membership fee and enjoy the products at around 25% discount. when you purchase an MLM product at retail, you have to pay the distribution costs, just like you pay the distribution costs when you purchase can of pepsi.
normal shoppers will not go to costco to purchase a single jar of face cream, and normal shoppers will be queasy about trying a new brand of face cream off amazon. MLM is very personalized shopping and just like walmart, costco, and amazon can co exist with their different selling methods, so can MLM.
and just to give you an example that any selling system is not the perfect or the final solution for customer satisfaction, walmart is investing heavily in its online business, and amazon is planning to set up stores.
I return back to Vemma / Jeff Babener’s article.
I identified in post #59 that he’s first of all an MLM attorney, not here to answer all sorts of question, the article was probably a test, he may be interested in genuine feedbacks.
I tried to look at it from his perspective.
FEEDBACK
The audience here is “ordinary internet users” = many different individuals with many different viewpoints and knowledge, not an identifiable, coherent group of readers. That has been clearly reflected in the comments too, “individual noise makers”. 🙂
I personally had to identify some of the material more closely, e.g. “here he’s looking into the complaint itself”, “here he’s looking into Vemma’s defense arguments”, etc. — to avoid misunderstandings.
I described the article as a “complete, quick overview of the case” in a comment.
“Reflected in the posts”
My post #1 will reflect how people normally will identify material. They will look for the ideas they’re familiar with first, “reflections of their own ideas”. They may completely ignore other parts as “uninteresting, it didn’t reflect my point of view”.
That makes it more difficult to write for an audience like this. There’s no common factor everyone believes in.
My post #1 simply states “I have accepted most of it, I have posted similar ideas myself”. That’s how people normally works.
“Lack of specific questions”
He would normally have received a few specific questions, e.g. “What exactly do you mean with Fact Driven?” or “Have I interpreted it correctly?”. But most of it was partly answered in a different thread when I tested similar expressions and referred to point 6 in the material.
I found that people needed more explanations (for that specific point), e.g. “based on evidence, to be tried in a hearing” or “question of fact rather than question of law”.
SUMMARY
I have looked at the article and the audience. There’s enough people here to be “worth it”, but we’re not a core audience for law articles. Comments will derail, people will discuss it from other perspectives than law.
I brought in the idea of “that’s how people normally works” in a couple of places. They may have different ideas and solutions.
Vemma had only 14% retail. Why is that? Could it be because the PRICE IS TOO HIGH compared to what the consumer can get at Costco, Sam’s Club, Walmart, Target, BJ’s, Amazon, Safeway, Macy’s….pick one….pick any?
So no, this is not just about Costco. I was using that company as AN EXAMPLE.
If you cannot (or your ego simply will not) allow you to see THE POINT, then you are part of the problem.
MLM – OVERPRICED PRODUCTS TO PAY THE UPLINE. The products that are purchased at through the MLM Model are more expensive than comparable problem that are sold through legitimate retails.
Sorry Anajai that you don’t get it, but that is not my problem, is it?
Anjali – do you still live in India. That would explain a lot.
I’m surprised this hasn’t been discussed further. While MLM product price is an issue, I believe this is an inherent flaw in the system and why mlm is what it is – a product based pyramid scheme.
Why would I even bother spending my time on retailing when I won’t make any money? My customer can just sign up and buy it for what I pay!
Char – You are surprised this hasn’t been discussed further – – so was I.
I noticed everyone was spending their time talking about the Result (lack of retail sales) and not the Cause.
I offer up two 3 reason:
1. Overpriced products (so they can pay the upline)
2. MLM is about the masses – a lot of people doing a little bit – the masses don’t see themselves as sales types
3. There is more money in Selling the Dream – the Opportunity. Why invite a friend to a weekly meeting or webinar for a presentation that is geared to selling a bottle of juice and that pays you a commission of $20. Instead, invite that SAME FRIEND to that SAME MEETING and have your UPLINE sell the DREAM and the initial package and make $200.
I will add one more. Most will not do this but the law of large numbers will eventually kick in and the leaders know this.
They will eventually have thousands and sometimes tens of thousands of people doing the same thing. Add the monthly volume requirement and VIOLA….you have a high percentage of them paying EXTRA FOR PRODUCTS THEY DON’T EVEN USE to qualify for overrides.
Since the overrides are more than the cost of the product….who cares.
And folks….that is the dirty little secret exposed for all to see. I know this is the truth because I heard it so many times in advanced MLM training sessions. I have talked with top distributors about this very thing.
It is…..what it is and it seems the FTC only steps in AFTER the number of complaints forces them to do so.
It was reported by OZ earlier that Vemma only had 14% of their volume from Retail Sales. I would like to see how percentage of their monthly volume came from the initial purchase of the newly recruited distributor who JUST BOUGHT THE DREAM.
By the way, if the FTC decided to call that model legal, I would consider working the model again. I don’t have a problem with everyone agreeing to pay extra so that the model works as long as they understand it going in.
For example, do Health Clubs feel bad about collecting a membership fee each month knowing most of their members will NOT USE IT?
Does Tiffany’s feel bad about charging $2,000 for a purse when Macy’s charges $200 for a purse that does the same job – a place to keep your stuff?
As I have heard it said many times, if you have to ask the price, you probably can’t afford it.
BACK TO REALITY
MLM is a form of Direct Sales. It is not called DIRECT OVERRIDES for a reason.
As the old saying goes, if you really want to get to the truth, just follow the MONEY. In this case, follow where the REAL MONEY is being made and the FATAL FLAW of the current MLM Model is there for all to see.
Any questions?
It was a very specific example, where BOTH paid exactly the same wholesale price = you won’t make any money at all, but you will get rid of some of your own inventory for an “acceptable price” (no profit / no loss).
In Herbalife, you would have made SOME profit, 8% or 15% or 25% of SRP Suggested Retail Price. And you could have pushed some of the expenses onto the customer = the 7% “surcharge”, local freight charges, VAT.
People often sell with losses in MLM, so “no profit / no loss” isn’t that bad. It means you will qualify for commissions for free, and you won’t need to consume anything yourself.
Norway – “M Norway: Normally you won’t make anything. Compensation plans are not designed to reward that type of sale, they are designed to reward you for purchases in your downline.”
And the point is, the people who design these plans know a thing or two about “human nature” and what drives their behavior.
It comes down to PAIN vs GAIN and the planned manipulation of each.
Selling involves rejection. You will find almost every successful salesperson has learned to harness that rejection into positive action.
But what about the masses? If you give the average person a small dose of rejection, what is their response? Is fear of rejection stronger than the Hope of Gain?
No, I am not a psychologists but I am a student of human nature and what makes us all tick.
MLM leaders KNOW that most people have a natural fear of rejection. So, how do you build a business (large organization of faithful followers) with mainly part-timers and convince them go out and sell an OVERPRICED PRODUCT to their friends, family and business associates?
Almost every person on this board understands THAT IS NOT GOING TO HAPPEN. And, that is THE REASON why only 14% of the sale volume in Vemma (for example) came from Retail Sales. Some on this board refuse to let THOSE FACTS get in the way of a good message board argument.
However, if you change the PRODUCT from soap, diet powder/drinks, juice etc to that of selling HOPE AND OPPORTUNITY and reward the SALES-TYPES (person conducting the meeting or webinar) sufficiently, then….there is NO rejection. 🙂
HOW CAN THAT BE?
At a typical MLM training meeting, the NEW RECRUIT is told not to let their NEGATIVE friends and relatives HOLD THEM BACK from achieving their DREAMS. (sound familiar).
If their friends say NO….they are saying NO to themselves and NOT TO YOU. It is a process of mind manipulation. Some even call it “cult” brain washing. Get your NEW RECRUIT to talk about their WHY and stay on message by leaving LOGIC out of the conversation. Focus on their WHY (typically an emotionally charged reason used to overcome the Fear of rejection)
What I have witnessed myself: It is absolutely amazing at what naive and gullible people will do and say when under this emotional state of manipulation.
And getting them to pay 25% to 50% more for the same (or similar) products is just one example.
It has been discussed many times. That’s why we try to avoid it.
I know. That’s why I’m relatively relaxed posting direct comments online. I won’t need to carefully “prepare” my arguments on my own computer first.
I have no idea about the masses. I have offered some solutions, but people are generally looking for something quite different. “The masses” actually prefer something “the masses” can believe in. That’s why they pay for opportunities to make money. That’s why they buy “promises of success”.
I have offered many “sale doesn’t work that way” explanations, e.g. pointing to the fact that most purchases actually are based on other factors than a sales person “pushing” a product. But people still prefer to believe in that other idea, even if I show them examples.
I am just the opposite. I understand the “masses” completely. It is the “individual” that is hard to understand and (sometimes) reason with.
i checked the price of mascara on amway and macy’s.
amway mascara is priced between clinique and lancome/estee lauder masacara. it not like i found amway mascara to be 50%-100% overpriced to pay upline commissions and overrides.
at least a couple of reviews of weight loss meal supplements, listed shakeology and herbalife in the top five choices. both shakeology and herbalife are MLM products. i did not find them priced way over the competition, in order to pay upline commissions and overrides.
i agree many MLM like monavie or vemma sell overpriced products and end up being product based pyramid schemes.
the FTC has shut down vemma, and they are trying to set things straight.
i refuse to buy into the argument that all MLM is overpriced, is a product based pyramid scheme, or unviable.
i see both types of MLM and instead of launching into ego propelled rants, it is wiser to have sane, balanced,views.
there is nothing wrong in selling hope/dreams. mostly all products/opportunities are sold with a dream attached to it.
of course some MLM have gone overboard with the ‘selling’ with their images of yachts and fancy cars, and this is magnified in anti MLM arguments, but no one talks about the many MLM opportunity meetings where this does not happen. keep your sanity and do not over generalize, to support your arguments.
over the last two years i have been dragged to two MLM opportunity meetings, one selling an insurance product and one selling personal care, it was charged up and lots of fun, but there was no oversell of any hopes or dreams.
i think you will find several such opportunity meetings in the US too, if you can take your eyes off the dramaqueens for a second.
huh?
whatevercouldyoumean??
yeah what a scam! health clubs sell the dream of perfect bodies, and get people to purchase monthly, quarterly, yearly memberships, instead of charging per use. no one has a problem with this!
yeah, shut down evil tiffany’s!
btw, as a woman i take offence to your description that a purse is just a ‘place to keep your stuff’. sorry boss, a purse is an accessory, nobody ruins a nice dress with a cheap purse.
i thought you were an ‘student of human nature’ and knows what makes whom tick? apparently not?
Anjali –
I asked if you still lived in India to determine how much you knew about the American culture, which is where Vemma is domiciled.
I am sure there are a few exceptions where the company uses the “loss leader” concept. However, overall….in general, the MLM Model ADDS COST and after the Great Recession (Do you know which one I am referring to? It was in all of the papers) people in the USA moved away from OVERPRICED products, generally speaking.
MLM Adds Costs to the delivery of a product to the consumer.
They pay about 40% in overrides to the upline. Where does that money come from?
You have yet to address that question. You gave a general reference to your research of Amway vs Macy’s but forgot to list your comparisons other than to say there was little difference. Then you admit that Vemma and Monavie sold OVERPRICED products.
Debating an issue with you is like nailing Jello to a tree….in the summertime. I make my point, you take exception then list examples where I am right and finish with an insult. 🙂
first rule in studying human nature – bring a sense of humor.
As I said, I am a student….not an expert. I learn more about “people” everyday.
Plus, I can even admit when I am wrong. Can you? Apparently not.
these days, many MLM companies work across the world. so, MLM and its culture is pretty much the same everywhere.
i don’t think nationality has much to do with how MLM works and why people participate or how they sell, or who buys MLM products and why.
you still haven’t explained how amway, herbalife, shakeology can compare with traditional product prices.if they can supply competitively priced products via MLM, that means that MLM as a business model is viable.
the fact that the management of vemma or monavie etc, artificially hike their prices, to set up a ‘pay to play’ scheme, does not prove that the MLM ‘MODEL’ adds costs or is unviable.
knock knock
who’s there?
i am
i am who?
I AM-WAY!!
🙂 [hahahahhahha] 🙂
Knock Knock
Who’s there?
Anjali.
“Honey!!! The Avon Lady is here! And she must be doing well because she is carrying a Tiffany’s purse.”
er ‘Honey’? i’m not an avon lady and i ain’t got no tiffany’s purse.
your um, ‘Bunny’ is just telling tall tales!
Other factors than pushing a product?
The best way should normally be to look at the opposite side of it = “how do customers purchase these products?”.
It can be about “Do they find what they’re looking for?” and “Do we give them the information they really want and need?”, and similar questions.
This is a good premise to launch the discussion but the assumption that MLM sold products will always be overpriced is debateable.
Costco Walmart incur huge costs that a typical mlm does not and that tends to level the playing field. The idea that a company can pay multiple levels of marketer/distributors and still remain competitive is not out of the question.
Anjali did a small survey of cosmetic costs which illustrate the point. The end retail price for the cosmetics she checked were not terrifically different between various retailers and MLM.
That being said, small differences multiplied by millions of units can have dramatic effects on a company’s bottom line.
So it seems to me that any discussion of which business model works best or whether one or the other is broken must take into account the return each affords the owner’s of the company. That is where you find out if a specific business model is broken or not.
If it is, it will not attract and keep capital.
That’s due to the high profit margin on the cosmetics themselves. Actual cost of materials in cosmetics is tiny.
Industry experts say cosmetics have markups of up to 80%. And since they are of the same size and costs about the same to advertise, retail and distribute, there’s really no reason for them to come down in price except the unknown stuff you see in Dollar Stores.
NuSkin, Avon, and Mary Kay saw this long time ago.
MLM only works on high-margin stuff. Attempts to marry MLM with mid- to low-margin items have either been failures or scams. (Before you say Amway, may I remind you that Nutrilite vitamins and cleaners are high margin items).
(Ozedit: Cited source link is 404 as of March, 2018)
Really? Sure, the Avon Lady did post a general statement of her findings that Amway products were priced about the same as Macy’s.
So, like any reasonable person in a debate would do, I asked her to show us the math, the actual numbers.
She came back with little pearl of wisdom:
She skips the part where she shows us the math and goes straight to “if they can supply priced products via MLM, that means that MLM as a business model is viable”
Seriously? Isn’t that the point? The keyword is “IF”.
The crazy part is in the very next paragraph, Anjail says,
amway mascara products are priced at 26.60$.
macy’s has many, many mascara brands, starting from as low as 10$ going upto 40$. most mascaras are in the 20-30$ range. there is a ‘Peter Thomas Roth Lashes To Die For Turbo’ selling at 85$.
so, amway is comfortably priced in the market range and shows no signs of being inflated to pay commissions and overrides.
yeah, then explain why mascara can range from 10$- 40$? if ‘price is king’ only the company selling mascara at 10$ should be available, and all the other companies, along with amway, should be dead and not listed on macy’s.
i have shown you that MLM companies can compete on price. you certainly should rest your case now.
as i have said before, and which seems to be confusing you no end, MLM companies like vemma and monavie, inflate product prices and are not competitive, and end up as product based pyramid schemes.
vemma or monavie’s pricing does not prove that MLM as a model is unviable. it just proves that vemma and monavie are not MLM.
i agree.
so, MLM can work in the niche of high margin products at competitive rates.
there is no need for MLM to sell fresh vegetables.
Didn’t stop people from trying… MPB Today, My Harvest American, Grocery Rewards Network…
@Anjali
Either you really don’t understand or refuse to do so. You just posted a range of pricing from $10 to $85. How is this “price comparison”?
I am starting to wonder what your background is as it relates to business and marketing.
I remember going to an Amway meeting back in 1974. I was a college student and was used to paying for laundry detergent and washing my own clothes.
I remember the price for Sa8 being a lot more than what I was paying for laundry detergent.
So, let’s take a look at what I just found online, shall we?
As of 2013, the retail price of 9.9 lb box of Sa8 was $42.60 plus shipping. You could get 150 loads from that box or about 28 cents per load.
A bottle ofTide was available at Walmart (same time period) for $17.97 and you could get 96 loads or about 19 cents per load.
So, Anjali, I know math is not your strong suit but I would still like to ask you this very simple question:
With the Great Recession affecting many of us here in the USA to the point where we have to CUT COSTS in any way possible, please explain why people should pay 50% more per load to wash their clothes.
I won’t bother asking you WHY Amway is 50% more expensive since you absolutely refuse to admit to being wrong on your assumptions in this area. NOTE: Who pays for shipping? The company or the consumer? Yes, that’s Mo-Money!
By the way, please don’t come back with the “QUALITY ORGANIC INGREDIENTS” response because I can send you to a website that flat out puts that retort to shame.
Also, you said, “so, MLM can work in the niche of high margin products at competitive rates.”
High shipping rates has put an end to that argument as well. Why pay $10 to $25 extra for shipping high-margin products like cosmetics, diet drinks, lotions and potions when you can just add them to your cart on your weekly visit to Walmart?
Your attempts to justify the HIGH PRICES charged by MLM companies so they can pay the RECRUITERS their overrides is not doing so well.
Reasonable, rational and realistic arguments typically win.
I believe the FTC will shed some light on this subject when they release their final report on Vemma.
By the way, Vemma operated in the so called “high margin” category of products. Why did they (in your own words) “artificially hike their prices”?
Do you think the CEO’s of every existing MLM company in the USA has already called a meeting with the subject being, “WE NEED MORE RETAIL SALES”
And the “wink and a nop” response to OVERPRICED PRODUCTS is not going to work much longer.
Either MLM complies with the Laws of the Land as they apply to other Direct Sales companies, or they will eventually receive a visit from the FTC to explain “why not”
I have heard it said that sometimes in a friendly debate, the best thing for people to do is to just agree to disagree. So, with that being said, can we both just agree that I am right? 🙂
Thanks K Chang for pointing out the obvious – – FINALLY!
Others on this board are saying MLM only works in High Margin product categories.
Well, how about the examples Anjali used – Monavie & Vemma.
Cosmetics typically enjoy 80% margins while energy drinks settle for ONLY about half or 40% margins.
Anjali acknowledges they both had to “artificially hike their prices”
Did Monavie and Vemma simply pick the wrong product category in which to build their business? If their profit margins are ONLY half of what Mary Kay enjoys, then that would sound like a factual statement.
It is much easier to hide the EXTRA COST of paying an UPLINE with 80% profit margins than 40%.
Remember, HIGH PRICE OF PRODUCT TO END USER is only ONE REASON for the lack of RETAIL SALES in the MLM Model.
Regular non-MLM energy drinks do have margin of about 40% according to this Forbes article:
forbes.com/sites/greatspeculations/2014/05/08/energy-drinks-could-be-the-growth-driver-for-coca-cola-in-the-domestic-market/
Which is probably why Vemma have their sell Verve at about $3 per can… So they can also do this 80% margin thing. 😀
i gave the breath of pricing and informed you that:
then i showed you that amway mascara fell in this 20-30$ range.
since you went to college a longa longa time ago, i hope this repetition helps 🙂
Again, all you have done is prove that math is not your strong suit.
Are you even aware that what you just posted is not a side-by-side price comparison? I gave one with my Sa8 comparison.
Try to keep up.
what kind of comparison method is this? you pick up a random tide product and compare it to amway Sa8?
what about detergents which are priced at 10 cents per load [sainsbury detergent] or 37.5 cents per load [persil]?
what about surf at 27.5 cents per load?
do surf, tide, persil have a buy back policy? do surf, tide and persil allow you to become a member and enjoy their products at approx 25 % discount?
i’m starting to wonder if you went to college at all?
are you saying that your tide product is an exact replica of the amway Sa8 product and hence their prices are exactly comparable?
you have to check a wider range of detergents on a cost per load basis, to see the breath of the market. some products are cheap and some products are expensive, and you have to see if amway detergent lies within that breath.
So, you are saying we can put you in the category of message board posters who “take one side of any topic and argue this point EVEN after being proven wrong”?
Hey, at least you are not so stupid as to try to argument that there is any relationship between attending college and being smart.
And, I give you credit for not being so gullible, stupid and naive as to join an obvious money-game like say…..SpeakAsia.
With your college degree as your guide, you are far too smart to join that deal.
Right Anjali?
I used the comparison to Tide for two reasons:
1. Tide is the most advertised brand in that space and is not one of the cheapest brands. MLMers like to say MLM eliminates the cost of advertising thus reducing the price consumers pay. By using Tide, I just destroyed that argument. However, even with all of their advertising, the price for Tide is STILL 50% LESS than Amway’s Sa8.
2. I did a Google search and found someone had already done the math and the comparison (how else do you think I knew the prices from back in 2013?
Plus, I wanted to BREATHE some life into the conversation by using actual price comparisons.
we are not testing amway against any particular detergent. we are just trying to test whether amway detergent is overpriced above the ‘detergent market’.
it’s not.
debate over.
You give up too easily Anjali. But I can’t say I blame you.
It was a bit interesting for you to say Amway detergent is NOT overpriced above the “detergent market” even after I proved SA8 to be 50% higher than Tide and YOU PROVED it too with other comparisons.
We both agreed but somehow reached two different conclusions.
Interesting indeed. 🙂
yeah, and tide is almost double the cost of sainbury’s, so tide is overpriced too!
and what about persil at a high 37 cents per wash, the feds should take them down!
it is quite clear, that amway has not had to overprice itself out of the market to pay commissions and overrides.
Amway has priced itself out of the lowest market segment, but then so has Tide (at least the Tide brand has.)
I should think Proctor and Gamble (the maker of Tide) hits every market segment and demographic one way or the other since it has the factories to pump out any blend under any label it desires.
It would not surprise me if they actually manufactured for Sainsbury… and yet Amway is still standing.
tide has a whole basket of detergent products to suit every pocket.
yesterday i read a review, which compared a tide product which was at 58 cents per load to some ‘ecofriendly’ brand which was at over 1$ per load.
so, amway is safely priced. it’s not over the top or anything.
Dateline Feb 7,2013 Amicor, parent company of Amway based in Ada, Michigan, said the company and family of companies under Alticor reported sales of $11.3 billion for 2012, the seventh consecutive year of growth for the company.
michiganradio.org/post/amway-touts-record-113-billion-sales-2012#stream/0
This growth occurred during the deepest recessionary years of the Great Recession. Amway expects “record sales” again in 2013. The company is privately held and does not share information about profit margins.
Its hard to draw any conclusions from this, other than Amway is selling product in a crowded marketplace.
One conclusion would be that Amway sold products to new affiliates who had hopes of making money as an IBO during the recession.
More confusing data.
When Amway was interviewed back in 2012… What they said was:
When Wall Street Journal interviewed Amway’s CEO and President in March 2012, (scroll to 9:15 mark) Amway President basically claimed that “about 50%” of affiliates just want to buy some stuff and “sell a few to friends and family”, 30% look for a little extra income, and 20% plan to treat it as income opportunity.
The statement is vague enough, but he seem to have said that 50% of Amway affiliates are self-consumers, 30% small retailers, and 20% big sales leaders.
online.wsj.com/article/FE12F29C-D022-42B8-8ACD-16A114E0DA96.html#!FE12F29C-D022-42B8-8ACD-16A114E0DA96
there is Nothing Wrong with having Hopes about anything.
considering that life ends in death, it is Amazing that we are not a fatalistic, permanently depressed society, but have so much hope and ambition.
the problem occurs when you steal from people by preying on their hope.
if there are no forced purchases and buyback, and valuable products bought at a discount, at least ‘hopefuls’ are protected from LOSS.
we do everything in our lives based on Hope and Rewards, so people having some Hopes about MLM is not a deviant uncommon occurrence.
we buy expensive cars in the hopes of impressing our peers, we buy designer clothes in the hopes of attracting attention, we spend on healthy foods in the hopes of remaining healthy.
if people Hope to make income from MLM, there is nothing wrong in that, if there are protections from making them lose much.
That’s a good one. I also read that it was during this period that Amway entered the China market.
This is the second feedback.
In post #87, I looked at the article itself, the type of article. I also added something about the audience, e.g. about “many different interests” (“not clients or lawyers”).
THIS WEBSITE
It started with the idea “unbiased and factual MLM reviews”, as opposed to all the misleading marketing material out there on the internet, and to “helpful websites” with the intention to promote something directly or indirectly.
It had contributors and readers right from the start. The comment system makes it easy to add something. “Information sharing” is a part of the basic idea, and it often has a major function (e.g. some stories may require local knowledge, other stories may require language skills).
The basic idea has changed to “MLM reviews and news” = more focus on followup stories, less focus on MLM theory, but no major changes to the basic idea.
Different stories will attract different types of people, or sometimes groups of people (typically from the country where a case is most active).
My point:
Oz will accept almost anything if it can be identified as relevant for the blog, for the readers, etc. e.g. if it adds something of interest to the story currently covered.
“Babener weighs in on FTC Vemma lawsuit” had a function, i.e. it can be identified as “useful” from many different perspectives.
It offered a specific perspective, “how the case looks like from a legal perspective”. It covered more than the current situation. It answered a couple of very relevant questions. Etc.
I believe the best idea is to look for general “usefulness”, e.g. whether it will add something of interest to a current story.
I don’t believe “specialized articles” will be a good idea (specialized like the two questions in post #39). Very few people here are that specialized. I tested it myself, but I cover “business perspective” more than “legal perspective”. So I don’t focus on the same details.
Third feedback?
That shouldn’t be necessary. The idea was “to look into it, in case I will need to communicate it”, e.g. in case I should ask for something specific from Babener or others.
Wrong context. The post was about…..
Quote: “Amway had record sales”
False impression: Amway is a growing, successful business opportunity for its affiliates.
Conclusion: Amway, the company, had record sales because in a tough economy, it is easier to convince new affiliates who are desperate to make money. These affiliates buy Amway products. (and teach others to do the same)
Result: Record sales for Amway – the company. I doubt very much the average income for an IBO went up equal to Amway’s growth, if at all.
did record amway sales cause record losses for it’s IBO’s?
if the average incomes remained the same, a lot more IBO’s must have made incomes, to maintain the average income. did the average incomes fall?
it is a well documented fact that MLM does well in a tough economy.
when the job market is bad, or people are getting laid off, or businesses are taking a beating, they Have to look for alternative sources of income.
what would you have them do?
if they try their hand at a low cost MLM opportunity, should they not have the chance?
they can get a full refund of their business registration fee, they can get refunds on products they purchase, if they cannot work the business.
can any other business endeavor come so cheap or have so much protection?
if tide detergent does not offer an opportunity, and amway detergent offers an opportunity for income in a tough economy, which will people choose?
why is that wrong? has amway cheated them by palming off Overpriced detergent to them?
has amway cheated them by forcing product on them which they cannot afford? if it was so, then a lot of product must been returned, because in a tough economy people will not keep the product in their garage, when they can just return it.
i was not able to find the buyback percentage of amway for 2012, but if it was bad, i’m sure the anti MLM brigade would have pointed it out in ‘triplicate + one’.
yes, in a bad economy, more people try out the MLM opportunity and this results in higher sales. there is nothing evil in this.
But if the only growth of the company is from adding more members… and there’s little to no attempt to limit self-consumption…
Here’s another interesting data point.
When Wisconsin sued Amway in 1982, Amway was forced to disclose average annual earnings in Wisconsin… $267. That’s $744 in 2012 dollars.
Care to guess what’s the annual income disclosure says are average for Herbalife and Nuskin for 2012?
$749 and $641, respectively.
In fact, according to a study done by William Keep and Peter J. Vander Nat (the FTC expert on MLM) average sales per person in MLM for past 20+ years has been DROPPING or remained steady.
Any growth by MLM was by adding new participants.
business.pages.tcnj.edu/files/2014/02/Keep-and-Vander-Nat_MLM-and-Pyramid-Schemes_Final.pdf
I read or browsed through 65% of it, 13 pages out of 20. It contained a lot of interesting information.
The problem is that average income opportunity seekers don’t read 20 pages reports, they will usually prefer reflections of the ideas they already have and truly believe in. And people usually don’t go around with “20 pages ideas” in their heads.
The primary target audience for the report seems to be “people interested in looking deeper into the problem, for academical discussions”. That’s not very useful, it will first become useful if someone manages to convert it to something more “acceptable to the masses”.
i skimmed through the report, it was very informative about the history of MLM.
however the legal viewpoint on MLM, in this report, is based mainly on the interpretation of the koscot test, by the court in omnitrition.
keep and vandernat need to publish a new report on the effects of the burnlounge appeal decision in differentiating between MLM and pyramids.
keep and vandernat’s anti self consumption stand is not reflective of current law. the ninth circuit court kicked vandernat’s ass for insisting that bonafide self consumption was not product sales. when he recovers, he should write a fresh report.
Thanks for posting this KC. Was the report commissioned by the DSA?
duh. of course not.
this is a keep&vandernat Vs MLM ‘report’, published after ackman’s short bet.
the report is quite ‘supportive’ of the arguments trotted out by ackman ie where is the RRETAIL!!! gimme 100% RRETAIL!!
any ‘commissioning’ could only possibly be from acky’s quarter, IMO.
a DSA commissioned report would be like: we all self consume you cant stop us! we love autoship so dont bother us! 🙂
As far as I could see, they used exactly the same method you prefer to use.
They found the four most relevant cases, and found the same conclusion in all four of them (because the last three cited the first one). And then they jumped directly to the conclusion that “this must be correct, four courts can’t be wrong about the same thing”.
There seems to be some problems with that “reading case law as a Bible” method.
Sorry I asked. I am going to Dislike a Raj Kapoor video and subscribe to the Journal of Historical Marketing in retaliation. Take that!
raj kapoor died eleventeen centuries ago. dislike him all you like, but don’t you dare go near his grandson ranbir kapoor. i’m stalking him! 🙂
by all means, keep yourself fully engaged with boredom with your Journal of Histo….[whatever]
@Anjali
“did record amway sales cause record losses for it’s IBO’s? if the average incomes remained the same, a lot more IBO’s must have made incomes, to maintain the average income. did the average incomes fall?”
– Amway signed up more IBOs aka customers for the Amway Corporation with the same buying habits.
“it is a well documented fact that MLM does well in a tough economy.”
– MLM as in ‘Corporate’. We must make a distinction here.
“when the job market is bad, or people are getting laid off, or businesses are taking a beating, they Have to look for alternative sources of income. what would you have them do?”
– Movie actor? Pro athlete? MLM? Lol
“if they try their hand at a low cost MLM opportunity, should they not have the chance?”
– Sure. See above for odds.
“they can get a full refund of their business registration fee, they can get refunds on products they purchase, if they cannot work the business.”
– On the used and consumed products too? That might get my attention.
“can any other business endeavor come so cheap or have so much protection?”
– You get what you pay for.
“if tide detergent does not offer an opportunity, and amway detergent offers an opportunity for income in a tough economy, which will people choose?”
– Oh I’m sure they will buy Amway. But did they buy it before they thought they’d make money?
“why is that wrong? has amway cheated them by palming off Overpriced detergent to them?”
– Yes if the IBO was mislead and thought he could make a living by buying it.
“has amway cheated them by forcing product on them which they cannot afford? if it was so, then a lot of product must been returned, because in a tough economy people will not keep the product in their garage, when they can just return it.”
– What about product in the sewer?
“i was not able to find the buyback percentage of amway for 2012, but if it was bad, i’m sure the anti MLM brigade would have pointed it out in ‘triplicate + one’.”
– Again, if Amway is a bunch of self consumers, there wouldn’t be much to return.
“yes, in a bad economy, more people try out the MLM opportunity and this results in higher sales. there is nothing evil in this.”
– All good for the corporation and founders. Bad for the average Joe spending his last dime on expensive laundry soap.
Somewhere along the line this discussion has deviated from “is the MLM business model broken because commissions and overrides result in uncompetitively priced products” to “Amway does not afford the beneficial a “business opportunity”
That’s fine, We can talk about whether proctor and Gamble employees are paid a living wage nest but this discussion is no longer about competitively priced products, i.e., Tide vs Amway’s offfering.
i will now listen to Awaara Hoon on the wireless.
see, MLM corporate is no different from the gazillion corporates, who are in business To Do Business.
all corporates in retail, jus’ want more and more people to buy.
whether tide or prisil get better business in a good economy, or whether an amway MLM gets better business in a tough economy, amway and tide and prisil ‘CORPORATE” are the same kind of bastards. this is sales 101, there are no bleeding hearts here.
the only rule to follow in this ‘sales’ free for all jungle, is that there should be some integrity and some fairness.
in the context of MLM products, this necessity for integrity and fairness converts to competitively priced products and no inventory loading.
you mean consumed product which people shit out?
i dont think even tide or prisil could have any buyback for that!
but lets not investigate sewerage, here’s what the amway buyback policy says:
i would like to see anyone ask proctor& gamble to buy back an unopened packet of tide, or pepsi to buyback a half consumed bottle of pepsi.
the MLM industry provides buyback as a special customer protection, so that there is no abuse, of it’s different sale method.
herbalife buys back even partially consumed products if returned within an year.
i don’t know what expectations you have from the MLM industry.
if you want them to be mother teresa, handing out free charity, it wont be happening.
there will be recruitment, there will be hard sell, as long as the product has market value, and there is no forced inventory, it’s a competitive industry like the rest of the retail industry.
dog eats dog. ‘Corporate’ always make da monay.
if my granddaddy were alive, he would’ve loved your company.
awaara hoon. really?
No NO No
this is better:
youtube.com/watch?v=jHNNMj5bNQw
There’s more than one method to interpret “The Law”. Here’s an additional method.
“Top-down perspective”
Federal courts have got their judicial powers directly or indirectly from the Constitution. The most major aspects of a court’s functions and duties can be interpreted from that perspective, e.g. as a “chain of command” (“who decides what?” or “which rules will be relevant?”).
A court belongs to one of three branches, the judicial branch. The two others are legislative branch (lawmakers) and executive branch. The powers have been clearly separated between those three branches.
etc., etc., from top to bottom.
Top-down perspective may be used to “proof test” legal conclusions from the “case law analysis method”, e.g. it can point out that Appellate Courts only have limited law-making functions and that decisions cannot be interpreted as a Bible (“the Words of God”).
I didn’t find any “proof test methods” in the legal report from Keep / Vander Nat. They jumped directly to a preferred conclusion.
eh, yeah, that’s what ‘commissioned’ reports do.
keep, has a bad history, and vandernat, has retired without being able to convince the courts of his logic.
so you have a couple of ‘wannabes’ trying to tell the courts and the public what ‘MLM’ is.
shut up already, we have courts, because we do not want individual opinion.
This thing you unsuitably call “top down “proof of test” is known as judicial review and its a powerful tool.
I assume the ‘top’ you are referring to is the Supreme Court and if so what its opinion might be is far removed from the District Court in Arizona where this action is taking place. First things first.
That does not even make sense. maybe you should have read past page 13.
As Babener
Kristina won’t like that.
Excellent choice. Indian cinema is so good. Netflix has an extensive offering now and the dance numbers. Wow. Everyone has their favorites.
I did read page 13-20. My post about “proof test” was about points #3 and #4 on page 20.
Keep and Vander Nat analysed case law based on Koscot / Omnitrition and 3 other cases, and came to the conclusion that ultimate users are consumers outside the MLM network.
That’s not correct, it will only be correct in certain cases.
SALE, PURCHASE, CONSUMPTION
1. “As the law sees it — in itself”
There’s no legal difference in itself between consumption among distributors in a network and consumption among external consumers. So there isn’t any legal difference in sale or purchase either.
People can be both consumers and distributors. People can buy products from themselves, from upline or from anyone else. There’s no law against it.
2. “Question of fact”
Any legal difference must be case specific, based on evidence, e.g. that sale, purchase or consumption simply are different — too different to be accepted by a court as bona fide sale to end users.
That’s a question of fact, it’s not a question about how to interpret laws. It’s about the realities of a case.
3. “Question of law”
It can be a question of law, e.g. if the existence of a pyramid scheme already have been determined (based on other evidence), and the internal sales have been seen as a disguise for illegal activity. Then there’s no need to analyse that type of sale, it can all be seen as a part of the illegal activity.
It will be meaningless to determine any degree of legality if it already has been identified as part of illegal activity.
NO BRIGHT LINE RULES
Babener’s rule can be applied to legitimate MLM, but it will not be relevant for MLM pyramid schemes. It’s the default rule, based on presumption rules.
The Koscot / Omnitrition rule can be applied to MLM pyramid schemes, but it will not be relevant for legitimate MLM.
Point 2 and 3 are both based on case specific evidence = you can’t extract any bright line rules from it.
Common sense tells us that there are rules and guidelines the court will consider. How bright do you need them to be before the picture forms in your mind? Read some of Oz’ articles on the subject if you need guidance.
Right Chief… This is what you said before…..
Yep that’s what you said …65%.
Well as luck would have it Keep and “Vander Net told us which cartain cases these were…( Koscot, Webster v. Omnitrition (1996); United States v. Gold Unlimited (1999); FTC v. Five Star (2000);and FTC v. BurnLounge (2011).)
\/….and that “All of these court rulings concur that for purposes of pyramid scheme analysis under Koscot, “ultimate users” are people who are not participants in the proposed venture, i.e., are consumers outside the MLM’s network.”
Well good, because the FTC is in the business of identifying and prosecuting pyramid schemes, which means they can cite those five precedent setting cases in their pleadings and the judge can consider them.
Hopefully it has occurred to you that the FTC can bring suit based on its opinions… but it can not prevail based on them alone or by reiterating prior case law.
The factual evidence must support their case if they are to prevail, which is altogether obvious, but for some reason you keep reiterating that cases hinge on the facts.
Of course they do! Why do you think herbal life won’t give up its sales numbers….its potential evidence. Why do you think there are trials if not hear the evidence? There are.
You seem to be saying that the facts of the situation determine the legality of an enterprise. If that is in fact what you have been trying to say than I ask, “When and where has it ever been any different?” Vemma just like all the others before it will be judged on the merits.
I didn’t specifically focus on the court structure, i.e. Supreme Court, Circuit Court, District Court. I focused on the whole system, including those other branches.
To be able to “proof test” a conclusion, it may be necessary to look at more than the correctness of the conclusion itself.
A conclusion can be wrong even if all arguments are correct in themselves, e.g. people can have failed to identify some relevant factors. If we look at the wrong factors, a conclusion may become rather meaningless.
“Reading laws like a Bible”
To interpret case law, it will be necessary to understand which functions case law has. We can’t simply look at some short snippets from a court decision and draw major conclusions from it.
We can’t read it like a Bible, e.g. we can’t assume some “Wisdom of the Court” where a court decision will extend beyond its original scope and will affect more than what it actually cover.
To understand case law decision, we must first find its place in the system, what it does cover and what it doesn’t cover, i.e. if there are other relevant rules in place not specifically mentioned in the decision.
“Two different rules”
There’s a conflict in interpretation between Babener’s “Amway is the relevant rule” and Keep / Vander Nat’s “Koscot / Omnitrition is the relevant rule”. They’re both right and they’re both wrong, and they both have a too onesided focus.
“The Amway rule”
The Amway court identified that there isn’t any difference in itself between sales to distributors and sales to external consumers. They can both be bona fide sales to end users.
But evidence can prove a difference in an actual case. So the court didn’t say that it always would be true. Babener can’t refer to it as “one of the core truths in MLM law”.
The Amway rule will not be very relevant in a pyramid scheme case where other evidence clearly can prove the existence of a pyramid scheme.
“The Koscot / Omnitrition rule”
Koscot / Omnitrition identified “ultimate users” to be non-participants.
That interpretation will not be very relevant for a legitimate MLM company.
Webster v. Omnitrition didn’t change how the law sees it. It’s not a new interpretation of the law, it’s only a different part of the law.
What’s your point there?
Post #133: I had read 65% of the article, and pointed out that it contained a lot of interesting information, but that it seemed to be meant for “academical discussions”.
Post #137: I had looked at the rest of it too. I didn’t specifically state that I had read the rest of it, but why should I? 🙂
There’s hours between those two comments.
I simply didn’t have time to read the whole article the first time. Post #133 didn’t contain any bold statements about “… and that’s it, I will certainly NOT read the rest of that article later!”. 🙂
This keeps sailing over your head. Nobody is going to be prosecuting, fining, and shutting down a legitimate mlm company so of course Koscot is irrelevant to them, but it sure isn't irrelevant to Vemma and its ilk.
If Keep & Vander Net were writing for the benefit of Ackman their summation boiled down to this. Let the evidence speak for itself, and isn't that what you have been saying?
That part shouldn’t need any reply? I have already covered it in a different post, e.g. in post #137.
That’s “correct enough”. FTC does have that function too. “Federal Commission for Identifying and Prosecuting Commercial Pyramid Schemes” is most likely a specific division of FTC.
I posted 3 statements in that section:
The rest of your post seemed to focus on some specific idea. I’m not able to identify that one.
I can use Herbalife as an example, since you brought it up. The “Koscot / Omnitrition rule” will not be relevant for Herbalife in its current state as legitimate MLM.
* Bill Ackman can’t use it to support a conclusion that “Herbalife should be shut down, because it doesn’t have enough sale to retail customers outside its own network of distributors”.
* FTC can use it in a court case against Herbalife, where other evidence clearly show the existence of a pyramid scheme.
So I’m making the bold statement that case law only have limited functions. The rules that can be applied by courts in specific cases can’t be applied outside that context, e.g. as some type of “general rules for MLM companies”.
@Hoss
What I have tried to say is that the method of reading and interpreting case law may fail miserably, leading to wrong conclusions and poor decisions.
The whole idea becomes rather meaningless if people identify case law (court decisions) as some type of “educational source, intended for self education about what the law says about certain areas of law, best used as a primary and only source”.
It’s the method itself that seems to fail.
jesu You sound like some noob that just fell off the mlm turnip truck.
How does it go? Opportunity H must be legitimate because H has not been prosecuted yet. Go sit in the back of the class.
“Koscot / Omnitrition rule” becomes damn relevant when and if the FTC decides its relevant, starts an investigation and files a Complaint. Ask Boryeko how relevant existing case law is now that his assets are frozen and a receiver has been assigned to Vemma.
Its real easy to dismiss the relevance of the case law until the FTC knocks on the door. Then its like “Oh shit we surveyed 15 associates per month over the phone and we are five months behind? What do we do now? Get Thompson to find people to sign affidavits?”
Of Course he can and he has, and he has bet a ton of money on his belief that he is right.
Now the FTC isn’t going to crash the gates based solely on Ackman’s opinion but he has drawn FTC attention to Herbalife so there is more scrutiny now than probably ever before.
Wait and see.
Well i suppose the best remedy for that is to hire the most reputable attorneys possible and ask questions until you understand the law thoroughly.
If you need some examples, then you can look at the discussion about the court’s personal jurisdiction for MacGregor Fraser (Australian net winner, ZeekRewards).
There you had 3 different law theories being discussed.
* One focused on Supreme Court decision, “6 rules”.
* One focused on the case itself, “NC long arm statute”
* One focused on contract details, “MacGregor availed himself”
All three theories can be correct. But it will be impossible to decide which one will be the most relevant one to use if you only look at those theories themselves.
* It can be true that the Supreme Court, “In All Its Wisdom”, decided to share a set of criteria that later could be used by lower courts in all future disputes about personal jurisdiction.
* It can also be true that the Supreme Court, “In All Its Wisdom”, didn’t have those intentions. Its focus can have been on the case it reviewed more than on its own “Wisdom Sharing” function, i.e. that it wasn’t intended for all future cases, only for relevant ones.
you sound like obi wan kenobi. Are we discussing the law or Jedi philosophy. you really are too much.
“The most reputable one” is probably Gerald Nehra, MLM Attorney, former Amway corporate attorney.
I prefer other methods. We probably have some different ideas about “understanding the law”. 🙂
Note that I offered that as an example, not as a new topic to discuss. It will only derail from Vemma, Babener, Keep and Vander Nat, etc.
“In All Its Wisdom” referred to some specific interpretations of Supreme Court decisions — “slightly exaggerated”.
I identified a specific discussion. You should be familiar with that discussion yourself, and you should be able to recognize the different viewpoints.
One example:
The source there was probably Wikipedia, but it was based on Supreme Court decisions from a few cases.
“This is what the law says” is partly true. Those rules have probably been applied in some cases where they have been relevant.
It was correct as it was stated (without your ideas).
EXAMPLE
Two different MLM companies can be prosecuted for pyramid schemes.
* One of them can be found to be legitimate MLM, based on other evidence than “internal / external sale”. It will not be relevant to apply Koscot definitions to that one.
* One can be found to have operated a pyramid scheme, based on other evidence than “internal / external sale”. It may be relevant enough to apply Koscot definitions to that one in a decision from the court.
– – – – end example – – – –
You tried to apply a different idea, where legitimacy was about whether it had been prosecuted yet.
I didn’t mention that idea. I don’t see it as a valid legal idea.
The rest of that section of your post seemed to be based on the same idea (your own idea). So it has been answered.
The focus there wasn’t on what Bill Ackman “can”. He obviously has many different sources he CAN use to support his own decisions.
I added some additional information in post #155.
“Herbalife doesn’t have enough sale to retail customers outside its own network of distributors” isn’t a valid cause of action. A legal action will need to be supported by much more than that.
The illegal part in a MLM pyramid scheme case will be the pyramid scheme itself — the plan or system where participants pay money for the opportunity to earn rewards that are unrelated to sale of goods or services to ultimate users.
Bill Ackman should have tried to identify “valid cause of action” as the FTC and a court will see it, rather than as he sees it himself. He had some points, but he didn’t have a complete idea before he initiated his campaign.
But you do. Well La de da. Go run a Billion dollar hedge fund then.
Damn. I just read Jbabs passed away 🙁
I’m sure some of his clients might not have liked BMLM, but Jbabs himself was always polite and courteous in our interactions.
I clash with a lot of the lawyers in the MLM space but Jbabs always came off as pretty straight to me.
Not gonna pretend I knew the guy intimately but his presence will be missed.
I was just reading the old comments. We know Anjali also passed away, but do you know what ever happened to hoss and M Norway?
Unfortunately no. They just disappeared a few years back around the same time.
Guess they ran out of Zeek topics to argue over 😀