Defining the Gray, Part 4
Part 4 is all about Amway’s recent battles across the globe. They’ve been busy over the past two years fighting for their lives on multiple continents. Although Amway might be considered slow for failure to recognize the changing legal landscape before these actions were initiated, they’re not entirely stupid. In my opinion, Amway’s response across the globe is highly informative for the entire industry. Granted, it might be too little too late. But their actions at least signal a change in the regulatory environment that disfavors companies relying on opportunity driven demand.
April 6th, 2009 at 5:24 pm
My upline platinums taught us how to fake out the computer by allocating some of our personal purchases as sales to customers/non-participants. With 3-4% retail sales, I would think this “training” was very common. When I later reported this to Amway, they ignored the issue. When reminding them again even later, they said they are choosing to “look ahead” rather than fixing “past” issues.
April 6th, 2009 at 7:56 pm
Although allowed to remain in operation, there were some things Amway was forced to change. An example is their requirement to sell products at full suggested retail prices. This is similar, yet not as significant, as the changes required in the UK recently. It’s easy to find folks claiming Amway “won” the UK case as well. However, price reductions of up to 70%, no tool profit, and stronger selling rules resulted from the UK “win.”
The 70% rule is primarily directed towards ensuring the IBO doesn’t inventory load to reach higher levels. It does NOTHING to ensure sales to nonparticipants, as IBO volume is counted as part of the 70% level, and has been since at least 1996 (I have a copy of the rules from that year, and am trying to locate rules from even earlier). Either the rule has changed, or the FTC doesn’t understand how the business works (more likely).
Another key rule is the product buy-back rule. The upline has a similar rule for tools, which is routinely abused.
The Pokorny suit has merits, and needs to be accelerated. Amway has been making changes which are making the lawsuit moot. Justice delayed is justice denied. However, there is marginal difference between keeping Amway “afloat” by constantly recruiting new members and the existing members having to add new customers in order to grow, especially those at the bottom of the organization. That’s why Amway told me the primary purpose of the retail rules is to prove the products are fairly priced, and do not constitute an inflated product pricing, disguised Ponzi scheme.
TEAM, as well as my previous affiliation with another group that was absorbed by TEAM in late 2006/early 2007, did VERY little teaching on selling. My own price comparisons showed there were plenty of products that are price competitive (at IBO price, not full retail price), but the upline made FAR more money from their tool scam than downline customer sales. With limited time, it made more financial sense to them to ignore customer sales and push the tool scam, HARD. Customers don’t need, and therefore don’t buy, tools. Bottom line, TEAM is made of a bunch of liars, as are most other LOS/LOA’s.
The UK “candlestick” shape is accurate, but the graph should show the vast majority having NEGATIVE profit, once the tool scam is factored in, while the height of the candle stick would be several times higher than a normal candlestick, again “thanks” to the tool scam.
The most significant change isn’t the tiered structure, it is the judge requiring the tool profit to stay at zero going forward. Here’s why: take a theoretical 6-4-2 organization doing all IBO volume, zero customers. Ignoring overhead temporarily, and using U.S. PV/BV values, if all IBO’s consume 100 PV/month (about $300 worth), the bottom IBO’s make $9, the top person a couple thousand, and the rest somewhere in the middle. Now change everyone to 50 PV self consumption and 50 PV retail sales. Even charging full retail, very little change in profit is realized (similar results will occur assuming 100 PV self consumption and 50 PV retail sales, or even the $400 level, which is about 130 PV). The bottom tier changes the most in percentage terms, but even at full retail only makes a few extra dollars. Same with the top level, with an almost zero percentage change. Now consider the tool scam: if left in place, FAR more IBO’s would have a few extra bucks in their pockets, subject to the constant pressure by skilled scammers to buy tools as the “shortcut to higher success levels.” IBO’s STILL wouldn’t see a net profit until about the Platinum level, making the situation WORSE, not better. There is plenty of independent, direct statements by those making tool scam money they made between 2-5 times or more money from the tools than Amway.
Amway will still be driven by constant recruiting, there is only a delay in order to obtain retail sales.
Regarding saturation, Amway has been around for a half century in the U.S. and is nowhere near saturation, although it is “saturated” by the negative reputation that has been earned. In fact, saturation will occur even faster the more that customers are a requirement. If each IBO has 5 customers, this takes out 6, rather than 1, household every time someone is sponsored and attains the retail requirements.
The culture of “overstatement” comes from the tool scam profit, not constant recruiting. By the way, buying clubs are NOT illegal.
The accreditation program is nothing more than putting a “Good Housekeeping Seal of Approval” on an inferior product. Accreditation does NOTHING to increase the tool profit transparency to the typical IBO. Until this happens, accreditation is like the increased sales volume, a good intent that backfires and fails miserably.
I have several, personal examples of Amway not enforcing their own written rules. The DSA is also worthless, based on my personal experience with them.
The pages skip from 60, 78, to 92.
April 7th, 2009 at 9:00 am
I agree that the price reductions in England were huge. The field cannot sell products if they’re priced out of the market. In my opinion, Amway got away with higher prices because they knew the recruitment engines in the field would overstate the opportunity, thus leading to people buying products at higher prices.
As far as Pokorny, I do think there are some teeth there. The most interesting allegations for me are the RICO allegations. The plaintiffs alleged that the tool companies and Amway knowingly conspired with one another to defraud consumers (by offering an unviable opportunity dependent on recruiting, not selling). If proven true, we might see US Attorneys (federal prosecutors) pursuing both the company (pyramid scheme) and members in the field (promoters).
As for the tool profits leading to distributors focusing on sponsoring instead of selling (because “customers don’t buy tools”), I think the root cause of all field behavior can be traced to the network marketing company’s pay plan. If their pay plan rewards retailing, then the tool companies will educate their folks on how to sell. If the pay plan rewards recruiting, then vice versa.
The most significant change from a legal perspective IS the tiered approach. The tiered approach forces everyone in the field to sell. There’s no work-around. And since a distributor needs to sell before they can sponsor, the downlines develop more slowly.
Customer sales are not a factor in the saturation analysis. If everyone in the country were a customer of XYZ MLM, it’s not saturated. Saturation occurs when the only way to make money is to recruit, and with each successive generation of recruits, there is a diminishing opportunity. Don’t take my word for it, read Koscot. With the tiered approach, I’d be willing to bet that there will only be enough distributors in a particular region to service that particular population.
I don’t understand Accreditation either. I recently received a message via Facebook from a girl I haven’t talked to in 15 years. She thanked me for writing the article and explained her experience with Amway. She didn’t even know she was supposed to sell Amway products. I told her Amway was trying to fix this problem and she probably got hooked up with a bad field leader. But it goes to show that they have a lot of work to do in the U.S.
The DSA has issues.
The pages skip because I’m cutting and pasting the pages from a master document. I release part V next week along with the full ebook.
April 7th, 2009 at 10:47 am
The recruitment engines didn’t overstate the opportunity, if you consider Amway plus tool profits. The upline can’t show off what they don’t have, but they can, and did, state the opportunity came from Amway alone.
The high Amway prices came from Amway getting lazy, because they could use the upline success, driven mainly from the secret tool profits, as “proof” the product prices didn’t matter, and could make more profit for themselves.
Once the tool scam was turned off, EVERYBODY was forced to get back to reality.
I agree about the RICO charges, the proof of Amway being aware of the tool scam is the 1983 “Directly Speaking” recordings. There are probably earlier documents, as I doubt DeVos used the 1983 recordings as his first opportunity to try to take action, unless the docments found a shreader along the way.
The AMWAY pay plan rewards both. However, the TOOL SCAM pay plan does not.
The tiered approach may be the most significant LEGAL issue, but the tool scam is the most significant BUSINESS (net profit) issue.
I disagree about customers not being a factor in the saturation analysis. Although an IBO could become a customer, and vice versa, once you are a customer you will be much less likely to respond to another IBO approaching you. You have effectively been removed from the population. Again, I agree with you from a LEGAL perspective, but not from a BUSINESS perspective.
When I was at one of the traveling road shows Amway did last year (this one was in the fall), I was introducing myself to an Amway rules person I had heated email and telephone discussions with, and wanted them to realize I was a real, and reasonable individual. A IBO walked up, who had been in the business for several years, and she had just found out about the name change back to Amway, and was worried about her downline finding out, as they had probably told them the “Quixtar is not Amway” lie. Even Amway was partly to blame for this issue, but the upline took the ball and ran with it.
I look at the DSA much like accreditation: even if there is an honest attempt to make things better, it does much more harm than good. However, I would question either is an honest attempt in the first place.
Thanks, I’ll look for the other pages.
I hope you see how increasing retailing without getting rid of the tool scam makes things worse. Perhaps not from a legal perspective, but definitely from a business perspective. This tells me the law needs to change.
April 7th, 2009 at 2:39 pm
P.S., the first 3 paragraphs are directed towards the UK. The tool scam practices still exist in the U.S.
April 7th, 2009 at 2:56 pm
With only 3 or 4% of Amway sales to non distributors, I would have to guess that the whole thing would collapse without the ability to keep recruiting new people. The attrition rate in Amway is staggering. If Amwayers stopped recruiting for even 6 months, a diamond organization would be on life support in the 7th month.
Accreditation, while on the surface looks like Amway’s attempt at cleaning up the shady tools business, was just a cover up. It is apparent that the accreditation has no teeth because it is not enforced.
April 7th, 2009 at 4:09 pm
Former IBO, what do you think about Amway’s actions in England. I’m specifically referring to the tiered approach where an IBO can only sponsor someone else after they’ve sold over $400 of products. Do you think that would help them in the United States?
April 7th, 2009 at 4:47 pm
Former IBO,
It isn’t so much that accreditation rules are not enforced, the rules don’t have teeth in the first place.
Kevin,
As I described above, introducing a tiered approach without getting rid of the tool scam at the same time is a minor legal step forward, and a MAJOR business step backwards, and amounts to a net step backwards.
April 8th, 2009 at 10:30 am
is the advocate group still here in nashville?
April 8th, 2009 at 11:53 am
Jared, The Advocate Group is wherever I am:) I’m currently in Michigan but moving to Nashville in early May. If you need to contact me, please feel free to do so at: kevin at theadvocategroup dot net.
April 21st, 2009 at 3:39 pm
“Former IBO, what do you think about Amway’s actions in England. I’m specifically referring to the tiered approach where an IBO can only sponsor someone else after they’ve sold over $400 of products. Do you think that would help them in the United States?”
I think it would probably be good for IBO’s, but the diamonds who sell the system would never allow it. The diamonds who profit from the cd’s and functions do not want their downline to waste their time selling products. They want them to recruit more IBO’s who can then be sold on the “system”. The diamonds might make money from downline volume but they make much more by selling a cd or a function ticket.
If Amway USA ever went through the same situation as the UK, I believe the business would implode.
April 30th, 2009 at 12:58 pm
Former IBO – I agree, I personally do not think that IBOs in the USA could do an ‘about face’ and adapt to those policies implemented in the UK. Self consumption is too embeded into the every day practices of most MLMs it seems and would be hard for people to change. I never had any retail sales in my business when I was building and I believe that was the case for the bulk of the business owners that I interacted with. People in MLMs have a hard enough time convincing people to join as a business owner, let alone trying to motivate them to get out and move product before they can become a builder.