Category Archives: Amway Myths

Amway Myths

AMWAY MYTH: Amway business vs Tools business – a conflict of interest?

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Most, perhaps all, large and long-term Amway/Quixtar businesses use some kind of Business Support Material (BSM or "tools") to help train and motivate their groups. Just like in pretty much any other business, the more of a particular product you buy, the cheaper you get each "unit". So an IBO who purchases 1 CDs from a BSM company will typically get a cheaper per-CD rate than another IBO who purchases 1 CDs or 1 CDs.

Whenever you get volume discounting, you also of course get potential for profit. So if you buy 1 CDs and then on-sell them in ten lots of 1, you might make a profit. It's essentially how Amway works, it's essentially how most product distribution businesses work.

This has however caused some controversy within the Amway/Quixtar business and some critics claim that this causes a conflict of interest – the upline becomes more interested in selling the tools to their downline rather than actually helping their downline build a profitable Amway/Quixtar business. On the surface this looks like a reasonable concern – there is however a major flaw in this thinking that can be addressed by answering two simple questions –

Q: How do I increase my profit from Amway?

A: Build a larger Amway business

Q: How do I increase my profit from BSM?

A: Build a larger Amway business

Even in the extreme case of a person who was solely interested in generating profit from BSM sales, it's quite obvious they would be motivated to provide the best tools possible for helping an IBO build a large and profitable Amway business. The more successful the IBO using the tools are, the more potential customers of the BSM there will be.

There is no conflict of interest between building an Amway business and profiting from the sale of BSM.

Now, that's not to say problems can't arise. I have for example heard that some BSM companies base their discounts on Amway pin level rather than on the actual volume of tools purchased – and what's more, that discount remains even if you no longer qualify for that Amway business. In other words, Amway income and rebate percentages could drop, but the BSM rebate percentages doesn't, meaning the "tools income" would become a proportionately higher percentage of total income. In such cases, with the customer base shrinking, I'm sure there could be a temptation to try to push tool sales on to your existing "customers". Of course, this is quite obviously not smart business – you'd be much better addressing the reasons for the Amway business shrinking and increasing profits from all areas. Still, I could certainly imagine this scenario.

In my opinion, calculating BSM discounts on "ever qualified" pin level rather than actual volume purchased is a corruption of basic economic principles, and I'd hope that any BSM companies operating on that basis would reevaluate their operations.

Even in this scenario though, it's not a conflict of interest, it's just dumb business.

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Amway Myths, Eric Janssen, Robert FitzPatrick

MYTH: It’s a pyramid if most products are bought by IBOs

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Many critics like to claim that Amway and other MLMs are a “product based illegal pyramid scheme”. The claim is that they are illegal pyramid schemes because the majority of products are consumed by “members of the scheme” and not retail customers. It’s quite common for them to also claim that in the FTC vs Amway, the FTC declared Amway not an illegal pyramid scheme because of these retail customers. Continue reading MYTH: It’s a pyramid if most products are bought by IBOs →

Amway Myths

MYTH: There are only 55 qualified Quixtar Diamonds and above

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I regularly see Quixtar critics doing convulated calculations based on little but assumptions and guestimates trying to calculate how many qualified Diamonds and above there are in Quixtar in North America. Back in 25 Lawdawg, the self-styled expert of the mlm lawblawg claimed there were only about 55 (site now gone). This has bounced around the internet echo chamber ever since, and even this week on the webraw forums the critics have again convinced themselves of much the same conclusion. Well, I invite you to click the following image and scroll around (requires QuickTime ) –

(no longer available)

It’s a panoramic photo, available on Quixtar.com , from one of Diamond meetings at the all expenses paid Diamond Club 2006 seminar at the Grand Hyatt Kauai Resort and Spa. Does that look like 55 IBOships to you? I quote from the article on Quixtar.com –

More than 270 IBOs descended on the Grand Hyatt to kick off Diamond Club. They received their amenities, registered for activities, then went into meetings or headed outside to enjoy the sun and water.

Many IBOs crowded into a ballroom to watch the Super Bowl. Others returned later to watch a repeat of the game. The evening was capped off with an outdoor luau, where these high pins greeted each other, rekindled friendships, and celebrated their achievements and successes.

So, even if every single Diamondship and above was a couple, and we know they are not (Tim Foley for example), this means there was at least 135 separate IBOships in attendance at 2006 Diamond Club. What’s more, there is no compulsion to attend. If you qualified Diamond in 1986 and still qualify for Diamond Club, you’ve probably been to Hawaii more times than you can count! Maybe your retired and just decided not to go? What’s more –

Twenty-five new pins were honored, led by Tim Foley, a new Founders Crown Ambassador from Tavares, Florida, and Seung Ho and Hyunja Kim, new Founders Double Diamonds from Glen Head, New York. Also recognized were seven new Executive Diamonds, two new Founders Diamonds, and 14 new Diamonds.

source (may require logon)

So there’s the facts, there is at least 135 qualifying Diamonds and above. The critics show their ignorance yet again.

UPDATE: Anna Bryce on the Quixtar Opportunity Zone has confirmed that at North American Diamond Club 2007 there were over 300 diamonds representing approx 160 IBOships.

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Amway Myths

MYTH: North American sales have shrunk in the last 15 years

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I've today come across yet again an Amway critic claiming that Amway/Quixtar North American sales have declined in the last 15 years. I suspect this Myth comes about because Amway in North America used to report their sales data as "estimated retail sales", ie as if the products had been sold at recommended retail price (RRP). The reality is that a lot of products are not sold at RRP – IBOs either use them themselves or may sell at less than RRP. Today, Amway, Quixtar, and Alticor report their sales as actual sales, ie the price the products were sold to IBOs at.

So what's the truth about sales growth?

In 199 Amway reported global estimated retail sales of $2.2 billion. In today's reporting terms that's approximately $1.7 billion. Adjusting for inflation, it's $2.4 billion.

In 25 Amway reported global sales of $6.4 billion. So, even accounting for inflation, that's 167% growth globally.

Now, that's not just North America, Amway was in 2 countries in 199, and googling shows Japan alone did half a billion, so, inflation adjusted, $1.7 billion was North America plus 17 other markets, compared with North America doing $1.1 billion alone in 25. A decline in sales would require the combined sales of those 17 other markets to be less than $6 million. Highly unlikely!

Or another way of looking at it –

In 1995 DeVos reportedly said North America accounted for 3% of Amway sales. In 199 it would probably have been higher, and today it is obviously lower Around 17%), but if we take that 3% figure it would be $72 million in sales in 199 (that's adjusted for inflation and in today's reporting terms). This would mean North American sales have grown 53% in the last 15 years.

Now, North America probably accounted for a bit more than 3% of sales in 1995, but not enough to go from 53% growth to "no growth" as some claim.

Myth BUSTED

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Amway Myths, Critics of Amway, Steve Nakamura (JoeCool)

Amway/Quixtar Myths, Psycho-facts and the Internet Echo Chamber

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The Internet is unprecedented in it’s ability to provide access to massive amounts of information to anyone who wants it. However, as a true “medium of the people” there is no editorial oversight. There is nobody fact-checking statements and claims. Anybody can write pretty much anything they want. In theory of course, if one person puts up a website making one claim, then someone disputing it can put up another website, and an independent observer can make their own judgements.

In reality though, few of us are truly independent observers. We each have our own background, our own experiences, our own biases through which we filter everything we encounter. One effect of this is what psychologists call confirmation bias – we tend to actively seek out and give more weight to evidence which supports the beliefs we already have, and we give less weight to evidence which contradicts our beliefs. For example, someone who already believes that UFOs are alien visitors is far more likely to accept a report of a UFO sighting than someone who does not hold this belief. A “believer” would tend to accept the report at face value – a skeptic would look for other explanations.

Another phenomenon of belief is the Echo Chamber effect. Like minded people tend to congregate in similiar places, and share similar ideas. Simply by virtue of the fact we each have limited hours in the day, this also means we inherently limit our exposure to other ideas. We talk to people who agree with us, they talk to us, we all tell each other we are right, and our beliefs are reinforced and strengthened. It has been said that if something is repeated often enough, most people will believe it, no matter whether it is true or not. Robert Samuelson, writing in Newsweek, called these beliefs Psycho-facts. In the world of logic, it’s a logical fallacy known as argumentum ad numerum – if it’s repeated often enough, it must be true!

The Internet provides an almost perfect arena for these phenomena to act in concert. Individuals can log on to Google and search for a subject they are interested in. Confirmation bias plays it’s role, and the individual will be more likely to read and believe articles that support their existing tendencies. Then forums, newsgroups, chatrooms, and sites like MySpace allow these like-minded people to congregate in virtual communities, reinforcing their beliefs in the Internet Echo Chamber. Using blogs and other web technologies, these beliefs can then be published in a variety of forms, with little or no editorial oversight or fact checking. As these sites and posts accumulate, “psycho-facts” are reinforced via argumentum ad numerum – “it’s all over the internet – it must be true!“

I encounter this phenomonen again and again amongst internet-based critics of Amway and Quixtar. A meme is somehow spawned, and then the critics repeat it amongst themselves and elsewhere. The meme is spread through forums and blog comments so that it appears ubiquitous. And of course, this very ubiquity reinforces the belief there is a factual basis in the meme – when often there is not.

One example is the myth that there has been no growth in IBOs in 30 years. This particular meme began with a post on September 1 2004 by Amway/Quixtar critic “lawdawg” on his website, LawBlawg. The post Zero Population Growth (site now defunct), seemed logical and reasonable and claimed that the numbers of Amway and later Quixtar IBOs had not increased substantially in 30 years. This is in fact false, something I address elsewhere on The Truth About Amway and Quixtar. The falsity of the claim did not, however, prevent it being spread throughout the internet.

Barely one week after lawdawg’s post, a comment by user “Doug_G” repeats the claim on Quixtar Blog. The following month, in October 2004, a poster by the name of “Roger” repeats the falsehood on the What About Quixtar forum as does jason on Sinking in Quixsand. Lawdawg himself repeats the claim often on QuixtarBlog (november 2004, June 2005, July 2005) as well as on his own site (now defunct). “Rocket” repeats it in October 2004. In December 2004 and May, June, and July 2005 “Imran” repeats the claim in posts on the Random Observations site, run by a Quixtar critic. In May and August 2005 it’s repeated by poster “dmm” on QuixtarBlog. In July 2005 it’s also repeated on the WorldWideDreamStealers site. In August, November and December 2005 it’s stated as fact by JoeCool18 on QuixtarBlog and other sites critical of Quixtar. Joecool18 repeats the claim again in February 2006 on the QuixtarBlog forums. WildHalcyon states it as fact on QuixtarBlog forums in October 2005. Ty Tribble continues the myth in April 2006 and in July of 2006 JoeCool18 is still repeating it on yet another site, despite him being aware of it being false through my discussions with him on QuixtarBlog.

So, one falsly constructed post in October 2004 is repeated elsewhere in less than a week and is still being repeated around the internet two years later. In just my brief googling I’ve discovered 10 different people repeating the myth more than 20 times on at least 9 different websites. How many other people have repeated it on how many other sites we’ll never know. And how many hundreds, indeed thousands of people have read this “psycho-fact” we’ll also never know.

The Internet is a marvellous tool for research, but as always, be wary of where the information comes from. We all have our biases, we all have our wish to be right. Something may be repeated by many people in many places – but that doesn’t mean it’s true!

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Amway Myths

MYTH: IBOs *must* sign the BSMAA

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This Myth, like many others, I suspect began with "lawdawg" and his MLMLAW blog. Essentially, the myth is that to register as a Quixtar IBO, Quixtar requires that you sign something called the Business Support Material's Arbitration Agreement, or BSMAA.

Eric Janssen, QBlog, picked up on it and it was debated somewhat on his QuixtarBlog forums. My reading of the Quixtar Rules book and the IBO contract and BSMAA contract made it seem very obvious to me that the BSMAA was an optional agreement. If you wished to buy "tools" or BSM (Business Support Materials) then it was strongly recommended you sign it, but there was no "requirement". Contracts and agreements like this are normally very carefully worded, and the wording was obvious. There was no requirement.

The "critics" however did their normal practise of ignoring the obvious (ala lawdawg ignoring sections titled "Definition of a Pyramid Scheme" when quoting court cases while trying to support his definition of a pyramid scheme) and carefully parsing words and cherrypicking definitions and continued to insist that yes, IBOs must sign the BSMAA. This of course was just more evidence to them of the horribly restrictive nature of Quixtar.

QBlog, to his credit, did something fairly obvious to try and clear up the confusion. He called Quixtar and asked! He posted the response of customer support on his website, including an MP3 recording of the conversations.

The reponse was pretty straightforward – You need to sign it. It's part of the plan.

But, well, it still didn't seem right to me. I reread the documents and it nowhere said you MUST sign it. Just lots of "shoulds". I couldn't see anyway it could reasonably be interpreted as "must". The issue was clouded more when a forum user on this site called Quixtar and was told, no you don't need to sign the BSMAA.

Only one way to find out for sure. I arranged for a fax to Quixtar and to get an answer in writing. Response below the fold.

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Amway Myths

Amway/Quixtar MYTH: No growth in IBOs in 30 years

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This myth seems to have been started in 2004 by the infamous lawdawg on his MLMlaw blog, with a post Zero Population Growth (update: the site has since been removed). Lawdawg takes a quote from a press release stating that Quixtar has a sales force of about 340,000 IBOs –

Though it’s young, Quixtar already has a sizable sales force: about 340,000 distributors — Independent Business Owners, or IBOs, as Quixtar calls them

He then takes some figures from the FTC v Amway case in 1979-

1. The number of active distributors since 1972 has remained relatively constant, fluctuating around 300,000, climbing in 1977 to about 360,000.

And “confirms” his 2003 figure by quoting a 2003 Tax court case Guadagno v. Commissioner, where it states –

Amway has about 360, 000 independent distributors.

On the face of it, this lookings pretty damning doesn’t it? Nearly 30 years and no growth in IBO numbers! A little common sense though makes one think. It certainly made me think when I read lawdawg’s page, and here is what I found ….

Ponder this

From FTC v Amway –

183. Amway’s United States sales have grown from $4.3 million in 1963 to $169.1 million in 1976. Worldwide sales of Amway products in 1976 amounted to about $205 million. (RX 431, RX 448) [71]

and the same press release lawdawg quotes –

Quixtar, which sells in the United States and Canada, hit the $1 billion sales level for the first time last year, and has set monthly records since then.

Hmm ….

1976 Amway Sales – $169,100,000
2003 Quixtar Sales – $1,035,000,000

What’s more, prior to 2000, Amway reported estimated retail sales, ie sales as if IBOs had sold them at recommended retail price. Since 2000 they have reported actual sales. The FTC reported the markup in 1976 was on average 03%, so comparing actual sales (a little over a billion in 2003) we have –

1976 Amway Sales – $130,076,923
2003 Quixtar Sales – $1,035,000,000

Lawdawg would have us believe, that without any change in the number of IBOs, the sales for the corporation have increased nearly 700%!

Even adjusting for inflation, and converting to year 2003 dollars, sales in 1976 would only be equivalent to approx $425,061,704. From 1976 to 2003 there has been a more than doubling in sales volume, or inflation adjusted, growth of 143%.

1976 Amway Sales – $425,061,704 (inflation adjusted)
2003 Quixtar Sales – $1,035,000,000

Have IBOs really become so much more efficient, and profitable? What’s going on?

What’s going on is that the two numbers lawdawg compares aren’t measuring the same thing. In the FTC v Amway case, the numbers reported were “active distributors”. How was “active” defined in FTC v Amway?

At the end of the calendar year the files are cleared of the names of distributors who elected not to continue. The number of distributors at the beginning of the year therefore is close to the number of active distributors.

In other words, it’s the number of IBOs that actually renewed. How is “active” defined by Quixtar today? From thisbiznow.com –

**Based on an independent survey during 21. “Active” means an IBO attempted to make a retail sale, or presented the Independent Business Ownership Plan, or received bonus money, or attended a company or IBO meeting in the year 2001.

Two completely different measurements of “active”. You can’t compare them.

So what’s the truth? Fortunately, with a little straightforward math, we can do a comparison of like with like.

Fun With Numbers!

So, actual sales in 1976 were $169,100,000. FTC v Amway also reports –

In 1973-­74 the average BV for each distributor was about $33 a month.

BV stands for Business Volume and at that time was equivalent to the value of the products less the retail markup – ie the actual price sold to IBOs. I’ve already accounted for the retail markup, so to obtain the total number of IBOs in 1976, it’s a simple matter of dividing the sales figure by the sales per IBO for the year –

Total IBOs in 1976 = $169,100,000/($33*12) = 427,020

Now, it’s possible that the BV per IBO changed between 1974 and 1976, however the FTC reports it increased from $20 to $33 between 69/70 and 73/74. This means any adjustment in the number of IBOs would likely be a decrease. We’ll take the higher number.

What about for Quixtar in 2003/2004? Well, Quixtar Platinums have access to something called “The Platinum Index”, which provides the very statistics we need. A copy of the 2004 index, providing statistics for 2003, is on QuixtarBlog. From this we have the following information –

Quixtar actual sales 23: $1,035,000,000
Average Monthly PV per IBO: 38.46
Average amount of PV for each $1 spent: 0.37

Now, this time the calculation is fractionally more complicated, since we have to account for “PV” and convert to BV.

Average Monthly BV per IBO = PV per IBO/PV for each $1 spent = 38.46/0.37 =14BV

Total IBOs in 2003 = $1,035,000,000/($14*12) = 829,327

In other words, a 94% increase in the number of IBOs – Reasonably consistent with the inflation adjusted 143% increase in sales and the increase in BV per IBO.

These calculations required no guesswork, no estimates. “Critics” will tell you that Amway and Quixtar has “saturated”, that it hasn’t grown in 30 years.

They’re wrong.

Sales have more than doubled, and matching this, the number of IBOs has almost doubled. No guesswork. No estimates. Just pure math.

Myth BUSTED.

UPDATE 060803: I found an error in my original calculations where I mistakenly used the inflation adjusted figures to calculate the number of IBOs in 1976 instead of the actual sales data. Corrected.