Tag Archives: MLM

Critics of Amway

Critiquing the Critics

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Bloomberg Business Week has today published an article about the direct selling industry that appears to be little more than a propaganda piece straight from the pen of MLM critic Robert FitzPatrick. It astounds me that supposed journalists do so little research on these self-declared “experts” and even less on the claims they’re making. So I’m going to do their job for them and write a series of articles on some well known MLM (and Amway) critics, who they are, and how their claims stand up to the facts.  My current list –

General MLM Critics
Robert FitzPatrick (Pyramid Scheme Alert)
Jon M. Taylor (Consumer Awareness Institute)
Dr Stephen Barrett (MLMWatch)
Bob Carroll (The Skeptics Dictionary)
Rick Ross (The Ross Institute)
Tracy Coenen (Sequence Inc)
Steven Hassan (Freedom of Mind Institute)
Dean Van Druff (What’s wrong with multi-level marketing?)
Peter Bowditch (ratbags)

More Amway-specific Critics
Russell Glasser (The Perils of Amway)
Scott Larsen (Amquix)
Steve Nakamura (JoeCool, various blogs)
David Touretzky ( Amway/Alticor/Quixtar Sucks!)
David Brear (various blogs)
Shyam Sundar  (Corporate Frauds Watch, India)

If there’s others you’d like me to address, please drop me a note in the comments below!

Update:

New post on Steve Nakamura aka JoeCool –  Who is Amway critic Joecool? And does he owe me $50000?

Amway Myths, Commentary, Peter Bowditch, Robert T. Carroll, Steve Nakamura (JoeCool)

Are you recruiting your competitors?

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A supposed “criticism” of Amway, and indeed of multilevel marketing, that I’ve seen turn up regularly is the idea that it’s inherently flawed because “you are recruiting competitors”. For example, Robert T. Carroll, in his “Skeptic’s Dictionary” says –

Why, you might wonder would you recruit people to compete with you? For, isn’t that what you are doing when you recruit people to sell the same products you are selling? MLM magic will convince you that it is reasonable to recruit competitors because they won’t really be competitors since you will get a cut of their profits.

Australian MLM critic Peter Bowditch (ratbags.com.au) says for example regarding his own business compared with MLM –

I am a certified consultant and an authorised reseller for several software and hardware products. I can open a retail shop to sell these things, I can sell them on eBay, I can walk door-to-door around the neighbourhood, I can ask retailers to stock them and computer builders to include them as packages with their machines …I am not expected to find and recruit competitors for my business

Anti-Amway obsessive JoeCool comments on one of his (many) blogs –

 you are very strongly encouraged to RECRUIT YOUR OWN COMPETITION. If Amway were a business where the goal was to make money selling products, it is a suicidal business plan

So, what are they on about?

Well, the claim has some truth to it because when you sponsor someone in to your business, that person is indeed now a potential competitor for a retail customer. For any given customer, you’ll make more money if you sell to them personally than if your downline does.

One flaw in this “complaint” is that the same thing applies in traditional business as well. If you owned a small clothing store, every time you sell something, you get to keep all the profit. But what if you employ someone? In the clearest example, if you simply paid them on a commission basis, then they are a direct competitor to you on each retail sale. They get that commission instead of you. The same really applies even if they’re a salaried employee. The money your paying them could have stayed in your pocket if you hadn’t employed them and sold it yourself!

Or how about Coca-Cola? If you buy a coke from an official coca-cola vending machine then are you’re buying it direct from Coca-Cola. Yet you could also buy it from your local corner store. Every time Coca-Cola reps try to get a store to sell their products, they’re recruiting competitors!

Or let’s take Pete Bowditch’s own software example. As he mentioned, he could sell the software directly himself, or he could ask retailers to stock them. In other words – he could recruit a competitor! By having a reseller sell to a customer, that’s a potential retail sale he is missing out on.

Why does Coca-Cola recruit competitors? Why does a  small business owner recruit salespeople? Why does Bowditch suggest recruiting retailers?

No “MLM magic” is needed to answer that. It’s because you can make more money that way! By recruiting resellers, you can hopefully get much larger total sales volumes than by trying to do all the sales yourself. Yes, you’ll make less money per sale than if you did a sale personally, but you still get a percentage on the wholesale sale to your recruit, and you should be able to get a lot more sales for the same time invested. Asmaller percentage of a larger volume can easily be worth more than a larger percentage of a smaller volume. What’s more, the larger discount you get thanks to your recruit’s volume means you get an even bigger profit margin on your own retail sales!

Unless the marketplace for your products is saturated, and there is no room for expansion, recruiting other sales people to increase your sales volume is a smart and sensible way to increase your profitability.

Commentary

The #1 problem with Amway and multilevel marketing

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Amway has  a problem, a problem it shares with entire multi-level marketing industry. The result of this problem is that the vast majority of people who join Amway never make any significant money.  It’s a problem that leads to low average incomes. It’s a problem that leads to many people not renewing their memberships.

This very same problem occurs with all MLM companies. This same problem, at an industry level, also means that a large percentage, perhaps even the majority, of multilevel marketing companies are not good business opportunities and many are outright scams.

It’s a problem that, thanks to things like above, results in the multilevel marketing concept and companies like Amway having a poor reputation among many people.

What’s the #1 problem with Amway and multilevel marketing problem?

Low barriers to entry and low risk.

It’s (relatively*) easy and (relatively*) cheap to start up an MLM company. You don’t even have to pay much for marketing! You only pay your salespeople when they actually get results! So if you’re an entrepreneur who is low on cash, or got some product that can’t compete in the traditional marketplace, or even if you’ve got some scam in mind … then MLM is the strategy for you. Low risk, low cost, so if it doesn’t work out you live to fight another today.

It’s easy to startup as an agent for an MLM company. It usually only costs a few dollars, nobody checks up to see if you’re turning up for work, you can return stuff you don’t want or can’t sell. Nobody cares what degrees you have or your success or failures of the past. Why not give it a shot for a few weeks or months and see if it’s something for you? What have you got to lose? It’s just an opportunity, not a promise.

Low barriers to entry and low risk. Amway and multilevel marketing’s biggest problem – and it’s greatest strength.

* compared to traditional strategies!

Commentary, Critics of Amway, Jon Taylor, Robert FitzPatrick

Great News for all Network Marketers

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As many North American readers would know, in 2006 the US Federal Trade Commission (FTC) proposed a new Business Opportunity Rule which, as written, would require multi-level marketing opportunity promoters to provide prospects with a whole range of new information, such as names of other local participants, lawsuits, etc etc etc. It also imposed a mandatory 7-day waiting period before a person could join.

The MLM and Direct Selling Industry argued that the requirements were not only unduly burdensome on legitimate companies, they would in fact have little effect on illegitimate companies. The FTC has agreed, and MLMs are effectively exempt from the proposed new rule.

There is some very interesting information in the full FTC discussion paper. One area of discussion was the problem of declaring average incomes, when many people join purely for the purpose of receiving “wholesale pricing”. Shaklee for example, revealed that 85% of folk who join that company do so for that reason.

The FTC included summaries of the claims of the bogus “consumer advocates” Pyramid Scheme Alert (Robert FitzPatrick) and Consumer Awareness Institute (Jon Taylor) but appeared unswayed by their arguments that MLM are effectively all illegal pyramids. One particular line from the Jon Taylor’s CAI which always makes me laugh –

“[i]t is extremely rare for MLM victims to recognize the fraud in an MLM program without intensive de-programming by a knowledgeable consumer advocate”

Good grief, get a life Jon.

Folk have argued that the UK BERR and the FTC have recently been in regular contact regarding MLMs. In particular a number of critics have claimed the BERR case has put MLM, and in particular, Amway, under strong FTC scrutiny. If this paper is any reflection of what the FTC and BERR have discussed, then it augurs well for that case.

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