Quite true.
A few nuances come into play.
First, am I an employee or an IBO?
It's the critics who want to treat IBOs as if they were akin to employees when addressing internal consumption. As far as I'm concerned they're retail customers when purchasing for personal use and wholesale customers when purchasing for resale.
ie standard business definitions.
Second, what percentage of personal purchases would distinguish an employee discount from just buying wholesale for yourself as a matter of course? Surely it would be a very, very small portion of overall sales?
"buying wholesale for yourself" is an unclear statement, since a wholesale purchase is in business
a purchase for resale. I assume you mean "buying at wholesale price for yourself" which is often shortened to "buying at wholesale" in general use.
I'm not sure the distinction particular matters. They both result in sales to "ultimate users" which is what matters ethically and legally.
The "critics" perspective (and it's evident on this thread) is that the products are
prime facie worthless or otherwise unsellable.
They therefore
assume that any "internal consumption" purchases are illegitimate demand, and if this is true then you have a "product based pyramid". This issue is addressed in the FTC Staff Advisory Letter I linked to earlier.
If you simply change your assumption and consider the possibility that distributors are purchasing primarily out of legitimate demand and their criticisms of MLM as pyramid scheme fall apart.
Third, the "found in all types of firms" bit. Certainly I wouldn't expect it in a firm that doesn't sell retail merchandise. For example, I own a business that sells a service. I do not sell to myself at a discount.
I used to sell web hosting services. I sold to myself at a discount, my agents also got discount rates for their own hosting.
For an MLM, the difficulty comes in because sales to oneself count as sales.
Why is it a difficulty?
Correct me if I'm wrong, but does Amway have a mechanism to track how much merchandise is consumed by distributors and how much to the general public?
Of interest, court precedent in the UK (no idea in the US) is that distributors, as independent contractors
are part of the general public. An MLM (L'Arome) closed down after being
sued for using competitors trademark in "internally used" pamphlets. The court ruled that by supplying these pamphlets to their distributors they were distributing them to the general public in violation of trademark law.
And here I mean some mechanism they trust, such as filled out warranty cards.
Most products are FMCG, so no warranty cards. In the US Amway requires distributors to certify they have 50 points in non-distributor retail sales every month or they won't receive commissions on downline orders. This is monitored by registering customers (including contact details) and their orders. Amway can also track customers who order themselves from the Amway website, but this is typically only a small portion of retail customer sales, most being handled personally by distributors.
There is no way for Amway to know if distributors have sales in excess of the 50PV required as they do not need to register them and it's effectively unnecessary extra work (though I think still a good idea). In Europe and many other markets there is no requirement for customer sales and no tracking.
It's worth noting that in FTC vs Amway, which cleared Amway of pyramid allegations, inventory loading etc, they were found guilty (and fined) for price fixing when they tracked osentsibly
independent distributor retail customer sales too closely, as the court judged this imposed pressure on distributors to sell at the recommended retail price and not discount. So Amway legal is a little leery of of retail monitoring.
On another note, what's the deal with sales taxes now? Do MLM's collect them?
They pretty much always have, which is sensible since a large portion of purchases by registered distributors are for personal use. Those actually reselling are responsible for handling the accounting and refunds etc according to local laws.
