Is Amway A Scam?

[icerat]

Let's say Coke went crazy and adopted Amway's business model. The price they sell to distributors at would have to go up substantially so that they could pay bonuses. Thus, the retail price would go up. No one is going to buy a $3 can of Coke at their supermarket; that would be a scam -like when you go to a hotel for a can of soda.

Furthermore, Coca-Cola would not sell anywhere near the level they sell now if they went to direct retail sales. Manufacturer-regional distributor-retail is a much more efficient model for the level of sales we are talking about with Coca-Cola.

Well this is similar for Amway. As per FTC vs Amway, manufacturer-direct distributor-retailer-customer covers the majority of Amway.

Remember, Coca-Cola also has the marketing expenses, not just distribution, tied in to their price, that money is directed in to bonuses by Amway. Indeed in modern MLM the distribution model is mostly manufacturer->customer, it's the marketing expenses that go to compensation.

A direct sales model makes sense only when you are trying to push niche products with a limited market. I'm struggling to find a situation when a pyramid-style compensation system ever makes sense.

Direct sales doesn't make sense on low margin products, no. Direct sales makes sense on high margin products where having a sales person be able to demonstrate or otherwise teach the buyer features and benefits that differentiate from competitors. Things like vacuum cleaners were initially marketed through direct sales (electrolux even had an mlm type of compensation plan). Once a product becomes well known though, and competition cuts in to the margins, direct sales is no longer a particularly useful model for that product.

You might want to draw out that coca-cola distribution model you outlined. You'll find it's far more "pyramid" like than your average Amway network.

 

[brian ronald]

Once a product becomes well known though, and competition cuts in to the margins, direct sales is no longer a particularly useful model for that product.

Since Amway's competitors have similar products, you're saying direct sales is no longer a particularly useful model.

 

[icerat]

Since Amway's competitors have similar products, you're saying direct sales is no longer a particularly useful model.

That would only be the case if they became low margin commodities, making them untenable in a direct sales model. If the margins are still high and personal contact is useful (eg makeup demonstrations, skincare and health talks, weightloss programs etc) then there's plenty of profit to share around. Even more so if you have fairly unique products, like much of the Nutrilite range.

To a certain extent that's what happened with concentrated environmental cleaners though, which is why Amway is no longer just a "soap company" and hasn't been for a couple of decades.

Change or die.

 

[xjx388]

Well this is similar for Amway. As per FTC vs Amway, manufacturer-direct distributor-retailer-customer covers the majority of Amway.

Amway is in no way similar to Coke. Coke sells to one exclusive bottler in each region. That bottler sells to retail outlets which then sell to consumers.

Amway sells direct to consumers. They call some of those consumers, "distributors," and bonus them and the, "distributors," in their upline for getting others to buy/sell. But Amway ships all product direct to the consumer/distributor.

Remember, Coca-Cola also has the marketing expenses, not just distribution, tied in to their price, that money is directed in to bonuses by Amway. Indeed in modern MLM the distribution model is mostly manufacturer->customer, it's the marketing expenses that go to compensation.

A can of Coca-Cola's Full Throttle costs about $1.50 retail. Amway's XS retails for about $3.33. That perfectly illustrates the fact that Amway has to charge a lot more for its products in order to pay bonuses on down the line.

Amway has plenty of advertising costs as well. Paying for Kurt Warner, et. al., all those brochures, websites and naming rights to arenas ain't cheap.

Direct sales doesn't make sense on low margin products, no. Direct sales makes sense on high margin products where having a sales person be able to demonstrate or otherwise teach the buyer features and benefits that differentiate from competitors.

IOW, the only thing that makes Amway high margin is the sales person, who basically lies about the benefits of Amway products. Otherwise, Amway would never sell in the open competitive market.

Things like vacuum cleaners were initially marketed through direct sales (electrolux even had an mlm type of compensation plan). Once a product becomes well known though, and competition cuts in to the margins, direct sales is no longer a particularly useful model for that product.

In the 40s and 50s, before mass retailing and the internet, direct sales may have made sense for some products. But now, it only makes sense for products that require pressure sales -like overpriced vitamins and makeup.

You might want to draw out that coca-cola distribution model you outlined. You'll find it's far more "pyramid" like than your average Amway network.

How can you say that? Coke has no pyramiding whatsoever. No levels and levels of distributorship. No bonus structure. No recruiting of more distributors.

 

[icerat]

Amway is in no way similar to Coke. Coke sells to one exclusive bottler in each region. That bottler sells to retail outlets which then sell to consumers.

Your bouncing all over the place. Are we talking logistics or financials?

A can of Coca-Cola's Full Throttle costs about $1.50 retail. Amway's XS retails for about $3.33. That perfectly illustrates the fact that Amway has to charge a lot more for its products in order to pay bonuses on down the line.

The fact a product costs more than another product is a "perfect illustration"? So if I can find an energy drink cheaper than Full Throttle, then that "perfectly illustrates the fact that Coca Cola has to charge a lot more for its products in order to pay distribution and marketing costs down the line."?

Of course not.

btw, I'd never heard of full throttle. I can't find it for the price you claim. Amazon has it for up to $3.37/can. At launch 8 years ago, rec retail price was between $1.99 and $2.99.

Amway has plenty of advertising costs as well. Paying for Kurt Warner, et. al., all those brochures, websites and naming rights to arenas ain't cheap.

Yes, I mentioned that. Still trivial compared to more "traditional" marketing expenses.

How can you say that? Coke has no pyramiding whatsoever. No levels and levels of distributorship. No bonus structure. No recruiting of more distributors.

So coke never signs up new wholesalers who sign up new distributors who sign up new retailers who sign up new customers?

Entirely static market huh?

And the money to pay everyone doesn't go "up" the distribution "pyramid", starting from the customer?

 

[brian ronald]

So to summarize:

- Amway's products are overpriced relative to products of similar quality
- Amway's distribution model is inefficient and they cannot achieve a competitive advantage in price and sales compensation due to the multiple and unnecessary pyramid distribution levels, no limit on the number of distributors and overpriced products
- Amway is a SCAM and a quasi-legal pyramid scheme

Distributors recruiting other distributors recruiting other distributors is ridiculous, legitimate franchises do not do this, for very good reason.

Sad people still fall for these MLM Scams in this day and age.

 

[icerat]

So to summarize:

- Amway's products are overpriced relative to products of similar quality

false assumption

- Amway's distribution model is inefficient and they cannot achieve a competitive advantage in price and sales compensation due to the multiple and unnecessary pyramid distribution levels, no limit on the number of distributors and overpriced products

false assumption

- Amway is a SCAM and a quasi-legal pyramid scheme

false conclusion, not surprisingly

Sad people still fall for these MLM Scams in this day and age.

sad people still think all MLMs are scams in this day and age, more than 30 years after the FTC investigated the very same claims and tossed them out as false

 

[Joecool]

false assumption
false assumption
false conclusion, not surprisingly

sad people still think all MLMs are scams in this day and age, more than 30 years after the FTC investigated the very same claims and tossed them out as false

They aren't false assumption. Amway's products for the most part, cannot compete with similar products at WalMart. Sure, Walmart doesn't sell LOC or Amway laundry detergent, but Walmart sells cleaners and other laundry products at a discounted rate. Walmart will match any advertised offer for a same product at the register. Amway won't.

And the FTC only found Amway to be legal. It says nothing about Amway being a good business opportunity or a profitable one for that matter.

Indeed the FTC found that Amway violated rules for making outrageous income claims.

 

[C1REX]

I don't know if Amway products are overpriced in USA but they are very good value in UK (no walmart or costco)

Most Amway Home products can help save money what is amazing considering the quality and how save their products are (ph neutral, bio degradable, natural ingredients).

Some other products are expensive but still cheaper than competing products of similar quality.
A good example is their extra virgin olive oil.

17.25GBP seems like a lot for 1.5L but it's still one of the cheapest 0.3% acidity olive oil on UK market.
I haven't find cheaper one on amazon or ebay and I'm talking about retail price.

Interesting how different the same company is on different markets.

Regards
Krzysztof Korotko

 

[marplots]

I don't know if Amway products are overpriced in USA but they are very good value in UK (no walmart or costco)

Most Amway Home products can help save money what is amazing considering the quality and how save their products are (ph neutral, bio degradable, natural ingredients).

Some other products are expensive but still cheaper than competing products of similar quality.
A good example is their extra virgin olive oil.

17.25GBP seems like a lot for 1.5L but it's still one of the cheapest 0.3% acidity olive oil on UK market.
I haven't find cheaper one on amazon or ebay and I'm talking about retail price.

Interesting how different the same company is on different markets.

Regards
Krzysztof Korotko

That's a good deal. I hope it isn't fake olive oil.

Frauds! An estimated 69% of all store-bought extra virgin olive oils in the US are probably fake, according to tests by the University of California. UC Davis tested samples from the top-selling extra virgin olive oil brands to find the ones that are not worth buying and those that are.

From: http://lifehacker.com/the-most-and-least-fake-extra-virgin-olive-oil-brands-1460894373

 

[Joecool]

I don't know if Amway products are overpriced in USA but they are very good value in UK (no walmart or costco)

Most Amway Home products can help save money what is amazing considering the quality and how save their products are (ph neutral, bio degradable, natural ingredients).

Some other products are expensive but still cheaper than competing products of similar quality.
A good example is their extra virgin olive oil.

17.25GBP seems like a lot for 1.5L but it's still one of the cheapest 0.3% acidity olive oil on UK market.
I haven't find cheaper one on amazon or ebay and I'm talking about retail price.

Interesting how different the same company is on different markets.

Regards
Krzysztof Korotko

Amway lowered their prices in the UK after they nearly got booted out of the UK. They also did a better job of regulating the tools scam in the UK after going to court.

 

[wrs]

scam or not, it's resilient

It's been around for 50+ years so I would say it's not a scam but it's not what people think it is. I was recruited for it back in the mid 80s by a friend from church. He thought it was a get rich quick opportunity, better than his mechanic job. He is still a mechanic and I never bought any product or went past the first meeting he took me to. I started my own business about 8 years later and made money by offering services and eventually my own product.

I was my own boss selling my own products and services. I guess other people can do it with Amway.

 

[Joecool]

It's been around for 50+ years so I would say it's not a scam but it's not what people think it is. I was recruited for it back in the mid 80s by a friend from church. He thought it was a get rich quick opportunity, better than his mechanic job. He is still a mechanic and I never bought any product or went past the first meeting he took me to. I started my own business about 8 years later and made money by offering services and eventually my own product.

I was my own boss selling my own products and services. I guess other people can do it with Amway.

Amway's been around a long time but that in itself doesn't mean it's a good business opportunity. The vast majority of Amway's IBO's make nothing or lose money, even when a valiant effort is expended. The tool companies almost guarantee failure for most IBO's as these functions and tools simply drain resources away from the IBO's and do not result in sales increases.

 

[Joecool]

Some tidbits uncovered during the Amway UK investigation:

In making his ruling in the case, the judge observed:

Among Amway's current "active" distributors in the UK, which exceeded 33,000, only about 90 of them earned enough bonus to cover the costs of actively building their business. That's a 99.7% loss rate for consumers induced to invest.

After the commencement of the investigation Amway cut the cost of homecare products by 48% and personal care products by 29%.

For the period 2001-2006, 95% of all bonuses were earned by just 6% of IBOs, 75% of all bonuses were earned by 1.5% of IBOs

Over a five-year period, a near 100% turnover rate among the "distributors."
2001-2002: 5,690 were recruited in but 10,149 quit
2002-2003: 6,525 were recruited and 8,000 quit
2004-2005: 12,561 joined and 8,756 quit

Amway UK's operation is consistently unprofitable as a business but is sustained by cash from Amway in Korea!

Although Amway UK never showed a profit, Amway has dropped prices as much as 48% and eliminated the registration and renewal fees!

The judge's ruling to allow Amway to continue is contingent upon:

All "tools" business be controlled by Amway UK and it is now not permissible to profit from them.
Amway will publish distributor earnings information
Both the registration and renewal fees are abolished
Amway has restructured so that a new class of representative is created that only retails.

 

[C1REX]

I don't know about that but for me is a good way to save some money here in UK.
Plus, the products are really good quality so I'm happy

 

[Joecool]

I don't know about that but for me is a good way to save some money here in UK.
Plus, the products are really good quality so I'm happy

It seems that Amway made serious concessions in the UK, almost to a point where they might not be very profitable. If it were a good idea, you'd think the same changes would have been made in the US. For whatever reason, the Amway opportunity has been ignored by regulatory agencies based on that 1979 ruling. It should be revisited.

 

[barehl]

This discussion over Amway has been amusing but it kind of misses the point. According to Amway, Amway has no future. Has anyone bothered to read the Amway corporate reports? Amway is touting growth in Malay. When you have to brag about getting into the Malay market, you've got a serious problem. Amway also brags about opening actual brick and mortar stores. Finally, Amway is having to address online sales. Yes, all of those things add up to a declining profit market for the Amway associates. So, multi-level marketing is in decline.

 

[C1REX]

I don't know any of these details but I really like some of the Amway products.
Their laundry and cleaning products are super cheap and my GF likes the fact it's organic, ph netrual, environmental friendly etc. I like the price most

They also have very good English Breakfast Tea in UK. High quality at very low price. Same as their extra virgin olive oil. I haven't find cheaper one with such low acidity level.


If the company has some problems then they are theirs - not mine

 

[Scopedog]

I don't know any of these details but I really like some of the Amway products.
Their laundry and cleaning products are super cheap and my GF likes the fact it's organic, ph netrual, environmental friendly etc. I like the price most

They also have very good English Breakfast Tea in UK. High quality at very low price. Same as their extra virgin olive oil. I haven't find cheaper one with such low acidity level.


If the company has some problems then they are theirs - not mine

Hi, the subtitle of this forum is 'a place to discuss skepticism, critical thinking, the paranormal and science in a friendly and lively way'. Are you interested in the skeptical analysis and discussion of Amway in this thread? Or are you just here to talk about the pleasing acid levels of their products?

 

[C1REX]

I'm very interested in discussion.

What I'm trying to say is that there is another side of Amway - customer side.
MLM may not work for most people as a business opportunity but there is some happy customers.

I believe that more options is good for customers.