psionl0
Skeptical about skeptics
I thought that the amway model was buying in volume from someone higher up in the pyramid and selling it to people lower down in the pyramid.
Moderated MLM Crap :(
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They WOULD be, if -- like Amway -- their material is "you can become an NBA champion by joining us!"
icerat
Philosopher
There has now been several price comparisons on this very thread, not even of products Amway manufactures, and none of them were "ridiculously overpriced". Indeed when it was possible to compare the exact same products (the chicken soup), Amway was cheaper in the majority of comparisons.
Just cause you keep rote ranting something doesn't make it true
I've never encountered an Amway rep trying to sell the 3rd party motor oil or 3rd party baby shampoo. Have you?
They can of course, but they'd have to be idiots, with margins to rec retail price of a few percent on them versus up to 35% on Amway's own brands.
icerat
Philosopher
Please show some examples of Amway material that does anything remotely like that.
Here's the opportunity brochure
I'd also appreciate some examples of NBA champions who became that without joining a basketball club as a child.
icerat
Philosopher
(1) In the real world it's not even remotely pyramid shaped
(2) In business "pyramid" has a specific meaning and means the operation is illegal. Amway is not a pyramid.
But that aside, yes, buying from someone "higher up" (ie closer to manufacturer) in the distribution chain and selling to someone "lower down" (ie closer to consumer) in the distribution chain does describe the wholesale (ie sale for the purpose of resale) side of the operation. Just like traditional wholesale distribution.
Just like traditional distribution, every Amway product sold has a final retail (sale to end consumer) transaction plus (according to the FTC) anywhere from zero to six wholesale transactions
Amway is a legal pyramid scheme due to various loopholes. But it's still a pyramid scheme where the vast majority of income to those above comes from money given to them by those below.
Not really.
In Amway the vast majority of products are sold to people who are themselves reps. Independent sales to actual customers who are not reps (or the reps long-suffering friends and family) are practically nonexistent.
In other words, the product is mostly a cover to make the transfer of money from the bottom of the pyramid to the top legal.
icerat
Philosopher
Good idea. How about Amway's first product, L.O.C.® Multi-Purpose Cleaner, introduced in 1959 as one of the first concentrated biodegradable cleaning products for the home market. It is certified under the EPA's "designed for the environment" program.
Recommended retail price is $6.35 for 1 litre
I'll make a couple of simplifications for the purpose of this example
(1) we'll assume it's the only product being marketed
(2) we'll assume physical distribution through the chain, rather than the drop shipping method most common today
(3) we'll assume volume discounting occurs at the point of transaction, rather than assessed monthly and rebated
(4) we'll assume one large order, rather than orders being collected throughout the month and collated monthly
To qualify for direct distributor (now called "platinum") pricing, the maximum discount and historically the only level at which you can actually purchase directly from Amway, you must purchase a minimum 4033 units of LOC.
With volume discounts applied, this costs the direct distributor $16333.65, or $4.05 per unit.
The direct distributor can either sell the product at retail (to an end user) at whatever price they decide
Alternatively, they can resell it to another distributor using a sliding scale of volume discounts provided by Amway.
This varies a little between countries, I'll use the US. I've converted it to # of units of LOC rather than the point system actually used.
The base markup used on the direct distributor pricing in the US is 23%. Outside North America the scale is different, with different volumes at each level, the top two levels being removed and the Direct discount being 21%. In some markets the bottom, 3% level has also been removed. In otherwords, North America has potentially more "hands in the jar" than any other market and is the exception
3225-4032 | 23%
2141-3224 | 21%
1345-2140 | 18%
807-1344|15%
538-806|12%
323-538|9%
162-322|6%
54-161|3%
0-53|0%
*Note, if a distributor purchased more than 4032 units then they'd qualify to order direct from Amway. The volume still contributes to calculation of the originating distributors volume discount, and additional incentives are added to compensate for the loss of margin
So, the direct distributor can make a profit of 57% selling the product direct to a retail customer at recommended price, or they can make a profit of between 2% and 25% selling with volume discounts to another distributor.
The precise same setup applies to the distributors he has sold to, and so on, with the exception they are limited to selling at most what they have bought. Each one may sell direct to a customer, or may resell to another distributor.
Note that if you resell to another distributor at the same volume discount as you purchase, then there is no profit margin. This would be akin to a shop buying a hundred shirts for $X and selling all of them to one customer at the same price. Not particularly smart thing to do, so it's sensible to have multiple customers contributing to your volume such that your volume discount is always greater than theres.
You still get the advantage of the additional margin when selling at retail though.
So how long is the distribution chain? How many hands in the cookie jar?
Depends.
The direct distributor might buy something for himself, he's the consumer. He's getting a discount, but only Amway profits.
Amway-Direct (1 profits)
He might instead sell it to a consumer, which might even be another distributor
Amway-Direct-Consumer (2 profit)
He might sell to another distributor who resells it to a consumer
Amway-Direct-Distributor-Consumer (3 profit)
The maximum number of hands in the jar would be
Amway-Direct-23%-21%-18%-15%-12-9%-6%-3%-Consumer (10 profit)
That last situation would be extremely unusual. More common might be something like this -
Amway-Direct-15%-3%-Consumer (4 profit)
Now, you could have something like this -
Amway-Direct-18%-18%-18%-15%-15%-12%-12%-12%-12%-9%-9%-9%-9%-6%-6%-3%-3%-3%-0%-consumer
But in that situation the vast majority of distributors in that "chain" are not making any money on the transaction. They still get the advantage of additional markup for retail sales, and increased markup on other downline distribution chains, but they won't on this particular transaction.
When the FTC investigated Amway in the 1970s, they discovered that the majority of transactions hand 4 or less "hands in the jar", and 99% were 7 or less.
Note that all of this is no different to traditional distribution!
Buy in volume at a discount, sell in smaller lots at a markup, the purchaser then does whatever they want with it, either use it themselves, sell it to another reseller, or sell to some other end user.
So how is Amway different?
On the upside -
1. You don't have to buy upfront to get the discount, instead you can collect and place orders as you get them and your discount is collated monthly. This means low cost of entry and low risk
2. Amway handles the physical distribution
3. Amway handles the bookwork and calculates and pays the discounts and rebates
4. You can return anything if an order is cancelled or the customer didn't like the product. If it affects your discount then the difference will be held over to the next month. This means low risk
On the downside -
1. You have to abide by Amway's various restrictions on marketing
2. In some countries you can't simultaneously market competitors products
3. You're ability to market is affected by the overall brand reputation, so idiots doing dumb things damage your business
4. Scammers setup schemes that look superficially like this, but where profit actually comes from recruiting, not the sale of product, and then claim "it's legal, it's just like Amway", so in typical non sequitur fashion, people believe Amway operates in that manner
5. The low cost of entry and low risk means anyone can start, so you can get a lot of inexperienced, unprofessional, unserious people involved
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icerat
Philosopher
That's not even remotely the definition of a pyramid scheme and encompasses the entire retailing industry and many other industries.
This is only true if you define "rep" as anyone who has paid for membership and has the option to resell if they want to. If you exclude people who have maintain membership primarily to get distributor pricing (ie they're not doing any "repping" at all) then it is false.
The FTC themselves have explictly stated they have no problem at all with the idea of "members" as legitimate customers. Problems arise if they're not legitimate customers and are merely buying stuff to try and get bonuses (which is self evidently an idiotic, unsustainable thing to do)
Pretty much true (pyramid description aside), indeed I can't think of any business which isn't selling stuff with a goal including getting money transfered from the end user through various levels of the distribution chain.
I take it you're a communist, Skeptic?
So in other words, those products where it is easy to directly compare prices (branded products), Amway is more expensive and has small margins.
Those products where it is more difficult (Amway products), the margin is higher.
What a surprise.
icerat
Philosopher
So in other words you just ignore posts that contradict your belief system?
What a surprise
Of the two products that have been directly compared in these recent posts so far - chicken soup and synthetic motor oil of all things - Amway was cheaper.
Mycroft
High Priest of Ed
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Is this another example of being obtuse on purpose? Clearly he was not saying people are being paid for recruiting, but he was saying the only way to make significant money is to recruit people. Important difference, don't you think?
icerat
Philosopher
No, because -
(a) he's calling it a pyramid, which requires payment for recruiting, so his use of the word is wrong. His use of the term "legal pyramid" is inherently contradictory. Indeed leaving off the "legal" is explictly stating the company is doing something illegal. Leaving it on is just nonsensical.
(b) recruiting only salespeople = no money. Even if you ignore the fact you have to have retail customer in order to qualify for group volume bonuses, you make nothing if all you do is recruit people. Recruit a thousand people into Amway, how much do you make? Nothing. Zip. Zero. Recruit nobody and have a thousand regular customers, how much do you make? Lots.
This is the same as any other business. Recruit only salespeople, get no customers? You make no money. Recruit only customers, no salespeople, you limit your potential sales volume to your own work.
(c) His premise isn't even correct. I have a friend in New York with a customer list of over 2000 who makes a significant income from retail sales alone, so the premise you have to recruit to make money is prime facie false.
As I see it, the whole argument seems to be based on an assumption that the products can't be sold to legitimate customers. Simply not true.
And your implication I'm being "obtuse on purpose" is insulting. If I'm not being clear about something simply say so, I'm certainly trying to be.
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NewtonTrino
Illuminator
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LOL. Arguing with icerat is funny.
Icerat,
Thank you for posting that example. I'll refer to it when needed, but won't quote the entire thing.
Now we have a monetary basis for evaluation. We have a single product and can see the profit margin at each step. The next important question is who we are evaluating Amway (as proxy for the MLM model entire) for. In other words, we'd like to know if it is a good business model for everyone involved or only a select group.
Here's an example of what I mean. The newspaper business has both low volume and high volume distributors. For some kid on the street, a few hours every day delivering papers isn't going to generate a decent income. For someone putting papers in stores with a motor route, the numbers go up and they can make a living at it. For the newspaper business as a whole, subscription levels are down and they are searching for a different way of doing business. That's three players, two of whom would say it's not a good business model, and one would say it's fine.
I'll grant that for the corporation, MLM is a good model. They've been in business quite some time and have shown a profit. What about the other players?
Thank you for posting that example. I'll refer to it when needed, but won't quote the entire thing.
Now we have a monetary basis for evaluation. We have a single product and can see the profit margin at each step. The next important question is who we are evaluating Amway (as proxy for the MLM model entire) for. In other words, we'd like to know if it is a good business model for everyone involved or only a select group.
Here's an example of what I mean. The newspaper business has both low volume and high volume distributors. For some kid on the street, a few hours every day delivering papers isn't going to generate a decent income. For someone putting papers in stores with a motor route, the numbers go up and they can make a living at it. For the newspaper business as a whole, subscription levels are down and they are searching for a different way of doing business. That's three players, two of whom would say it's not a good business model, and one would say it's fine.
I'll grant that for the corporation, MLM is a good model. They've been in business quite some time and have shown a profit. What about the other players?
Mycroft
High Priest of Ed
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Again, it seems like you're being obtuse on purpose. If you recruit a thousand people you make money off of whatever they buy even if they don't pay you for being recruited.
icerat
Philosopher
I'm not sure I agree with your assessment of the newspaper industry. If the kid delivering pappers was doing what he/she was doing in order to get some extra pocket money, and was getting it, how is it not a good business model for them? It gave them what they were after.
The thing about an MLM like Amway is it's extremely flexible.
I know people who have registered just to get products at a cheaper price, just to buy for themselves. They do it, they're happy. Many Amway critics consider them "an Amway failure".
I myself in my late teens was a live-in caretaker at a sports club and registered to get the cleaning products at distributor price, then sell them to the club at a markup, for my own use in cleaning the club. (This was all done upfront, the club chairman, who owned one of Australia's largest building companies, was using Amway cleaning products throughout his firm and was more than happy for the club to use them as well). So I made some handy extra cash. I was happy, and when I moved on from that role and moved around I eventually didn't renew my membership. It wasn't worth it for my own personal purchases as a young single guy, and at the time I had no interest in building the business.
Critics of the business model would judge me "an Amway failure" and cite the fact I didn't renew as evidence the model doesn't work.
But I got what I wanted out of it and had a positive experience, it wasn't a failure at all.
I've met an aussie guy who was backpacking through europe. He stayed for a couple of years in Sweden, needed some money, and door knocked restaurants selling eSpring water filters. He sponsored a few other backpackers to do the same. They were after short term income to fund their travels, not to "go diamond". When they left the country, they didn't renew.
More "Amway failures"? Not in my book.
Then I've met a guy, whom I'd known when we were kids, who was burned out in his career and had a disabled kid he could spend barely any time with. He joined because he saw it as a logical business opportunity that could help him get some time back. I've seen him go from that 6% level to Founders Emerald level (where you've developed at least 3 teams with direct/platinum volume), sold his other business, and works as a consultant in his original career path when he chooses, spending a lot more time with his family. He now makes more money for less time than he did before.
Some critics would dub him a failure because he's not a Diamond. Does he want to be a Diamond? Sure, who wouldn't? Is he an Amway failure? Absolutely not.
I could go on and on. A few years ago I had the pleasure of having breakfast (just him, me, and one other person) with a guy who, with his wife, joined Amway in his early 20s because they could see trouble ahead in his career (aerospace, and people were getting laid off left right and center). The wife wanted to be a full-time mum. They built a business to Platinum level, the wife retired to be a full time mother. They built to Emerald and he retired from his job. Before they were 30. Later they had a son born with severe medical challenges, discovered insurance only covered his care in hospital after the birth, and racked up medical bills in the hundreds of thousands of dollars. He could only see one solution. Within 2 years they built to the "Crown" level (average income in excess of a million dollars) and that business now spreads to 30 something countries and generates revenues in excess of $3 billion. It's a big big international business. It's an Amway distributorship. So was my business sitting in a clubhouse selling disinfect for a few extra bucks.
These are all utterly and completely different experiences, but the business model was good for each of these people. Are they "typical" experiences? No, the "typical" experience is someone shows you the business, you think it looks like a good idea and it doesn't cost much, so you register, then you do nothing, probably don't even order any products, nothing happens, you don't renew. Just like that gym membership. Amway failures? No, they never even tried it. They just signed a bit of paper that gave them the right to try it.
Is it a good business model for everyone? No. If you hate talking to people and aren't willing to change, it's a lousy model. If you want to build a large income, but do things your own way, and not work as part of a team, it's a lousy business model. If you can't handle rejection, and aren't willing to change, it's a lousy model. If you want a large income but hate working for months or years with very little return then it's a lousy model for you. If you can't work in a disciplined and efficient manner without a boss threatening to fire you, it's a lousy model for you.
Some people get involved and learn this stuff about themselves along the way. So no, it's not a good business model for everyone involved. But it's low cost and low risk, so lots of people give a try just to see if it fits. Most decide it doesn't - and very little revenue comes out of those people who just dip their toes in (no more than about 10%)
What's wrong with that?
icerat
Philosopher
Again though, you're not making money because you recruited them as distributors. You're making money because they bought something - just like any other business!
"recruiting people" in Amway is nothing more than finding wholesale and retail customers. That's what it is.
If you own a clothing store and recruit a thousand people as wholesale or retail customers, then you'll make money off of whatever they buy even if they don't pay you for being recruited.
So what exactly is your point? You don't like the term? Would you prefer to call it "customer acquisition"?
Almo
Masterblazer
Sort this forum (EB&F) by number of replies, and the number 2 thread already has been over this territory ad nauseum.
Mycroft
High Priest of Ed
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Again, it's inherently dishonest to recruit people as a sale force for one set of products when the reality is they're being recruited as the market for motivational materials and "tools".
Mycroft
High Priest of Ed
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Again, are you being obtuse on purpose?
Your claim was that you don't make money by recruiting people, and I showed you how that is not true.