Amway The Impossible Dream
August 2002
A Research Report by Carrie
Brunori
Multi-level marketing programs are often described as similar to pyramid
schemes. These marketing companies rely on distributors to recruit more
distributors under them. More distributors equal more profits for the
distributors above them and this is the most beneficial for those in higher
positions.
The best way to understand such a scheme is to visualize a pyramid. For
example, here is small scale pyramid program: there are ten people on the top,
(distributors in the "top" positions of the pyramids might be called "diamonds"
or "emeralds") forty below them and below those forty, eighty more people, below
those people, a hundred and sixty more and so on.
New distributors pay money to begin their business, which might be called the
"start-up fee/kit." The money for the start-up kit is paid to other distributors
who recruited the most people. In addition to the start up kit distributors also
often purchase books, tapes, and motivational videos, which cost more money and
pay entrance fees to the meetings that they are encouraged to attend.
Pyramid organizations like these are legal though, because they sell
merchandise out of catalogs. They may offer many catalogs selling everything
from beauty supplies to auto equipment. Without selling products, companies like
Amway would be illegal.
Distributors are employed by these multi-level marketing companies to sell
products they provide to either friends, networking or door to door; however, it
seems that the money distributors make mostly comes from the start-up kits that
the new distributors are to purchase. For example: if one recent distributor
persuades a friend to become a distributor, that new distributor buys the
start-up kit, and the friend who introduced him or her to the program makes
money from the start-up kit purchase. That friend is now "under" the first
distributor on the pyramid.
In addition, many of the products such companies sell are to new
distributors, not to retail customers. "Less than one percent of all retail
sales are made through multi-level marketing companies. Much of the sales volume
comes from new distributors who are setting up their new business." (Kautz,
1999). With this information it is no surprise that new distributors are very
frequently losing money.
Many of the products are sold in bulk form. Amway claims their prices are
cheaper than retail stores; however, that is not the case. "Many of the goods
still cost more than those at the corner store. Schwartz found that Amway's
generic toasted-oat cereal cost $.204 per ounce, for example, while General
Mills' Cheerios average $.157 per ounce - making the Amway breakfast cereal
about 160 percent higher in price. Similar statistics exist for everything from
motor oil (144 percent higher when purchased through Amway) to aluminum foil
(189 percent) to higher-end items such as vacuum cleaners and water-filtration
systems." Amway advertises, if you're not happy with your products, there is a
one hundred percent money back guarantee; however, former customers disagree.
They state Amway makes it next to impossible to return items. Furthermore,
instead of a full refund, customers have received coupons for other Amway
products. (Felps, 1998).
When prospective distributors join these marketing programs, they are usually
in the dark about the high, repetitive costs of the meetings. Meetings may be
mentioned, but the distributors may typically not be told about the cost of
these meetings and/or their frequency.
In addition, distributors are "strongly encouraged" to listen to at least one
motivational tape a day, tapes that are sold, of course, by their uplines
(persons above them on the pyramid). (Felps, 1998). These tapes are usually
between two to six dollars each. Amway sends two tapes to each distributor
weekly and the distributors are billed for the tapes. At the meetings, the
distributors are often pressured to buy more tapes, books and videos from the
diamond and emerald speakers. Most of the profit from these sales goes directly
to the diamond and emerald distributors.
Another expense that many distributors face is called Amvox. Amvox is Amway's
voice mail service and distributors must pay fifteen dollars a month for that
service. The purpose of Amvox is to inform distributors of meetings and news in
their area.
Amway distributors also frequently purchase hundreds of dollars worth of
products per month, in addition to the starter kit costing about one hundred
dollars. (Burstein and Lauerman, 1996). While this may seem like small amounts
the costs add up. As one former distributor revealed, "After a year and about
$1,000 lost on meetings, tapes, etc., I got fed up with this and stopped
attending meetings and demanded our standing-order tape subscription be
canceled." ("Some Fractions of Amway Use Cult Tactics," 2002).
Pressure is often exerted upon distributors to sell products, buy tapes and
books, because their sales and purchases are paying the diamonds' and emeralds'.
A former distributor said, "I have spent well over $2,000 per year for four
years on books, tapes, and functions and I was told, 'If you want to be
successful, you need to.' Most months, I got a check for $6.05." (The System
wasn't Working&It was my Fault, 2001).
I have found that the majority of people who join Amway as distributors lose
money. These potential distributors are often not clearly told the cost of
meetings, tapes and book, which they are required to purchase when first
approached to join. They are often told they need to buy at least two hundred
dollars worth of products for themselves and sell at least another five hundred
dollars worth of products to buyers.
We are all at risk, because multi-level marketing companies, such as Amway,
usually may target you as a potential distributor. Such companies often target
the poor, undereducated, and unemployed. This concerns me because it seems as
though these companies are trying to take advantage of others. "They love people
who are broke because they're weak." (Felps, 1998).
So how does a distributor get to the top of the pyramid and become a ruby,
emerald or diamond? It's nearly impossible, according to one web site I visited.
"The number of new pins for 1998 was the lowest in the past seven years, with
new Diamonds down to 19 from a 1996 peak of 49, and new Emeralds down to 72 from
a 1993 peak of 150" (Amway: The Untold Story, 1999).
A few people on the top of the pyramid who are diamonds include the founders
of Amway, Jay Van Andel and Richard M. DeVos and their sons Steve Van Andel and
Dick DeVos. They also serve on the board of directors. For those not born into
"diamond status," it is nearly impossible for most distributors to work their
way up the Amway ladder, given their high drop out rate.
Distributors need more distributors under them so that they can advance up
the Amway multi-level ladder. But most distributors quit Amway after only six
months because of their losses. "Amway's track record is one with a high dropout
rate, low average incomes and lawsuits from competitors, regulators and its own
distributors. It is often referred to as a cult, and is considered a pyramid
scheme."(Felps, 1998). Without new committed distributors below these older
distributors it's impossible for them to work their way up to ruby, emerald or
diamond status.
Through my research I have found many former members who now discuss the
money they lost. One former distributor explains, "At this point we were
receiving six dollars a month from one customer ordering products. We were
spending eight dollars to get to open meetings--that is the gas to get there. We
spent six dollars per tape, $10-$15 per book, $15 for Amvox (Amway's voice mail
service). We were spending around fifty dollars per month at this point--not
including gas to get to the functions." All the supplies and meetings were
costing this couple of hundred dollars every other month. "That was just to get
into the function plus hotels and not including transportation, food etc." Yet
another former member says that it cost him $4,000 a year just to "work" the
program. (Felps, 1998).
After joining Amway, distributors may eventually realize that they are losing
money as well as their free time, and this often causes spiraling problems at
home. I came across one detailed story of a wife who left her husband after he
joined Amway; the last straw was when he approached a relative at a funeral to
sell Amway products. ("A Former Amway Wife Speaks Out," 1998). As you can see
this is a major problem, had former distributors known about the high costs of
joining Amway, they might have never joined to begin with. ("God Bless all the
Survivors," 2000).
With all this negative information about multi-level marketing schemes, how
can entrepreneurs and potential distributors beware of a potential scam? How can
they protect themselves? They most often cannot rely on these companies to
disclose all costs nor can we force those companies to disclose all their
financial information such as every distributor's income. However, as potential
distributors anyone can and should ask more questions. It is also very important
to research a particular company before paying for a start-up kit. Potential
distributors need to be well informed before handing over any of their money.
The Federal Trade Commission has a wonderful web site for further information
and advice. The web site is
http://www.ftc.gov/bcp/conline/pubs/alerts/pyrdalrt.htm.
In conclusion, here are the facts I have uncovered: multi-level marketing
companies appear to prey on those who are unemployed and desperate for work.
- The majority of distributors who join multi-level marketing companies
don't succeed, because it seems nearly impossible to make their way up the
many levels involved. And so most distributors often quit.
- Most distributors spend a lot of money to join and on supplies needed, but
usually don't see a substantial return in income.
- It's proven that distributors are paying their money to make money for a
proportionately select few at the top, such as the diamonds and emeralds in
Amway.
- Finally, those who have made it to the top are often the first few people
who become distributors, when these companies first began doing
business.
My fear is that most of the people being deceived by the high costs are young
adults just starting off in the world, and the undereducated. The Federal Trade
Commission clearly states, "Do your homework! Check with your local Better
Business Bureau and state Attorney General about any plan you're considering --
especially when the claims about the product or your potential earnings seem too
good to be true." (The Bottom Line about Multi-Level Marketing Plans, 2000).
You should strongly consider doing a detailed background check regarding any
company you want to work for, especially if it shows any signs of being a
multi-level marketing program. You can check reports at your local Better
Business Bureau.
My advice based upon my own research, is to avoid multi-level marketing
schemes all together, they may take your "pipe dream" and make it into a
nightmare. The best solution is always: "buyer beware."
1. "" AMERICAN JOURNAL, 1994 (6/5/02)
2. Burstein, Rachel and Laurerman, Kerry "She Did It
Amway." MOTHERJONES, 1996 (6/10/02)
3. Felps, P. "Inside Scamway."
WEEKLY WIRE, 1998 (2/15/02)
4. "A Former
Amway Wife Speaks Out." RICK ROSS, AMWAY, 1998 (6/8/02)
5. "God Bless
All the Survivors." RICK ROSS, AMWAY, 2000 (6/10/02)
6. Hance, B. "UA Site of Numerous
Illegal Pyramid Schemes." ARIZONA DAILY WILDCAT, 1996 (2/18/02)
7. Kautz, J. "MLM:
An Opportunity or Scam?" ENTREPRENEURS NEWSLETTER, 1999 (2/20/02)
8. Puit, G. "Government
Sues Equinox, Calls Firm a Pyramid Scheme." LAS VEGAS REVIEW-JOUNRNAL, 1999
(2/15/02)
9. "Schemes,
Scams, Frauds." PYRAMID SCHEMES, 2000 (2/15/02)
10. "The
System wasn't Working & It was my fault." RICK ROSS, AMWAY, 2002
(6/9/02)
11. "Some
Fractions of Amway use Cult Tactics." RICK ROSS, AMWAY, 2002 (6/10/02)
12. Taylor, J. "Do-It
Yourself Evaluation of Multi-Level Marketing Programs and Suspected Pyramid
Schemes." PRYAMID SCHEME ALERT, 2001 (2/18/02)
13. "The
Bottom Line About Multi-level Marketing Plans." FTC COMSUMER ALERT, 2000
(2/18/02)
14. Todd, C. "Amway." THE SKEPTICS DICTONARY, 2001 (2/10/02)
15. Tompson, T. "Hidden Persuaders." TIME OUT, 1994 (2/3/02)
16. Waldmeir, P. "Amway Fights Back in
Court against Soap Rival." THE DETRIOT NEWS, 2001 (2/10/02)
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