Amway… doesn’t rock

mlm_potion00011The Herald has run an article in it’s business section about Amway’s supposed revival … apparently they are going to attract a “whole new generation” using none other than Tina Turner. Tina Turner was born in 1939 which… makes… her… 70.

Now, maybe I’ve missed something but I can see a small flaw in Amway’s strategy. If you wanted to widen your appeal past people who think there’s a quick way of being a millionaire and appeal to younger people, which is what I assume they mean by a “new generation” – unless they mean a new generation of 60+ year olds – then an aging 70 year old performer isn’t probably going to be too hip with 20 year olds, and that’s assuming they even know who Tina Turner is!

I noticed the Herald managed to get a bit of a dig in about Amway being accused of being a pyramid scheme in the past. In the past? I’d argue that it still is. As a business it’s really quite absurd, over the last 50 years businesses across the globe have cut out middlemen clipping the ticket and adding cost, but Amway clings, indeed it’s whole survival, is based on a massive pyramid scheme where  you only start making real money by ensuring there’s a stack (pyramid) of people under you busy signing up more people under them and you, and everyone else above you, gets a cut, and in doing so it’s takes very cheap products and makes them very expensive.

The best way to illustrate just how ridiculous Amway is, is like this… You walk into The Warehouse and buy a bottle of washing up liquid for $5. There are at most four people involved in this transaction; yourself, The Warehouse, the Importer and the Manufacturer. There are three lots of margin in there plus the shipping company who also made some money along the way.

If you look at Amway, it’s like walking into The Warehouse, buying a bottle of washing up liquid (identical product, different label) for $15. The difference this time is that there could be 10 or even more people (depending how far down the food chain you are) who are making a cut. The only reason you’d participate in such a scheme is because you too were going to make a cut as well.

If you got a child to illustrate how it works, they would draw something like a pyramid. Amway believers are a bit smarter than that and they will draw something which looks a bit like a horizontal pyramid. 

The other interesting comment in the article was the Christian connection. Having been to a few Amway meetings over the years, I was left with the feeling that the people who dreamt up Amway must have taken inspiration from organised religion. The group meetings where every pumps up each other belief in… erm, making money, and the way couples and groups aere organised to spread the word. The only difference between Mormons, other evangelical Christian religion’s and Amway is that Amway is trying to sell you a product and turn a buck, the others are trying to sell you God.

I’ve met, and know some really genuinely nice people who ‘believe in’ Amway – because you have to believe in it because from a business perspective you have to suspend logic to really get into it, just as you have to suspend scientific logic to believe in Christianity. But there’s something slightly disturbing about a bunch of people that fervently (and very politely) want to convert you to their cause, just so they can make a buck off you when you build a pyramid of people underneath you and start passing on the cut from sales.

Amway doesn’t need Tina Turner, because there will always be an endless pool of naive, desperate, and also possibly greedy people out there who will be prepared to overlook the silliness of the whole thing because they might make some money out of it. It’s just like another pyramid scheme, the latest example being Madoff’s rip off which suckered in a bunch of rich people who should have known better, but were just greedy.

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  1. nice post

    • Steve Myers
    • January 22nd, 2009

    Good article. Your description of the distribution scam is a good one. I was once invited to an Amway presentation plan in Australia. The scammer was deceptive and said I would be joining a business group called network 21 but I later discovered that it was Amway and network 21 is just a bunch of scammers trying to sell BS motivational crap. They tried to make the presentation look professional and even gave me a booklet but I saw right through it. They always avoided answering very simple question about how the cash is made.

    • Ah yes, the ‘network 21’ ploy, I’ve had that one a couple of times. It sounds all good until you start asking questions about it and then the person starts getting evasive and then you start to suspect there’s something odd, and low and beyond, it’s actually Amway… why this wasn’t stated at the beginning and saved everyone a lot of time is obvious, they know that if they said it was Amway you would probably walk away immediately!

  2. Your comment about Tina Turner and the “new generation” is a legitimate issue, and one that has been raised on Amway Global’s blogs by Amway reps. It’s only one part of the marketing that’s going on, including signing of sports stars such as Ronaldinho, and closer to A/NZ, Adam Gilchrist to endorse the products. In spain they’ve sponsored a reality TV show. In New York they even sponsored what was pretty much a rave party. They’ve engaged on blogs and now Twitter and Facebook, and giving away free iphones to reps testing an iphone oriented website.

    So there’s lots going on! I do however think there is still a bit of a fundamental disconnect between the target markets for their products (Health & Beauty) and the target markets for the business (young, net savvy folk). Things like XS energy drinks and the new sports nutrition products address this to a certain extent, but it’s still a conundrum.

    This leads though to where you get some things a but wrong about the model. You say – The difference this time is that there could be 10 or even more people (depending how far down the food chain you are) who are making a cut

    This is a common misconception. In reality the “number of levels” is usually less than 3, and virtually everyone is less than 6. This was one of the findings reported by the FTC when they looked into the model back in the 70s. The “number of levels” is limited by volume. Once a certain level of volume is achieved (about $25,000/mth in ANZ) the MLM component of the compensation plan stops and additional methods of compensation kick in. If you introduce someone who generates this kind of volume, then they “break away” from you. In the past this was the point where they’d deal directly with Amway. Nowadays everyone does this, but the flow of money isn’t significantly different.

    Now, your still correct in your comments about Warehouse distribution. It generally will have fewer layers (though not necessarily – there’s often importers and various jobbers involved too), and thus greater efficiencies. This is why Amway is not trying to compete in this market – the profit margins simply aren’t there for an MLM model. Ideal products for MLM are high margin products that can benefit from a “salesperson”, who can offer advice and customised service to get the consumer “hooked” on the product. Ideally they also need to be exclusives to the company, so you don’t get someone hooked and then they just go somewhere else.

    This is the Amway model. While it began with cleaning products 50 years ago, they’re no longer the focus. More than 2/3 of Amway’s revenues is from the “prestige beauty” and high quality nutrition segments. In this arena they’re competing with other high margin, “prestige” lines that are not available in warehouse type stores. For example, Euromonitor International has judged that Amway’s Artistry skin care cosmetics competes with brands like L’Oreal, Estee Lauder, and Clinique. You won’t find these in a superstore or walmart, and their distribution chains are *less* efficient and with more layers than Amway. Similarly with nutritional products. Nutrilite/Nutriway is really in a class of it’s own, and thus inherently higher priced, but it’s the job of the Amway rep. to educate the consumer about why they are better quality products and better value than generic supplements you can buy at the store.

    This is one of the major areas behind Amway’s struggles the past decade or so. They’ve tried to be an online shopping store, but with more expensive products, and reps would simply try to promote the convenience and quality – but without actually educating the consumer why they should pay more for a product. This quite predictably hasn’t worked very well. Many are still taking this approach but Amway and many leaders are working to transform the model for the modern age. With >10% growth globally again last year it seems to be working, but it will take some time to change the habits of the field in “older” markets like the US and Australia … and that includes reining in the evangelical types as well …..

    cheers,
    IBOFB
    Amway Watch
    Amway Wiki
    The Truth About Amway
    Amway Talk

    • Looong comment ibofb!

      The disconnect is huge I’m afraid. Product supposedly aimed at a younger audience fail because they are too expensive – XS drinks being a good example, they are hardly able to be pruchsed conveinently – say at a petrol station – so they will never have the cut through that Coke does. But then to even go down the path of splitting hairs over the products is to miss the main point.

      As a business this is purely based on recruiting more people and building up a mutli level sales program so that everyone gets a cut out of it, naturally the products have to be relevent or the business would be even more pointless, but the products themselves are secondary to selling the ‘dream’ – or ‘system’ for the more cynical.

      There’s no surprise that Amway have got into beauty products and ‘health’ products, these are high margin products where market comparassions are diffiecult, they are also products where there is plenty of leway to make rather dubious claims about their benefits (and I include all companies that peddle the products, not just Amway). You need high margin products to support a multi level (pyramid) type business where many people are expecting to make money out of it.

      I agree that the pyramids are smaller now, but actually this is slightly misleading because they are still part of a larger pyramid.

      Look, it’s a free world, and I’m not saying Amway is bad or wrong. I think it’s a illogical business model, but there’s plenty of those around and there’s plenty of gullible and greedy people around willing to spend their time on them. Sure, some people make money out of Amway, undeniable, but it’s off the backs of hundreds of people that don’t, some may say that is morally repugnant, but like I said it’s a free world and capitalism works because of people freedom to invest their time and money how they wish.

  3. consumist, Amway has been “into nutriional products” since before it began. They were effectively an offshoot of the Nutrilite company, which has been around since the 130s and then bought a majority shareholding and then the whole company in the 70s. Artistry skin care and cosmetics has also been a major product line since the 70s. It’s one of the areas that shows how badly they’ve built brand awareness – cleaning products haven’t been the focus in probably 3 decades, but it’s still what most folk think Amway is all about.

    I’m not quite sure what you find “illogical” about the business model? It’s pretty much the same as any other product. You buy products in bulk at a discount, sell in smaller amounts at a markup. That’s it, that’s the business. There’s no money made in recruiting, and indeed for any given volume recruiting “costs” money, not makes it, since you have to share the profits with others. The reality is that most people “recruited” aren’t people trying to make money, they’re simply customers who want the better price, and many others may get inspired to join by the income potential, but remain part of the network in order to buy the products. “Recruiting” is simply finding wholesale buyers for your products (note: wholesale, not “wholesale price”, not quite the same thing). What is illogical or odd about a wholesaler wanting to find people to resell their products?

    You say – “Sure, some people make money out of Amway, undeniable, but it’s off the backs of hundreds of people that don’t, some may say that is morally repugnant”

    I’d agree, if that was the case. But how is it the case anymore than any other business? Coles supermarkets make money of of “hundreds of people that don’t” – their customers. Same goes for Amway. Money is made by selling people products they want – that’s it.

    Now, some folk might claim that folk are buying the products only because they think it will make them rich. This is undoubtedbly true, but that’s not the Amway business, and guess what – that model simply doesn’t work. Folk who try that approach are (a) breaking Amway’s rules and (b) don’t last, their “businesses” fail.

    Legitimate Amway businesses, and they’re the ones you don’t read about on the internet – because nobody’s complaining about them – are built on finding legitimate consumers for a great range of products – just like any other business.

    • Joecool
    • January 23rd, 2009

    We don’t read about legitimate Amway businesses because they are rare. IBOFB himself refuses to discuss any of the details of his own business. Probably because he has nothing of significance to discuss, much like most IBOs who are defending Amway on the internet.

  4. IBOFB is David Steadson from Sweden. He has been in Amway
    for about a decade, yet has not achieved any significant level. He
    sets up Google alerts and responds to any discussion involving
    Amway, and claims he is not compensated for defending Amway’s name
    on the internet. Amway does not enjoy a big retail sales force,
    mostly depending upon its “Independent Buisness Owners” to self
    consume. David Steadson thinks that IBO’s self consuming Amway
    Products can be considered a retail sale to the people above that
    guy. I find that to be dishonest at best and absurd to anyone else.
    There are some that believe he is a corporate plant. His
    condescending attitude against those who disagree with him is both
    humorous and entertaining because ultimately, the author of this
    article is right, in that Amway products are very expensive for no
    apparent reason other than to make the corporation and other
    distributors a profit. Amway North America appears to be shrinking
    but cannot be confirmed because Amway doesn’t release their sales
    figures anymore. David Steadson AKA IBOFB is concerned about
    Amway’s poor image and will go to great lengths to defend it. Why?
    You decide. Maybe he doesn’t have anything else going on in
    life.

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