Multilevel Marketing under Fire: Herbalife Defends Its Business Model Amanda BrownBPA 1385 November 2017.
Why has Herbalife’s multilevel compensation model been accused of being a pyramid scheme? Herbalife’s business model has been around for several years. Despite being around all these years many are still questioning whether this business model is a pyramid scheme.
Herbalife business has proven over the years to be a success, nevertheless according to William Ackman who has conducted a study, his conclusion that Herbalife is a pyramid scheme.
William Ackmanand and his team claimed Herbalife is fraudulent because the company had invested over $1 billion dollars’ worth of Herbalife products in short sale. He accuses Herbalife in a three-hour presentation. Some of the accusations are that most Herbalife contractors lost a huge amount of money.
Other grounds for the accusations is the fact that one percent of Herbalife contractors get the highest pay and receive more than the amount generates from the sale of Herbalife products (Odies C. and Fraedrich 459).
There is also other accusation that Herbalife has issue false accounting statements, even though there isn’t enough evidence to prove this accusation.
Herbalife opportunity is for the self-motivated people who have a passion for sales and desire to make some extra income. Even though working for Herbalife can become one’s primary source of income although it is easy to get carried away and fall for the misleading promises of quick and easy money, promising large sums of money, and not having to work, hard. This can sound tempting.
Is Herbalife a legitimate direct selling business model?
Herbalife business model requires its representatives to purchase products from the company or from other members to demonstrate with.
Herbalife company is a direct-selling business, this means their protein shakes and nutritional supplements products are not sold in stores. The company’s Top executives praise the benefits of gathering members into groups called “nutrition clubs”—these social groups are supported by the company at which time shakes are consumed and healthy way of life is being talked about.
Here’s how to tell a legitimate business from a pyramid scheme:
Companies that are legitimate to support a vibrant marketplace by being competitive in selling. Selling top quality goods and services, providing a sustainable means by which to make money for anyone who so desires to sell those products.
• Supply accurate information regarding the company, the products and what to expect being a seller, selling the company’s goods and services.
• Charge nominal fee for a beginner’s kit – the cost to begin is $99 which includes products items samples, brochure, order forms, and other materials that a seller will need to start.
• Have some products or a service that has competitive out in the marketplace which user can purchase.
• Require the sellers to store little to no inventory and support a buyback policy that will protect against inventory loading.
• Base on compensation alone. Compensation can be made from your own sales or from the sales of others who you recruited.
• Take time to tell the prospect about the company, describe the products and allow potential salesperson enough time to process the information before making a final decision. – any worthwhile opportunity will still be available the next day. Legitimate direct sales company also emphasizes customer protection and guarantees.
Several of these are standards that are voluntary and will exceed the Federal Trade Commission (FTC) requirements or those mandated by federal or state law.
Pyramid schemes take advantage of and defraud people because of they:
Pyramid scheme, on the other hand, is a business model where income is generated primarily through recruiting new members. Because of this member are required to make an initial investment to become a member.
• Promise big earnings with little to no effort.
• Promise to earn a substantial amount of income from recruiting others to join the business.
• Most instances there is no “product” to sell, and if any they usually have little to no value.
• Convincing individuals to purchase huge amounts of inventory that they will not be able to sell back and cannot be returned (this is called “inventory loading”).
• Demand a substantial cost up-front to join, a one-time payment which is an obligatory payment for the products or services. Companies or individuals that promote pyramid schemes will try to force people to join immediately the opportunity will not be available later.
• Compensation base pay is on activity (these payments for recruitment are called “headhunting fees”). Participants that are forced to join are promised they will receive “headhunting fees” when they get others to join them.