Amway
is the largest multi-level marketing (MLM) organization in
the world. It is a multi-billion dollar a year company based on the sale of products as
varied as soap, water purifiers, vitamins, and cosmetics. Amway proponents are fond of
asserting that their products are of the highest quality, their company is very large
(several million distributors and several billion dollars in annual sales), and does
business with such giants as Coca-Cola and MCI (bought by Verizon).
In Amway, one is recruited as an "independent" distributor of Amway products
by buying a couple of hundred dollars' worth of the products from the one who recruits you,
known as your "upline." Every distributor in turn tries to recruit more
distributors. Income is generated by sales of products by the distributor plus
"bonuses" from sales of his or her recruits and their recruit-descendents.
Here is a description from an Amway distributor as to how it works.
It goes like this:
If I buy $200 of stuff from Amway this month, I'll get a 3% bonus check (3% of $200
= $6). If I share the opportunity with nine others, and we each buy $200 of stuff from
Amway this month, they each were responsible for $200 and will get $6, but I'm responsible
for $2000, moving me to the 12% level. I get $240. However, I'm responsible for paying the
bonuses of the people right below me - $54 - so I keep $186. I make more because I did
more, I found nine people who wanted to buy at a discount and get a bonus for doing it.
After I reach the 25% bonus level there are other bonuses that kick in, but they're all
based on the volume of product flow, not on signing people up or having lots of people (Bob
Queenan, personal correspondence). [April 7, 2004. Gary Elliot Murway
writes: Please correct: distributors/IBOs no longer need to pay downline
bonuses. Quixtar can pay each IBO directly.]
Amway defenders take offense at describing this method of sales
and recruitment as akin to a pyramid or chain letter scheme. It
is true that MLM as practiced by Amway is not an illegal pyramid scheme. Amway
has been taken to court for being an illegal pyramid and the courts have ruled that since
Amway does not charge people either for joining Amway or for the privilege of recruiting
others as distributors, it is not an illegal pyramid. Illegal pyramids and chain letters
have no product. Amway has lots of household products: from laundry detergent to vitamins,
from cosmetics to water filters. Amway is a legal pyramid scheme.
the legal pyramid
There are several distinct aspects of MLM schemes that justify calling them legal
pyramid schemes. One is the aspect of the chain or line of distributors whose income
depends primarily not on their own sales of Amway products but on sales made by others
whom they've recruited. The actual practice gets fairly complicated. Here is how Bob
Queenan, cited above, describes it:
Now we get into the actual mechanisms. While my product volume is low, it makes
sense to combine my order with other orders to reduce the paperwork that Amway has to deal
with. So the way I order from Amway is to call my "upline" and place my order.
My upline combines my order with others and calls Amway directly. Amway would normally
ship direct to the upline, and we'd all go over and pick up our products. In my actual
case, I live too far away from my upline to make that practical, so I order through my
upline, but get direct shipments from Amway.
Do I sell to other distributors? No, we all buy direct from Amway.
Do other distributors order their products through me? Yes, I combine the orders and
send them to Amway.
Do I get money from my distributors? Yes, for the products they buy. I write a
combined check to Amway.
Do I profit if my distributors buy more? Yes, I do -- so do they, but yes, I do.
Is my bonus from their money? It's from the bonus pot, which is filled with money
saved by not paying middlemen.
Am I missing something here? Haven't the distributors become their own middlemen?
Aren't the distributors selling to each other? Isn't income mainly generated by recruiting
new members to the organization? Isn't Amway Corporation the big winner in this scheme?
An Amway customer is not just buying a detergent, but is recruited into being a
minister of a faith with a complicated bookkeeping scheme. Why not just go to your local
store and buy soap, you ask? Because the agent is someone you know, or who knows someone
you know, who's invited you over for coffee to tell you about a great opportunity. Odds
are good that you'll either buy something out of politeness or a genuine need for soap or
vitamins, etc. Perhaps you will become an agent yourself. Either way, the agent
(distributor) who sold you the soap or vitamins makes money. If you become an agent
(distributor) then part of every sale you make goes to your recruiter. The new recruit is
drawn into the system not primarily by the attractiveness of selling Amway products
door to door, but by the opportunity to sell Amway itself to others who, hopefully,
will do the same. The products seem secondary to the process of recruitment. Yet, the
distributors will learn to talk about little else than the product and its
"quality." What justifies MLM schemes is the high quality of their products.
What entices the recruit, however, is likely to be the attractiveness of making money from
others' sales, not the products themselves.
Do the numbers add up?
According to Amway, their annual sales
amounts to about $7 billion and there are 3 million distributors. Thus, the average
distributor's sales amounts to about $2,333/yr. If 30% of that is profit, the average
distributor makes $700/yr. Klebniov claims that the average income is $780, but the
average distributor buys $1,068 worth of Amway goods himself and also has expenses such as
telephone bills, gas, motivational meetings, publicity material and other expenses to
expand the business. "The average active distributor sells only 19% of his products
to non-Amway affiliated consumers," according to Klebniov. "The rest is either
personally consumed or sold to other distributors." In the United States,
the Federal Trade Commission requires Amway to label its products with the message that
54% of Amway recruits make nothing and the rest earn on average $65 a month. No such
labels are required in other countries, but the facts are clear. Most people who get
involved in Amway will not make money.
Far from boosting their incomes, the vast majority of those who become Amway
distributors, particularly those in 'the system', are likely to end up losing money.
The majority of the wealth of the tiny number of top-ranked distributors in this
country comes not just from the sale of Amway products but from selling motivational
materials and organizing seminars and rallies for the people below them (Thompson).
Amway has made a very few people very rich while paying its foot soldiers more in
inspiration than in cash (Thompson). There is nothing particularly unique about this in
the history of business. What is unique is the faith, devotion and hope that the foot
soldiers have. (Note: the numbers in the paragraph are from 2005-2006.)
Is Amway a cult?
Critics of Amway have compared it to a cult whose main product is Amway itself. Amway
folk do resemble religious devotees in some respects. They have great faith in their
company, its products, and the hope for wealth and early retirement. They attend seminars
and meetings that are reminiscent of revivalist meetings, where the power of positive
thinking replaces (or is accompanied by) faith in Jesus. Instead of a parade of souls
healed by faith, Amway faithful are treated to testimonials of early retirement with
plenty of money. While there have been some accusations of persecution of those who have
left the flock, by and large Amway devotion seems harmless enough. Amway doesn't seem to
differ much from other zealous big corporations which preach positive thinking about the
business of business in endless motivation seminars and retreats, books, tapes, brochures,
among other things (Klebniov).
Graham Baldwin of the United Kingdom compares an Amway motivational meeting to a
revival or cult meeting. The former university chaplain tries to help people break away
from religious cults with his program called "Catalyst." Soon after one of his
broadcasts, he got a call from a man
who explained how the group he had joined a year earlier was slowly taking over his
life. There were the huge monthly meetings at venues like Wembley Conference Centre where
he and thousands of other followers were worked into a passionate frenzy then told to go
out and find as many new recruits as possible; there was a powerful doctrine that frowned
on television, newspapers and other 'negative' influences; there was the strict dress code
and advice on how to bring up children and relate to loved ones; there was the fear that
to quit would mean giving up hope of a happy future.
However, having seen the television show featuring Baldwin, the man now alleged that
he was being subjected to mind control techniques and being
manipulated by those above him. He wanted advice on making a possible break. Baldwin asked
which cult the man was in.
"It's not a cult. It's not a religion. It's something called Amway"
(Thompson).
To some of Amway's critics, Amway may look like a religious cult, but to others it just
looks like a shell game. The ministers of the faith work their magic by constantly calling
your attention to the quality of their products, their concern with ethics, the wealth of
their company, their association with Coca-Cola or MCI, the claim that they don't have to
pay the middleman or advertising costs, and the numerous testimonials of the faithful who
have passed through the valley of death and have arrived on the mountaintop with buckets
of gold. Meanwhile, you do not notice that the products are secondary to the process of
recruiting new distributors of those products. You do not notice that the wealth and
associations of the company are irrelevant to its promises of wealth to the millions of
distributors recruited. You do not notice that many costs, such as mailing, handling,
doing forms, advertising, and driving personal vehicles to deliver or pick up products,
are picked up by the distributors themselves. You do not notice that even though some
people make a decent or more than decent living exclusively through Amway, the chances of
all or most distributors making such wealth are absurdly small. You do not notice that
while the leaders talk about ethics they are stimulating resentment and greed. And of
course you never hear the testimonials of those who feel cheated by Amway; dissidents are
not allowed to give their testimony at revival meetings.
The shell game gets even more complicated because when it is pointed out that most
people who are Amway distributors either lose money (they buy more products from Amway
than they sell) or make a very modest income, the ministers of the faith don't respond
honestly and directly by saying that that is what should be expected from such a system.
Instead they claim that no one said you would get rich quick at Amway; no one promised
great wealth with little work. Those who fail do so because they are failures. They don't
work hard enough. They don't devote enough time to their distributorship and recruitment.
The failures need motivation!
the dissidents
Paul Klebniov writes that
Former distributors and Amway officials say that like many movements based on a
cult of personality, Amway's attitude toward any insider critical of the organization has
bordered on paranoia. Edward Engel was Amway's chief financial officer until 1979; he
resigned over a disagreement with DeVos and Van Andel [the founding fathers of Amway] on
how to run the Canadian operations. This apparently branded him a traitor; he says he and
his family received threats for years after his resignation. "It was a Big Brother
organization," says Engel today. "Everyone assumed that the phones were tapped,
and that Amway had something on everybody."
In 1983 Engel's former secretary, Dorothy Edgar, was helping the Canadians in
their investigation of the company. She was roughed up in Chicago, after she was told to
"stay away from Amway." Engel, who picked her up after the incident, says he
believes her story. Amway would not comment on the incident.
There was extremely bad publicity in 1982 when a former distributor, Philip
Kerns, quit to write a damaging expose called "Fake it Till You Make It." Kerns
charges that Amway used private detectives to follow him and rough him up. Kerns' expose
prompted the "Phil Donahue Show" and "60 Minutes" to run
uncomplimentary pieces on Amway. Amway's recruitment dropped off; with it, sales plunged
an estimated 30% in the early 1980s.
In 1984, another former Amway insider, Donald Gregory, says he started to write
a book on Amway, but the company obtained a gag order against Gregory in a Grand Rapids
court" (Klebniov).
Even so, the vast majority of Amway distributors are probably decent people who believe
in the quality and value of Amway products and who are in it to make money in a legal and
ethical way. They are not responsible for what the founders or "uplines" do.
They are not making wild promises about making millions of dollars with just a few hours
of work a week to their friends. The average Amway distributor is undoubtedly not like
James Vagyi.
Amway comes to Hungary
Now that capitalism has come to many former communist nations in Europe, Amway has
spread its ever-replicating roots into countries such as Hungary and Poland. James Vagyi,
the lead recruiter in Hungary, tells potential recruits that the minimum income is about
$9,000 a month [700,000 forints]. Mr. Vagyi says to a group of potential recruits,
"If 10 million people were persuaded for 40 years to build socialism in Hungary, you
can each find six people to do this." If those six find six who find six who find
six, you will be rich in no time. Mr. Vagyi shows his audience a videotape that ends with
a message from Amway's co-founder, Richard DeVos: "Ethics and caring for people are
the fundamentals of Amway's business." Maybe. But apparently some distributors have
cynical views of ethics and the only people they seem to really care for are themselves.
Still, isn't this true in every business? Aren't there always a few bad apples who give
the whole group a bad reputation?
Is the appeal to greed or to need?
It isn't very likely that the majority of Amway's distributors follow Vagyi's example.
Nor do they follow the example of Michael Aspel who used a curious recruitment video in
London. The video "features couples who live in enormous detached houses and have
luxury cars, talking about how much freedom and independence the Amway opportunity has
given them. The narrative tells how the company is built on "ethics and
integrity" and how it has helped "thousands improve the quality of their
lives" (Thompson).
Furthermore, there is no doubt most Amway meetings are not like the one described by
Paul Klebniov:
One weekend this summer over 12,000 enthusiastic people gathered for a rally in
Richmond, Va. A handful were wealthy distributors of Amway Corp's products; the rest
wanted to be. The meeting began with a prayer and a Pledge of Allegiance. On stage, Bill
Britt, the master Amway distributor who organized the rally, introduced the other top
distributors, who had arrived in their Cadillacs and Mercedes, flaunting expensive furs
and jewelry. With the introduction of each of these role models, the crowd cheered.
Stories such as Klebniov's inevitably lead to the question, Does
Amway encourage fraud? The answer is No. However, one of the main
criticisms made of Amway and other MLM organizations, is that they inevitably encourage
unscrupulous people to defraud the gullible into thinking that with a little hard work
they can become rich beyond their wildest dreams. These unscrupulous people become rich
themselves, not by selling Amway products but by selling the concept of Amway and
"inspirational materials" such as books, tapes, seminars, etc., aimed at
motivating a person to think positively. Critics argue that while it is possible to make a
decent living selling Amway products, a realistic person should not expect more than a
supplement to one's income from selling the products. The real money is in recruiting
people into Amway. The really big money is in selling motivational materials, i.e., hope.
See also multi-level marketing, MLM harassment and pyramid scheme.
further reading
reader comments
- Amway/Alticor/Quixtar
Sucks!
- Union
Fights Amway
- MLM Survivors Home
Page
- In pursuit of the almighty
dollar - Dateline investigation: Inside story of business that attracts
people with promise of easy money by Chris Hansen
- What's Wrong With Multi-Level Marketing?
Dean Van Druff
- FTC -
The Bottom Line About Multilevel Marketing Plans
- FTC's Online Booklet:
"Net Based Business Opportunities: Are Some Flop-portunities?"
- The
Mirage of Multilevel Marketing by Stephen Barrett, M.D.
- Steve
Hassan on Amway
- The Amway Home page
Butterfield, Stephen. Amway, the Cult of Free Enterprise (Boston: South End
Press, 1985).
Carter, Ruth. Amway Motivational Organizations: Behind the Smoke
and Mirrors (Backstreet Publishing, 1999).
Conn, Charles Paul. The Possible Dream: a Candid Look at Amway (New York:
Putnam, 1985).
Klebniov, Paul. "The Power of Positive Inspiration,"
Forbes, December 9, 1991.
Fitzpatrick, Robert L. and Joyce Reynolds. False
Profits - Seeking Financial and Spiritual Deliverance in Multi-Level Marketing and Pyramid
Schemes (Charlotte, N.C.: Herald Press, 1997). See my review of this book.
Smith, Rodney K. Multilevel Marketing: a Lawyer Looks at Amway, Shaklee, and Other
Direct Sales Organizations (Grand Rapids, Mich.: Baker Book House, 1984).
Thompson, Tony. "The Hidden Persuaders," Time
Out, June 22-29, 1994.
ZDNet reported on Amway's entry into e-tailing
which is known as Quixtar. All Amway agents (now to be known as IBOs: independent business owners)
have been invited to open up their own e-mall, selling not only Amway
products but products of other manufacturers as well. The emphasis, as
with Amway, will be on multi-level marketing,
i.e., recruiting new Quixtar agents who are encouraged to recruit agents
ad infinitum. Agents will get a cut of sales made by those they recruit,
and by sales of recruits of recruits, ad infinitum theoretically.
Why would the 5th and 6th richest men in the world, Rich
Devos and Jay Van Andel, founders of Amway, want to get involved with
Internet sales? For one thing, there is a lot of money to be had in
e-commerce: they're hoping for $1.5-$2 billion in sales the first
year...better than Amazon.com or E-Bay. Secondly, sales
at Amway have dipped recently (18.5% drop in 1998).
Why not call the new company E-Amway instead of Quixtar?
That might have something to do with name repulsion.
Will it work? It will certainly work for Devos and Van
Andel. They will have millions of agents to sell products, including their
Amway products, from the day they open on September 1, 1999. Unlike
Amazon.com, who had to spend some time recruiting agents to sell their
products, Quixtar will be able to bank on Amway agents to aggressively
market their products from the get-go. How much money will the Quixtar
agents make? They may think they will become nanosecond millionaires but
my guess is that they will fare about as well as they did as Amway agents.
The Team of
Destiny® or TEAM®
website describes itself
as ''a group of Independent Business Owners (IBOs) teamed together to have
fun, make money, and make a difference." You will not be able to find out
any more about TOD/TEAM from their website unless you have a guest number,
which must be provided by an IBO of TOD/TEAM. Why the secrecy? TOD/TEAM is actually
an MLM subsidiary of Quixtar®.
further reading
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