SMH. It’s a new acronym I’ve recently learned. It means “Shaking My Head.” And that’s what I immediately did when I read about Melaleuca’s CEO, Frank VanderSloot, denying all ties to the MLM industry.
While it certainly seems like a ridiculous exercise, I list a few obvious reasons in the video why VanderSloot is wrong to make such a distinction.
In the video, I reference his statement to the press (included below). I also reference the FTC’s definition of a “Multilevel marketing program” as per the FTC vs. FUTURENET case.
Note, this is not a controlling definition given the circumstances of the case; however, it gives us a good idea of how the FTC defines a MLM.
FTC’s definition:
“Multi-level marketing program” means any marketing program in which participants pay money to the program promoter in return for which the participants obtain the right to (1) recruit additional participants, or to have additional participants placed by the promoter or any other person into the program participant’s downline, tree, cooperative, income center, or other similar program grouping; (2) sell goods or services; and (3) receive payment or other compensation; provided that: (a) the payments received by each program participant are derived primarily from retail sales of goods or services, and not from recruiting additional participants nor having additional participants placed into the program participant’s downline, tree, cooperative, income center, or other similar program grouping; and (b) the marketing program has instituted and enforces rules to ensure that it is not a plan in which participants earn profits primarily by the recruiting of additional participants rather than retail sales.”
Essentially, it boils down to whether there’s a recruitment component to a pay plan. If there’s an an opportunity for an override commission from downline productivity, where participants can sponsor other participants and earn income from their sales, it’s a MLM. Using the factors above, and some of the obvious factors referenced in the video, Melaleuca would clearly qualify as a MLM. There’s an enrollment fee that gives people the right to sponsor other participants (element #1) and the right to sell products (element #2), which gives people the ability to receive payment for product volume (element #3) assuming the commissions are not driven by enrollment fees.
VanderSloot’s Statement
(emphasis mine)
“It’s unfortunate that someone would suggest that Melaleuca is something like Amway. It’s not. We started Melaleuca 26 years ago to market environmentally responsible products and to provide a business opportunity for folks who weren’t successful in climbing the corporate ladder and didn’t inherit wealth from their parents. We try to be champions of the little guy. My father was a little guy. And I still see myself as a little guy.
Contrary to those who do not know us, our business model is nothing like Amway or Herbalife. I challenge anyone to find any similarity whatsoever. There is no investment of any kind unless you want to call a $29 membership fee an “investment.” And anyone can get a refund on that by just asking.
We do offer a home-based business opportunity. But it is no “pyramid scheme.” We have long been critical of the many MLM/pyramid schemes operating in this country. I agree with those who say that typical MLM companies destroy people’s finances. Most are designed to attract people to “invest” in large purchases with the promise of “getting rich” quickly by getting others to invest. The guy at the top always wins and the guy on the bottom always loses.
In Melaleuca’s case there is no investment and no getting others to invest. We do pay commissions to those who have referred customers based on what those customers purchase. There is really no way to lose money on referring customers. And there’s no way for customers to lose either when they’re buying high-quality products at grocery store prices. Customers just order the products they use every month directly from the factory. We have hundreds of thousands of customers who buy from us each month. They don’t ever resell anything. They don’t invest in any inventory. There can be no pyramiding without some kind of investment. In 26 years, no one has ever complained that they lost money. It’s simply not possible.
Our business model works pretty well for most folks. We have already paid over $2.9 billion in commissions to households across the country. Our mission is to enhance lives by helping people reach their goals regardless of their beliefs, backgrounds, or affiliations. Last month we sent out almost 200,000 checks to American households alone. Members of those households tell us we are doing a pretty good job achieving that mission.”
