FTC Targets Acai Seller

The Federal Trade Commission has filed a complaint to stop LeanSpa, a weight loss company that has allegedly used fake news websites from affiliate marketers to promote its acai products.  LeanSpa parties apparently used affiliate marketers to drive interest to their program.  Allegedly, the affiliates used “fake news sites” to fein credibility about the products and drive traffic to the main site; thus, earning themselves commissions.  In its press release, the FTC states,

The complaint alleges that the defendants hired affiliate marketers who used fake news websites to promote the defendants’ products. The fake news websites used domain names that appear to be objective news or health sites, such as channel8health.com, dailyhealth6.com, and online6health.com. . . The fake news sites had links to the defendants’ own websites, where consumers were offered trial samples of two weight-loss dietary supplements: an acai-berry product and a colon cleanse product. The affiliate marketers earned a commission for each consumer who landed on their sites and signed up for a trial.”

There are three things that stand-out with this lawsuit that are relevant for the MLM community.

First, never outsource the creation of marketing materials without proper guidelines.

In the case mentioned above, the FTC highlighted the marketing practices leveraged by the affiliates.  The affiliates were obviously creating their own marketing materials, leading them to pretend to be objective reporters and using with legitimate-looking domain names. Although they were not agents of the company, the behavior still got the company in serious trouble.  With MLM companies, it’s more complex than a simple affiliate model.  With a MLM model, it’s specifically designed to not only recruit and retain first level affiliates, it’s designed to empower those individuals to sponsor and train other people. It’s an affiliate model on steroids.  With this in mind, it’s imperative for companies to at least maintain approval-rights before a leader can develop MLM training.  This includes restraining the field’s ability to create internet landing pages.  It seems harsh, but it’s the irresponsible 1% that can lead to the ship burning down.

Second, when making endorsements, affiliates must disclose their relationship

In the past, I wrote about the revised FTC guidelines.  In these guidelines, the FTC makes it painfully clear that when there’s a financial connection between an endorser and a business, the endorser is obligated it disclose the relationship.  Specifically, it requires disclosure when: “When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed.”  With LeanSpa, the affiliates were trying to pretend to be objective reports, which put the company at substantial risk.

Third, avoid the “Negative-Option Continuity” plan

This one is just plain common-sense.  A negative-option plan is one where a participant is automatically enrolled in an autoship and they need to specifically opt-out. With LeanSpa, apparently people were enticed into purchasing small samples of the product.  However, they failed to realize that they were also committing to a monthly $80 purchase of inventory. If a MLM business has an autoship program, it’s vital to ensure the distributor specifically chooses to participate in the program.  Do not allow the sponsor to enroll the distributor into an autoship program without express consent.  And be candid about the financial commitment involved.

Bonus: Playing dumb never works.

It would be easy for a company like LeanSpa to say, “we’re not able to control how these people market our products.”  At the end of the day, the FTC is not going to buy the argument. Companies cannot reap the benefits of misrepresentation without accepting responsibility from the methods by which the benefits were obtained. While it’s hard to run a tight ship, it’s incumbent upon every MLM company to do it right given the high stakes. MLM compliance departments are very important.

What are your thoughts?  Do you see any poorly run websites out there run by distributors?  How should the company monitor the web to prevent it?

MonaVie and the Push for “Proprietary”

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MonaVie is experiencing a slight erosion in its distributors. It happens. Companies get mature, the original excitement wanes, the once sexy and cutting edge ingredient becomes a commodity and various leaders start looking for the next best thing. It’s certainly not the end of MonaVie…they’re one of the largest companies in the industry. They’re simply facing some struggles that’s not unique to their business or this industry.

Rod Cook, MLM Consultant and editor of the MLM Watchdog site, referenced some of MoanVie’s struggles in a video and cited a few reasons for the decline: expensive monthly autoship requirements, lawsuits against distributors after publicizing their “Open Door Campaign” and changes in their compensation plan.

Experience is the best teacher

There’s a lot to be learned by watching companies work their way through struggles. There’s a saying that says: “The best teacher is experience and the best experience is someone else’s.” In 2007, Amway went through a bad regulatory experience in England and made subsequent changes that literally saved their business. There’s a lot to be learned from their adjustments in England and in the United States.

So how is MonaVie responding? They’re dropping their prices, increasing their PV and rolling out a free shipping program for distributors on AutoShip. In short, the story of the acai berry no longer supports the hefty margins from the early days. They’re also doing something a little more subtle: they’re locking down intellectual property rights to give their product a clear point of difference from other comparable items in the marketplace. I’m calling this a “Push for Proprietary.”

The “Acai berry” is an amazing product with incredible health benefits; however, it’s no longer a strong selling point to say “we have the acai berry” because the berry is EVERYWHERE. It’s in shampoo, countless juices, ice creams, smoothies, coffees and energy drinks. It’s even in vodka, which is just weird!

In the past, I’ve written about the importance for companies to commit to innovation to keep their distributors armed with relevant products. It’s a challenge for companies because the speed of innovation across the world has accelerated. Companies can either innovate fast or lock down the proprietary rights to their products via patents.

Since the Acai berry is not proprietary and MonaVie is not able to lock it down, they’ve recently patented a “brand” of acai (dubbed “AcaVie”), which I’m guessing includes a unique extraction method. The “AcaVie” logo will now appear on the MonaVie bottles in their effort to build up the value of the mark “AcaVie,” which they own. So when a prospect says “Why would I pay $X for a bottle of monavie when I can get the same thing for $Y at Walgreens?”, distributors now have a stronger point of difference by saying “We have the exclusive rights to AcaVie, which offers the most health benefits associated with the acai berry.” It gives distributors another point of difference to justify the price of the product.

Leveraging Proprietary

Understand, this is not MonaVie’s first patent but it’s an example of leveraging “Proprietary” to protect a product from price erosion. “Proprietary” is an important word in the direct sales industry. If a product is proprietary, it serves as an assurance for the distributors that they’re not building up the brand awareness of a product that will eventually devolve into a commodity once it gets duplicated. “Proprietary” insures the sales force that their sales efforts will stick. Right now, brands hanging their hat on the Maqui berry or any other hot ingredient should learn from MonaVie and think of ways to at least patent the process by which the ingredient is extracted or used.

What do you think about this? Is MonaVie making good changes to protect their margins? What can other companies learn?