Direct Sales and MLM

Seven Reasons Why Amway Should Support House Bill 2843

Kevin Thompson

< src="" alt="" width="600" height="450" class="aligncenter size-full wp-image-55" />As I've written about before, Tennessee's anti-pyramid bill (House Bill 2843) is a proposed statute designed to help clarify the differences between legitimate companies and pyramid schemes. The bill requires that some form of a “condition precedent” of external sales be made before distributors can cash in on their downline volume. Translated in English, it seeks to codify one of the Amway safeguards where distributors would be required to make some sort of retail sale before they can benefit from their recruits' volume. Please note, the bill does not require a certain number of customers i.e. a “5 customer rule” nor does the bill require a set percentage to come from customers i.e. 50%…..the bill simply has a sales requirement.I can think of seven good reasons why Amway, the godfather in the direct sales industry, the founder of the Amway safeguards and the defender of the business model, would really benefit from the passing of this bill:

7: They'll never have to listen to their leaders whine again about what the other companies are doing

I can only imagine what some of their people are saying. "But over at XYZ JUMBO JAVA, they force their distributors to spend $500 a month on products...why can't we do that?" Instead of losing leaders to companies with fly-by-night compensation plans only to watch them go out of business within a few years, Amway can answer by saying "Because it's illegal and we actually care about consumers."

6: They've got over 700 patents

It's important for a MLM company to instill a culture of innovation on the corporate level. In Amway's case, they own and control over 700 patents! When you control the intellectual property, it's easier to offer unique items that are un-rippoffable (I'm trademarking that work). Recently, Amway has lowered their prices and launched an aggressive marketing campaign to help their distributors make these external sales. When a MLM company sells commodity items i.e. generic supplements, it's near impossible for distributors to compete in the marketplace on price, which means they'll be forced to sell the compensation plan and rely on the opportunity to inflate demand for the product. With a staute like House Bill 2843, un-innovative companies would quickly disappear because their distributors would be unable to meet the sales requirements.

5: When run properly, their pay plan actually rewards selling over recruiting.

If compensation plans were like dresses, Amway's pay plan is for Amish women. It's old fashioned, conservative and boring. But they've survived over 50 years with it and when run properly, there's really nothing that fosters a merchandising culture better than a unilevel pay plan. Although the other MLM pay plans are not illegal per se, it could be argued that some of the new age pay plans really incentivive recruiting to the detriment of accruing external sales. With a statute that requires some form of selling each month, Amway would not have to re-train its sales force. When an Amway leader asks "why can't we do a binary / unilevel variation with a 2-up hybrid forced matrix oopty oop?" Amway can say "Because we're in the sales and marketing business and the binary / unilevel variation with a 2-up hybrid forced matrix oopty oop is not conducive to accruing sales."

4: It would help protect their greatest asset: their people

It's been said that Amway provides the rest of the MLM industry with fresh meat (leaders). Amway has been developing its leadership base for over 50 years. The leadership base is sophisticated and they're a prime target for many-a-startup-MLMs. If you look at the roots of a lot of MLM companies out there, there's certainly traces of Amway leaders embedded in the roots of those companies. Understandably, it's a company's responsibility to keep its sales force happy. But when Direct Sales Association, with Amway's complicit support, is an advocate for keeping the laws in the industry ambiguous, they're only providing a blanket of protection for illegitimate players to thrive and inevitably raid their downline.

3: The rising tide lifts all boats

The reputation of the industry needs fixin'. Perception is shaped by behavior and behavior is shaped by leadership. Until the leaders in the direct sales industry get on the same page with respect to the problems, the negative perception will never improve. Understandably, some leaders prefer the ambiguity and that's fine for them, bad for consumers and bad for the industry.

2: It's consistent with their recent efforts to transform their sales culture

As I've written about in the past, Amway has recently survived some near-death experiences. And those near-death experiences all dealt with their heavy emphasis on opportunity driven demand and recruitment. In response to those occurrences, Amway has dropped some of their prices, gotten better at monitoring the quality of the message and launched an aggressive marketing campaign to create some brand awareness for its products, which create a more fertile environment for its distributors to make sales. By supporting a bill that requires "some" selling, it would further validate their decisions to change course.

1: They've already got the rule!

What did you think I'd say? This is the easiest one. Amway already has a retail sales rule wherein their distributors are required to make some external sales before they're eligible for bonuses. This retail sales rule was pivotal in their survival against the FTC in 1979. And a variation of this rule was pivotal in their survival in the UK. If the past is a good indicator of the future, it would be wise for Amway to lean on this rule and prevent this issue from arising again. I'm not sure of how many more close encounters it can survive.DISCLOSURE: a former client, Orrin Woodward, argued that Amway failed to enforce its retail sales rule and I think we made a good run at proving it although ultimately, it was unsuccessful. This along with several other occurrences seem to have woken Amway up to the realities of the industry.

What do you think?

I've heard some people say that legislation is not the best way. What are some of your proposed solutions? Oh, and please be sure to hit the "subscribe" button below. I don't want you to miss any updates. Thanks.

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