Direct Sales and MLM

Sleeping Giant Wakes Up...sort of

By
Kevin Thompson

FTC recently launched a new consumer protection initiative titled "Operation Empty Promises." Out of the new cases referenced, there was only one that I found somewhat informative for MLM companies. The case has a little to do with the sales of support materials. In summary, if a success system is being sold, the FTC wants to see some appreciable results. How much success needs to be produced to pacify the regulators? Nobody knows. In FTC vs. Ivy Capital (see below for the full version of the lawsuit. Warning, it's incredibly boring), the FTC is seeking to shut down Ivy Capital and suing approximately 40 other defendants (mostly shell companies and corporate executives) for making false claims about the efficacy of a training tool purportedly designed to help people create online businesses. The allegations regarding training materials are below (note, they're all in sequential order below; however, I've trimmed some paragraphs in between to keep it simple):

(BEGIN QUOTE)

Since at least 2007, Primary Defendants have marketed a program that will purportedly help consumers create, develop, market and run their own successful Internet business from home.Primary Defendants' sales representatives typically do not mention Ivy Capital in the initial sales calls, but instead tell consumers they are calling on behalf of "The Success Team" or the "Internet Success Team." .. .Primary Defendants' success and earnings claims are false because the vast majority of purchasers of Primary Defendants' program are unsuccessful in establishing Internet businesses, and thus are unable to earn any money. . .Sales representatives typically offer the programs at three price levels: "conservative," "moderate," and "aggressive," and they encourage consumers to select a level that reflects the ccmsumers' eagerness to make money and commitment to the program.Primary Defendants generally charge from $2,000 to more than $20,000 for their business coaching program. The exact price of the program typically depends on the amount of credit consumers have available on their credit cards.Within days, weeks or months of purchasing the program, consumers discover that it is nearly impossible to establish a profitable Internet business, even if they work substantially more than five to ten hours a week and follow all the steps of the program. The coaches provided by Primary Defendants give little or no substantive guidance. Many of the videos included in the program package contain merely commonsense advice or inspirational stories. . . .In numerous instances, . . . Defendants have, directly or by implication, made misrepresentations regarding the performance, efficacy, nature or essential characteristics of their products and services, such as:consumers who purchase and use Defendants' products and services are likely to earn thousands of dollars per month from their Internet business endeavors; within six months a purchaser's Internet business will generate income equal to or greater than the amount they paid to purchase the program. . .

(END QUOTE)

What's the moral of the story?

First, it's a good idea to be immediately transparent about the company being supported. If you lead with tools and cleverly back into the main company, it might be construed as misleading. In Ivy Capital, the FTC is alleging that people were representing themselves as being with "Success Team" instead of Ivy Capital.Second, the return policy needs to be easy to understand and easily accessible. In Ivy, they had a confusing 3 day return policy.Third, if you sell support materials, and there's representations about the efficacy of those materials i.e. these materials can help you earn $X in Y years in company Z, it's important that there be demonstrable proof of the results being represented. How can a company accomplish this? Strong statistics.Finally, exceed all expectations regarding the value proposition. The best prevention against a regulatory action is the presence of happy customers. If the value proposition is fair and the materials deliver as advertised, there will be minimal complaints and no issues. Yes, there will be duds that buy the materials and do nothing; thus, skewing the averages down. However, if a segment of people that use the materials consistently outperform other segments in the organization, it would provide excellent proof in the event of an inquiry regarding the efficacy of the materials.So now you know what I think. What do you think?FTC vs. Ivy Capital, et al

More Insight

February 8, 2024
By
Clay Brewer
Thoughts A Brewin' Newsletter 6
Learn more
Learn more
January 29, 2024
By
Brooks Brasfield
Breaking Bad? Navigating the Corporate Transparency Act for Small Business Owners and Commercial Real Estate Investors
Learn more
Learn more
January 18, 2024
By
Clay Brewer
Thoughts A Brewin' Newsletter 5
Learn more
Learn more