Why do traditional businesses turn MLM?

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Multi Level Marketing generally differs from traditional business models. MLM has ‘independent contractors’ that buy the products and sell it to make a profit for the company. They often spend a lot of their own money on products to meet targets necessary to earn commissions. They pay fees to be members of the company and pay for ‘conferences’ and ‘trainings’, again, making money for the company.

It is common to find these MLM companies saying that they are cash rich and debt free. Of course they are, they have very little overheads as they leave the marketing and selling to these ‘independent contractors’. These MLM companies can sell products at an inflated price because it doesn’t matter that it is essentially an unmarketable product on the open market. They know the people caught up in these schemes will buy the products anyway. The product becomes just a way for the reps to earn a higher position in the pyramid.

We are used to seeing poor or average quality products being sold in MLMs. Which is why it can be puzzling to see a traditional business with well known, or even loved, products in an MLM way. Let’s have a look at some examples. Here, I attempt to research what the reasons are behind the MLM decision. Ultimately, this is an opinion piece as I attempt to draw conclusions from the evidence.

The Body Shop

The Body Shop was established in 1976 by Dame Anita Roddick and had solid ethical foundations. Then in 1994, it branched out into MLM and ‘The Body Shop at Home‘ was launched. I wonder why? I thought initially that the company might have been struggling financially, but this is not what Companies House information says.

bodyshop money

I have asked The Body Shop why they started an MLM branch. It does seem like quite a risky move to make, considering their strong stance on ethics, cruelty free products and their current marketing slogan…

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Mars

Yes, that’s right. Mars, as in the chocolate company. It has an MLM branch called The Cocoa Exchange. They were formerly known as  Dove Chocolate Discoveries. They call their reps ‘curators’. They talk about uplines, and amounts needed to sell to remain ‘active’. They sell online and do parties at home. They sound like any other MLM, except their product is a well known brand. They started in 2007.

Mars have their products all over the world and they can be found in any number of shops. Why on earth would they feel it necessary to follow the MLM model? I found this article in ‘Confectionary News.com‘ where they go some way in explaining the decision. They acknowledge that not many large companies have strayed into MLM and it admits there is a stigma involved in this type of selling. They say that this way of selling fits in with Millenials and their love of companies like Uber and Etsy. They say that there is a need for people to have an extra income. Because Mars don’t make money from the starter kit, they think that they are avoiding the pitfalls of most MLMs. They say they are different to other companies because they don’t promise to make people into millionaires.

Twice in their FAQ section on their website they mention earning a 6-figure income.

Mars claim that the aim of their MLM is to generate sales to customers of their products and to provide an income to the reps. They will certainly be successful in generating sales, but whether anyone apart from Mars makes any real money is yet to be proven.

choc

(Photo: Mars)

Neal’s Yard Remedies (Home) Ltd

Neal’s Yard remedies sell essential oils and beauty products. This company have high street shops, as well as an MLM arm. Again, I am surprised. Look at their ethical claims

neals yard

The company started in 1981 and branched out into MLM in 2009, see Companies House for their details. It seems the UK company owns the Neal’s Yard company in the US. Peter Kindersley was director when the MLM branch started and he loaned the company £486,616 indefinitely.

Peter clearly has a very large influence over the company but I can’t find any previous links he has had with MLM. He has been involved in a lot of businesses, but they have all been in publishing or organic farming. I have looked into the actions of his wife, Juliet, and there is no sign of MLM in her history either. She is an environmental activist and is often seen working alongside her husband.

I wonder if someone sold the idea of MLM to Peter as an ethical and great way for people to earn money, empowering them and generally being a force for good? Neal’s Yard was doing well financially when the MLM side started up, so it wasn’t an act of desperation from a struggling company.

There are no income statements from NYR but the sales and profits continue to grow for the owners. I wonder how the owners would feel if they realised how badly their ‘consultants’ are doing financially, and how unethical their company really is.

Anne Summers

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Anne Summers was established in 1970 in UK. They sell lingerie and sex toys and have a high street shop presence. In 1981 Jacqueline Gold (current chief exec) started the MLM wing of the company. It is said that this is due to the laws relating to presenting sex-toys in a shop. A shop selling sex toys needs to be licenced as a sex shop. If the proportion of toys to other stock is low, it can be classed as a retail shop. By selling in people’s home, this technicality becomes irrelevant.

Jacqueline said in this interview that she came up with the idea of MLM for her company when she attended a Tupperware party.

Tupperware

Tupperware products were invented in 1946 and didn’t sell well in shops initially. Their website says that the products were so innovative, customers needed to see demonstrations to understand how the products worked. In the 1950s the concept of selling Tupperware in homes really took off and the company became very successful.

These days people know how to operate the products and they can be found in shops, alongside similar products made by other companies. It would seem that there would be no need now for an MLM side. I guess there is also no need to remove that aspect of the company because it has become so well known and it continues to make a very large income for the owners.

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Brownie Wise, the woman behind the ‘party plan’ concept for Tupperware (from Tupperware.com)

AVON

avon

AVON are a very well known brand and are often held up as an example of why MLM isn’t such a bad thing. The company was started by a travelling book salesman, David McConnell. It was initially women selling perfumes door to door and earning a commission for their efforts. Technically, this is called Direct Selling.

In recent years they adopted the MLM model and allowed people to recruit into their team and earn commission based on their team’s performance. They were members of the Direct Selling Association, but ended this relationship in          2014, citing a fear of being associated with pyramid schemes. It seems AVON were concerned that the DSA were not worried about MLM companies having a low proportion of real customers, and that the real customers were the reps themselves. They have had many battles to contend with in recent years, see Pyramid Scheme Alert’s article here.

The article above discusses the fact that sales are falling but rep numbers are increasing, lending doubt to the legitimacy of the ‘business model’. Without the sales to the reps themselves, how well would the company fare? AVON are in a difficult position of being involved in something they find uncomfortable, but seem unable to extricate themselves from it.

(Photo credit to AVON)

 

Swarovski

The MLM branch is called Touchstone Crystal.

This company is known for the crystals they sell. They were founded in Austria in 1895 and turned to MLM in 2006 under Dan Cohen and Elizabeth Dipaolo. Dan is a descendent of the original founder of Swarovski. Elizabeth is described as being the Vice President in 2018.

This Direct Selling article describes the start of Touchstone Crystals. The article describes how in 2009 Swarovski started in MLM with kits where people made their own jewellery. The reason given for this venture was that the company were looking for innovative ways to make their jewellery more accessible to the public. Apparently this experience of MLM showed the company that ‘the opportunity was great’. I am assuming this means that it made money for the company.

In 2010 finished pieces of jewellery were introduced into he home parties. This is where Elizabeth DiPaolo was brought in to oversee the MLM side of the company. The Direct Selling 2011 article above says this of Elizabeth-

swarovski

All I have managed to find out about Liz is that she previously worked as Vice President for an MLM called Princess House Inc. She will have brought her knowledge of how profitable MLMs can be for the company.

It looks like Swarovski moved into MLM with reasonable intentions, ie to sell more products. When Liz became involved, it is probable that she explained how profitable MLM could be to the company. I guess we will never know if a discussion was had with Dan about how damaging MLMs can be to the people who participate in the scheme. There are no Income Disclosure Statement to show how poorly the ‘Glambassadors’ are doing financially.

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(Image from Touchstone)

Usborne

Usborne originated in the UK as a publisher. It was founded in 1973 by Peter Usborne.

In 1978 Usborne books started being distributed in America through The Education Development Corporation. (Source) In 1989 Usborne started using the MLM model in the US. At the same time as having reps sell his books in parties and fairs, he was selling to Amazon and large chains of shops. This strategy started to fail and the business was in danger of shutting down in 2012. There had been 9 years of decline and the reps were not happy. They saw Amazon as unfair competition. In 2012 Randall White took the decision to stop selling to Amazon, and just sell the books through the MLM way and a few toy shops and specialist bookshops. See this Business Insider article about it.

This is what Peter Usborne had to say about the move to almost exclusive MLM selling.

“We weren’t involved in the decision,” says Usborne, who continues to do business with Amazon in the UK and elsewhere. “Randall just told me he’d done it. He quite likes a fight, and I think he was looking down the wrong end of a shotgun. It looked pretty grim for a while, but now it seems he’s the wind in his sails.”

After making the change the company started improving financially, reversing the downward spiral it was experiencing.

In 1992 the MLM branch was set up in the UK called Usborne Books at Home and School. This company is now showing as a dormant company, as it has from when it was set up. It seems to be trading as a subsidiary of Usborne Publishing Ltd. I’m not sure about the significance of this and would like to hear from anyone who might know what it means.

In 1993 The American Publisher Scholastic took a 26.25% share in Usborne Publishing.

In the UK Usborne books can be bought on Amazon, in bookshops and in supermarkets. The books are very easy to get hold of, which raises the question of why there is a need for an MLM section? Who would buy from a rep when there is more choice and less hassle, and possibly a cheaper deal to be had in a shop?

I have searched and searched for why Usborne is MLM in the UK and I cannot find any statements anywhere. What a wasted evening! All I can do is take a guess. The inspiration may have come from the US where Randall White was using the method to sell his books. It wasn’t going so well for Randall in 1992 so it couldn’t have been just that. Maybe Scholastic had a hand in the move, the dates would fit.

Whatever the reason behind the decision to go MLM, it is working for the UK. Peter Usborne said in a talk he gave that the Home part of the business was doing very well. The number of reps seems to be growing. This is despite the books being widely available in retail outlets.

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(photo from Usborne)

Conclusion

Pyramid or Multi Level selling is a very good way for a company to make money. The company will very rarely lose when it adopts this way of selling its products to people who will buy products and market them for free. The only downside to this model of money making is the poor ethics associated with it. People are realising more and more how bad it can be for the people involved in it who are trying to make a living.

A company should have to answer for their decision to make money through potentially exploiting people and causing financial problems for thousands of people. Hopefully as MLM becomes more widely understood by the public, it will become less popular for traditional large corporations to dabble in.

 

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