This post is an outcome of the recent meetings I had with people wanting me to join the AmWay.
AmWay :
Many people already know of AmWay, if not :
* AmWay is a business model that tries to deal with the consumers directly instead of going through retailers. It is a multi-level marketing business model. BTB, skipping the retailers, does not reduce the cost for the consumers, infact AmWay products are expensive than the products at retail stores.
* With AmWay, you market their products and get commission.
* You get commission not only for the products you sold, but for every product that is sold by the people who you already sold. We will see an example later in this post.
How will I judge ethical
To me, being ethical is not based on cost effectiveness. Because in many cases, being ethical could make you expensive. So I'm not looking for an answer based on cost. I try to look at AmWay from selling end as well as the consumer end . I believe, the core of the judgement should be based on how the consumer bill is distributed.
Consumer perspective
When I buy some product from a retail shop : my price will include the cost of the product (production, revenue etc), the cost of delivering, commission to be paid to the retail store. Here every single person that is paid from my bill, has worked his / her part to bring the product to me.
When I buy through AmWay, my price will include the cost of the product (production, revenue etc), commission to be paid to the person (say 'Mr.A') who sold it to me, the commission to be paid to all persons through how Mr.A joined the Am Way. Here not every single person paid from my bill has worked for me to get the product.
For example : Mr.X introduces Mr.Y to AmWay. And Mr.Y introduces me to AmWay. Then whenever I buy something through Mr.B, my bill will include a commission for Mr.Y and Mr.X. AmWay doesn't show any commission in your bill. But still there is no free lunch. If AmWay pays commission to Mr.X or Mr.Y, sure it would be from your bill. And the commissioning doesn't stop with Mr.X. If Mr.X was introduced by Mr.W who was introduced by Mr.V and so on till Mr.A, your bill has to include commission starting from Mr.Y all the way back till Mr.A.
It would definitely make sense to me, if my bill includes a commission for Mr.Y who sold to me. But it doesn't make any sense to me, if my bill includes a commission for Mr.X or anybody beyond his hierarchy who did nothing to bring my product to me. All they get is the commission from my bill. This does not sound ethical to me.
Seller Perspective
If I'm the seller, If I sell something to Mr.A, I will get a commission for selling to Mr.A. That sounds reasonable. But In AmWay, if Mr.A sells to Mr.B, I will still get a commission. Here Mr.A did all work to sell something to Mr.B. I did nothing. So getting a commission for Mr.A's work is unethical to me.
Is it Ethical?
When many people sweat their blood and brain to create things and serve consumers to make money, some people simply think through the ways of getting commission without any work. This sounds unethical to me. Here I'm not against any commissioning model like franchising, agents / agencies etc where all these people work hard to serve consumers. All that sounds wrong to me is the idea of AmWay business model and their marketing, where they try to promote "sell once and get paid for the rest of your life".
If I'm wrong on this, I will raise one other question. Is it ethical for schools to get a commission from salary of its students for life time? If some school comes with such contract, will there be any students to go for it?
So my answer is, It does not sound to be an ethical model.
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23 comments:
Hi,
Interesting post, however you've misunderstood the model. People who did nothing to get the product to you DO NOT get paid any commissions. In general only people who were actively involved in developing the marketing which led to you buying the product get paid. The "endless chain" idea is a myth and a misunderstanding.
Thanks for the comment. I understand that it is not an endless chain. I think it would be reasonable to pay a one-time commission to who introduce new people. Getting a commission for all the sales done through the people who I introduce doesn't sound right to me. To me, it simply bloats the cost of products.
Not really, if those people hadn't done their work, then you never would have bought the product in the first place. Every time you buy anything from anywhere there are likely hundreds of people getting "a piece of the pie". There's the distribution chain plus all of their staff, all the people involved in marketing. All the people involved in research and development etc etc etc. If you buy a book or a record or anything that requires patent licencing, the person or people originally involved in getting that product to the market (you) earn a small percentage.
Take away those costs, the product might be cheaper, but as they nobody would have bought it either as they never would have known about it.
With Amway if you take away the "passive-like" incomes you're going to drop the price 3-5% but have to increase all the marketing expenses dramatically.
R&D and patent licensing costs might apply to AmWay as well. AmWay skips distribution chain. But spends on marketing.
If I introduce Mr.X to AmWay, it is fair for me to expect a one-time commission. Anything more, seems to me unfair and will not justify the money spent by the consumer.
And anything that costs more for its marketing I wouldn't choose to go with.
So you consider the "royalty" payments system that applies to patents and works of art, such as books and music, as well as things like dividends for company owners etc etc to be unfair to the consumer?
Do you realise that virtually every item of modern technology you use, including the web browser I'm typing this on, involves ongoing licencing payments to people and companies that developed something once, some time in the past?
How is this all unfair to the consumer? Isn't the consumer still free to decide if something is of value to them at the price offered?
Royalty is to who own the product. It is common to any product. It should apply to AmWay as well. You need this to protect your product. This is fine.
The marketers should not be paid the way royalties are paid.
why not?
* It bloats the cost of the product.
* I should be paid only for what I sell. If Mr.X (who I introduced) introduces / sells to Mr.Y, I should not be paid.
If marketers are paid that way like royalties, as a consumer I don't need to buy that product. My money need not be spent that way. I will simply choose a different product which doesn't do that. It is that simple.
Again, if some body sells something, he/she can get a one-time commission. Nothing more than that. Anything more than that is unethical to me.
All marketing and distribution costs ultimately increase the price of a product. A company could remove all of those things and have a cheaper product - but it likely wouldn't sell.
Whether a product's final price is "bloated" or not is up to the end consumer to decide. If the marketing expenses have truly "bloated" the price, then it won't sell.
Finally, you do realise that with virtually *every* product you buy from *anywhere* there are people earning money from it that were not involved in the final transaction, and in some cases not involved in any transactions - for example company shareholders.
Someone who writes a book gets paid every time someone buys it
Someone who owns shares in a company gets paid (or increased worth) every time someone buys the company's products.
Someone who puts a google ad on their site, once, gets paid every time someone clicks on the ad.
Someone who makes a movie gets paid every time somebody watches it, anywhere in the world.
These are all ethical to you? Yet -
Someone who creates a new customer for a company, through unpaid work, gets paid every time that customer buys the company's products.
This is unethical?
I honestly cannot see how or why you distinguish.
Someone who writes a book gets paid every time someone buys it.
- He creates the product and gets paid. Not somebody who introduced the writer gets paid.
Someone who owns shares in a company gets paid (or increased worth) every time someone buys the company's products.
- The product is created out the money from share holders. They get paid for that. If I'm one of the share holder, I'll get paid. The one who introduced me to the share market does not gets paid every time I make money.
Someone who puts a google ad on their site, once, gets paid every time someone clicks on the ad.
- If I put ad in my site, I'll get paid. The one who taught me google AdSense, or the one who taught me computer, etc etc will not get paid.
Someone who makes a movie gets paid every time somebody watches it, anywhere in the world.
- He makes the movie for everyone. It is not fair to watch the movie without paying the price.
Yes. These are all ethical to me.
Someone who creates a new customer for a company, through unpaid work, gets paid every time that customer buys the company's products.
- Here the one who creates the new customer, does not create any product that could sell. He just brings a new customer. That effort worth a one-time reward. Not every time the new one buys.
More over, say Mr.X introduces Mr.Y and Mr.Y introduces Mr.Z. There is no reason Mr.X getting paid when Mr.Z buys. This is CLEARLY UNETHICAL to me.
I understand, it will be difficult to agree with me for any one who is like Mr.X or who ultimately wants to become like Mr.X, where Mr.X is in a better hierarchy and gets paid even when he does nothing.
And Mr.X
* need not do marketing analysis.
* need not do any R&D.
* need not involve in creating the product.
* need not invest work or money in creating the product.
* need not involve in delivering the product.
All he needs to do is bring in somebody and enjoy commission every time a sales goes through all who he introduced.
So, in essence what you're saying is that in your opinion, certain types of work are eligible for "residual" incomes, but not others.
Interesting opinion. For current economic system, people has to work to create value (money is just a replacement of value). Introduce people to something could be some value, but could be a disaster. Introducing people to Amway, in my opinion, is disaster. As such, those people does not even entitled to one-time-payment.
In capitalism, capital does work for its owner in the sense that it would make the owner create more value to society. If a farmer own a tractor, he could works wider fields and produce more as compare to works only with hands. So, if investor by tractor for a farmer, it is logical if that farmer would give PART of his EXTRA result to the investor.
But multi level marketing does not produce any value at all to the society. If we talk about supply chain, multi level marketing add more and more chains whereas other people try to make the chain shorter for efficiency. The more downline (chains) you have, the better. From economic theory it is really really ridiculous.
David,
If what you said were true, I would agree with you, however you've a fundamental misunderstanding of the MLM model. It does NOT produce "more and more chains". Indeed, as found in FTC vs Amway, it generally produces *less* chains than traditional distribution networks. MLM expands not by making longer chains, but by making *new* chains, exactly the same way traditional business expands.
You seem to have made the unfortunately common error of conflating MLM with pyramid schemes, and believing that MLM has the same flaw as pyramid schemes.
I am not talking about pyramid but MLM. It is definitely different from traditional chain. In MLM for example, you are supposed to build at least 10 level downline and the target is 50 level as stated here:
http://www.cubinlab.ee.unimelb.edu.au/~pychan/pdf/businesspdf.pdf
see page 10.
One level means one chain, as you pay commision to one person. Two level is two chain, as you pay to two people etc.
In real life, we would like to go to factory outlet (only 1 chain) or grossir (2 chains) etc. Even the supermarket would like to buy direct from factory (2 chains only). Please Compare that to 50 chains!!
And here is another fact:
Population of the whole world are IBO of MLM by the time you reach level 15.
Below is example with maximum direct downline 5 and spillover system:
LEVEL ----------- People ------------ Total # People
1----------------- 1 -------------------- 1
2 ---------------- 5 -------------------- 6
3 ---------------- 25 ------------------- 31
4 ---------------- 125 ------------------ 156
5 ---------------- 625 ------------------ 781
6 ---------------- 3,125 ---------------- 3,906
7 ---------------- 15,625 --------------- 19,531
8 ---------------- 78,125 --------------- 97,656
9 ---------------- 390,625 -------------- 488,281
10 ---------------- 1,953,125 ------------ 2,441,406
11 ---------------- 9,765,625 ------------ 12,207,031
12 ---------------- 48,828,125 ----------- 61,035,156
13 ---------------- 244,140,625 ---------- 305,175,781
14 -------------- 1,220,703,125 ------ 1,525,878,906
15 -------------- 6,103,515,625 ------ 7,629,394,531
As such, to build a 50 level downline is impossible. That is for the FIRST SINGLE person join the MLM (may be the owner of MLM!!!). And if you happen to join at level 15, do not expect to get any downline.
As I said before, the person introduce you to MLM do not even deserve a one time payment, as he/she introduce you to a disaster.
As I said, you've misunderstood the model. The PDF file you linked to is of the Amway business. You mistakenly assume that everyone in that 50 level "chain" is getting paid from a product purchase. They are not. You've made a false assumption, and it's led you to a logical, but false, conclusion.
If they were, then the mathematical progression you give would be correct, and it would be a disaster. That's why pyramids are illegal. They cannot work and if not shutdown generally collapse within a few years. The *reality* that Amway just celebrated 50 years in business should be a rather large hint that perhaps some of your assumptions are incorrect.
As I said, you're assuming it operates the same as a pyramid and then assigning the flaws of a pyramid to Amway. False assumptions lead to false conclusions.
Then again you make a very illogical reasoning. MLM company will not collapse. IBOs will. MLM company will reap profit and profit at the expense of new IBOS that keep coming collapsing.
MLM company will have free distribution channel and free marketing as all are done by the IBOs using their own money.
So, if you are smart, build your own MLM like Donald Trump:
http://www.chicagotribune.com/business/ap-trump-vitamins-nov19,0,85314.story
As donald trum is bery smart, he will not join as an IBO, but build his own MLM. Beware though, you could get sued for "selling dream". As such, Donald trump make a smart move to prepare, he include a disclaimer:
"The Trump Network does not guarantee you will earn an income."
on the same page he promise high income. Please see below:
http://www.slideshare.net/gueste227879/trump-presentation-sept9
page 11.
So, MLM company will not collapse, many IBOs will. Some IBOs that lucky join earlier, at the expense of their family and friend as the victims to be their downline.
Got it?
Jerald,
It really doesn't matter if you think MLM is ethical or not, the FTC alrady made that decision in 1979. It's legal, ethical, and moral.
Take virtually any sales organization: there are the sales persons who interact directly with the customers, area supervisors above them, region supervisors above them, and a national manager. Everyone gets paid for a sale the lowest level sales person makes, because the various levels above them helped train and motivate each level below. That's why the upline in MLMs get paid, they are compensated for the time, money, and effort they spent to train and motivate their downline.
The real problem with N21 and the rest of the tool scammers is the Amway tool scam. If you don't know what that is, the bottom line is the upline LCKs (Lying Cowardly "Kingpins"), generally Emeralds and above, make several TIMES more from the tool scam than Amway, and about 99% of the remaining IBOs operate at a net loss.
The extreme depth David provided is not realistic, and subjects N21 to the same stacking abuse that got TEAM canned a couple of years ago. Also note the slide where if you don't buy tools, you will save money, if you buy the tools, you will make money. This is the essense of the Amway tool scam, to create a dependency on the tool scammers so THEY can make tool scam money. Of course, tools are optional, but just try to comprehend the rules and get Amway to approve all materials you use with prospects. Tools being optional is an illusion. Amway knows this, but won't do anything about it unless/until the government starts sniffing around.
Jim Dornan got into some hot water when the UK blew up a couple of years ago, when he wrote a letter stating the problem with the UK government was Amway's problem, yet the tool scam is now shut down in the UK.
ibofb will lie about virtually anything to try to convince you everything is okay, when the reality is the Amway tool scam is the dominant economic driver, NOT the Amway business, and THAT is the reason for Amway being a scam.
If you want to know the tool scam FACTS, visit my blog. I suggest you start here: http://tiny.cc/D5oJh and forward the information to everyone you know, so they won't get scammed.
Tex,
I understand the extreme depth is impossible. But to undestand my point, please follow questions and answers below:
Q: Does MLM put a limit and the levels of IBO?
A: No
Q: Given that amway has been around for 50 years, is it possible that every year one more level of IBO is created?
A: Theoretically No
Q: So, is Amway still recruiting? A: Yes
Q: To what level does the new comer join this year?
A: Hmmmm ....? (could not answer)
Q: Does the new comer join this year could recruit any downline?
A: Theoretically No.
Q: But when you are recruited as an IBO, you are told to work smart (recruit more downline instead of selling more). In this case, work smart is for early birds only and the late comer should "work stupidly". Is this fact clearly informed to new comers?
A: No
Q: Is this considered ethical way of recruiting people?
A: Hmmmmm .... (could not answer)
DK
Tex, You started with a very wrong statement.
"It really doesn't matter if you think MLM is ethical or not, the FTC alrady made that decision in 1979. It's legal, ethical, and moral."
First of all, you can not say my opinion doesn't matter. Otherwise you have no reason to comment on my blog.
Second : Legal is social. Ethical and moral are personal. All legal need not be ethical or moral. FTC can declare what is legal and what is not. FTC cann't declare anything ethical, moral etc... Divorce / multiple marriages may be legal. It need not be ethical to me. I can never do anything what I think is not ethical. Nobody can make me.
And then regarding scams, I know what I read. I don't just believe whatever I read and whatever people tell me (take for example, whatever you say). So don't think I'm writing all these because I read some scams some where.
To be honest I never read anything against AmWay in anyway. Whatever I write is my own feeling. To reiterate my thought, if I introduce Mr.X I can get a one time commission. That is completely fine with me. If I'm paid everytime Mr.X buys, thats not ethical. Similarly, when Mr.X introduces Mr.Y, I don't deserve anything to be paid whenever Mr.Y buys. To me, this is No.1 unethical thing in the business.
On the other hand, if my bill pays for the supervisor, national manager, sales person, truck driver who delivered, security at the gate, ones who put the carts back at store, who arrange the things in the store shelves, etc etc... I will really be proud to spend my money that way. I definitely earn a feeling of contributing something to the society. They all put their best effort for me to get the product. And more over, my bill will not pay the same sales manager every time I buy. My bill will only pay for the sales manager who worked at that time.
For example say Mr.A is the sales manager for Item A. and Mr.B is the sales manager for Item B. When I buy Item A, Mr.A will be paid. When I buy Item B, Mr.B will be paid. Its not that, Mr.A will be paid every time I buy any product any where.
Q: Does MLM put a limit and the levels of IBO?
A: No ---- While there is no technical limit, there is a practical limit, at least in Amway. When the downline gets big enough, they "break-away" and the depth discussion becomes limited.
Q: Given that amway has been around for 50 years, is it possible that every year one more level of IBO is created?
A: Theoretically No ---- If you mean one level by every IBO sponsored, you're right. Too bad your theory and the real world don't work the same. All the time, people are quitting, slowing down, dying, etc., so again your world of theory is not accurate.
Q: So, is Amway still recruiting? A: Yes ---- Since there is a need for accuracy, Amway doesn't recruit, IBOs do.
Q: To what level does the new comer join this year?
A: Hmmmm ....? (could not answer) ---- At the bottom, just like everyone else has for decades.
Q: Does the new comer join this year could recruit any downline?
A: Theoretically No. ---- Why not? There are many more folks that have never been in Amway than have been/already are.
Q: But when you are recruited as an IBO, you are told to work smart (recruit more downline instead of selling more). In this case, work smart is for early birds only and the late comer should "work stupidly". Is this fact clearly informed to new comers?
A: No ---- You are right about the recruiting, but the "early birds" do NOT have a very much larger recruiting/customer pool than the "late comers," so there is no need to inform the "late comers" of your theoretical concern.
Q: Is this considered ethical way of recruiting people?
A: Hmmmmm .... (could not answer) ---- Of course it's ethical, it's the TOOL SCAM that is unethical.
First of all, you can not say my opinion doesn't matter. Otherwise you have no reason to comment on my blog. ---- Sure I do. The reason is to get your mind off the MLM part, and switched over to the tool scam part.
Second : Legal is social. ---- No, legal is legal, base on laws.
Ethical and moral are personal. ---- No, ethical and moral are also addressed by laws.
All legal need not be ethical or moral. ---- You're tying yourself up into logic knots. IT'S THE TOOL SCAM!!!
FTC can declare what is legal and what is not. ---- No, the FTC can ENFORCE the laws that define what is legal and what is not.
FTC cann't declare anything ethical, moral etc... Divorce / multiple marriages may be legal. ---- You are not staying focused. THE TOOL SCAM IS THE ISSUE!!!
It need not be ethical to me. I can never do anything what I think is not ethical. Nobody can make me. ---- Nobody can make you think, either.
And then regarding scams, I know what I read. ---- Which was what?
I don't just believe whatever I read and whatever people tell me (take for example, whatever you say). ---- Why don't you read the BASIS of what I said and then comment?
So don't think I'm writing all these because I read some scams some where. ---- You lost me here.
To be honest I never read anything against AmWay in anyway. ---- Then you are ignorant?
Whatever I write is my own feeling. ---- Facts, not "feelings", should guide your decisions.
To reiterate my thought, if I introduce Mr.X I can get a one time commission. That is completely fine with me. If I'm paid everytime Mr.X buys, thats not ethical. ---- Then you don't understand repeat sales for a sales person. Perhaps less "feelings" and more facts would help you understand. This is how MOST sales businesses work. Are you saying ALL of them are unethical?
Similarly, when Mr.X introduces Mr.Y, I don't deserve anything to be paid whenever Mr.Y buys. To me, this is No.1 unethical thing in the business. ---- You obviously didn't follow my analogy.
On the other hand, if my bill pays for the supervisor, national manager, sales person, truck driver who delivered, security at the gate, ones who put the carts back at store, who arrange the things in the store shelves, etc etc... I will really be proud to spend my money that way. ---- You don't have to be "proud", that's how business works. It's nothing to be "proud" of, or have any "feelings" about, it's just the way it works.
I definitely earn a feeling of contributing something to the society. ---- Hey, knock yourself out!
They all put their best effort for me to get the product. ---- Actually, many of them are lazy, not dependable, etc., but it still usually works out.
And more over, my bill will not pay the same sales manager every time I buy. ---- Oh yes it will. Every time you buy something at a store, the manager gets paid. When you and enough others don't buy enough, the store is shut down. Simple.
My bill will only pay for the sales manager who worked at that time. ---- You really don't understand how business works, do you?
For example say Mr.A is the sales manager for Item A. and Mr.B is the sales manager for Item B. When I buy Item A, Mr.A will be paid. When I buy Item B, Mr.B will be paid. Its not that, Mr.A will be paid every time I buy any product any where. ---- You lost me again with your twisted logic. Did you read my sales person, supervisor/manager analogy? Do you want to discuss this on the phone? I can call you, or we can both call a conference number: http://texsquixtarblog.blogspot.com/2009/01/talk-to-tex.html Name a couple of days/times, and I'll let you know which works better for me.
First of all, you think my opinion doesn't matter. Then you need not reply me.
Then you have no right to say me what I should be proud of what I should not. That is my decision.
You say
* I don't understand any business.
* I'm tying myself up into logic knots. IT'S THE TOOL SCAM!!!
* Nobody can make me think.
* I'm ignorant.
* I'm not staying focused.
All these are completely fine with me. Because these are all just your opinions. They are not going to affect me in any sense.
Why should I talk to you? What else we can discuss, than what is not discussed in this blog? I never was interested in AmWay. The purpose of this blog is some AmWay people tried to convince to join AmWay. I feel it is unethical and I'm not for it. There are many genuine calling, I have to put my effort instead of wasting time.
Q: Given that amway has been around for 50 years, is it possible that every year one more level of IBO is created?
A: Theoretically No ---- If you mean one level by every IBO sponsored, you're right. Too bad your theory and the real world don't work the same. All the time, people are quitting, slowing down, dying, etc., so again your world of theory is not accurate.
Comments: this the the fact that need to be highlighted: The theory and the real world is different. There are so many people quitting, slowing down, dying. etc, that would make recruiting possible. It is business based on IBO's bankruptcy, over and over again. That is the real world.
Q: Does the new comer join this year could recruit any downline?
A: Theoretically No. ---- Why not? There are many more folks that have never been in Amway than have been/already are.
Comments: In real world yes,
1. they could recruit people quitting, slowing down, dying. etc.
2. they could TRY to recruit people that do not want to be IBO at the first place.
Q: But when you are recruited as an IBO, you are told to work smart (recruit more downline instead of selling more). In this case, work smart is for early birds only and the late comer should "work stupidly". Is this fact clearly informed to new comers?
A: No ---- You are right about the recruiting, but the "early birds" do NOT have a very much larger recruiting/customer pool than the "late comers," so there is no need to inform the "late comers" of your theoretical concern.
Comment: the early birds sure have very much larger recruiting pool. Late comers would have more difficulty in recruiting people, as "everybody else" already join amway. After 50 years, the leftover is the people do not want to join amway at the first place, or the quitting, slowing down, dying, etc.
Q: Is this considered ethical way of recruiting people?
A: Hmmmmm .... (could not answer) ---- Of course it's ethical, it's the TOOL SCAM that is unethical.
Then you get it wrong. I doubt you know about the difference between legal and ethic.
http://wiki.answers.com/Q/Difference_between_Legal_and_ethical_standards
DK
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