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(Team of Destiny®)
(new Note: This entry is several years old. Some of the information may be outdated. Two of the founders' children now run most of the operation. Even so, the basic idea hasn't changed. Amway makes a profit on every sale of every product it offers for sale. The sales people are considered independent business owners (IBOs) and they make money on every sale they make and by recruiting others to makes sales of the same products. They spend money buying Amway products, including the cost of materials and seminars aimed at making them believe that having a positive attitude and working hard are the keys to success. I'll give everyone some free advice: these qualities are usually necessary conditions for success, but they're not sufficient conditions. Anything you can buy from Amway, you can buy elsewhere for the same or less and get something of equal or better quality. Don't forget to check the latest news on Amway.)[/new]
Amway, a subsidiary of Alticor, is the largest multi-level marketing (MLM) organization in the world. It is a multi-billion dollar a year company based on the sale of products as varied as soap, water purifiers, vitamins, and cosmetics. One of Amway's most important products is motivation. Selling motivational products at motivational seminars is one of the more lucrative aspects of this enterprise. Amway proponents are fond of asserting that their products are of the highest quality, their company is very large (several million distributors and several billion dollars in annual sales), and does business with such giants as Coca-Cola and MCI (bought by Verizon).
In Amway, one is recruited as an "independent" distributor of Amway products by buying a couple of hundred dollars' worth of the products from the one who recruits you, known as your "upline." Every distributor in turn tries to recruit more distributors. Income is generated by sales of products by the distributor plus "bonuses" from sales of his or her recruits and their recruit-descendents.
Here is a description from an Amway distributor as to how it works.
It goes like this:
If I buy $200 of stuff from Amway this month, I'll get a 3% bonus check (3% of $200 = $6). If I share the opportunity with nine others, and we each buy $200 of stuff from Amway this month, they each were responsible for $200 and will get $6, but I'm responsible for $2000, moving me to the 12% level. I get $240. However, I'm responsible for paying the bonuses of the people right below me - $54 - so I keep $186. I make more because I did more, I found nine people who wanted to buy at a discount and get a bonus for doing it. After I reach the 25% bonus level there are other bonuses that kick in, but they're all based on the volume of product flow, not on signing people up or having lots of people (Bob Queenan, personal correspondence). [April 7, 2004. Gary Elliot Murway writes: Please correct: distributors/IBOs no longer need to pay downline bonuses. Quixtar can pay each IBO directly.]
Amway defenders take offense at describing this method of sales and recruitment as akin to a pyramid or chain letter scheme. It is true that MLM as practiced by Amway is not an illegal pyramid scheme. Amway has been taken to court for being an illegal pyramid and the courts have ruled that since Amway does not charge people either for joining Amway or for the privilege of recruiting others as distributors, it is not an illegal pyramid. Illegal pyramids and chain letters have no product. Amway has lots of household products: from laundry detergent to vitamins, from cosmetics to water filters. Amway is a legal pyramid scheme.
the legal pyramid
There are several distinct aspects of MLM schemes that justify calling them legal pyramid schemes. One is the aspect of the chain or line of distributors whose income depends primarily not on their own sales of Amway products but on sales made by others whom they've recruited. The actual practice gets fairly complicated. Here is how Bob Queenan, cited above, describes it:
Now we get into the actual mechanisms. While my product volume is low, it makes sense to combine my order with other orders to reduce the paperwork that Amway has to deal with. So the way I order from Amway is to call my "upline" and place my order. My upline combines my order with others and calls Amway directly. Amway would normally ship direct to the upline, and we'd all go over and pick up our products. In my actual case, I live too far away from my upline to make that practical, so I order through my upline, but get direct shipments from Amway.
Do I sell to other distributors? No, we all buy direct from Amway.
Do other distributors order their products through me? Yes, I combine the orders and send them to Amway.
Do I get money from my distributors? Yes, for the products they buy. I write a combined check to Amway.
Do I profit if my distributors buy more? Yes, I do -- so do they, but yes, I do.
Is my bonus from their money? It's from the bonus pot, which is filled with money saved by not paying middlemen.
Am I missing something here? Haven't the distributors become their own middlemen? Aren't the distributors selling to each other? Isn't income mainly generated by recruiting new members to the organization? Isn't Amway Corporation the big winner in this scheme?
An Amway customer is not just buying a detergent, but is recruited into being a minister of a faith with a complicated bookkeeping scheme. Why not just go to your local store and buy soap, you ask? Because the agent is someone you know, or who knows someone you know, who's invited you over for coffee to tell you about a great opportunity. Odds are good that you'll either buy something out of politeness or a genuine need for soap or vitamins, etc. Perhaps you will become an agent yourself. Either way, the agent (distributor) who sold you the soap or vitamins makes money. If you become an agent (distributor) then part of every sale you make goes to your recruiter. The new recruit is drawn into the system not primarily by the attractiveness of selling Amway products door to door, but by the opportunity to sell Amway itself to others who, hopefully, will do the same. The products seem secondary to the process of recruitment. Yet, the distributors will learn to talk about little else than the product and its "quality." What justifies MLM schemes is the high quality of their products. What entices the recruit, however, is likely to be the attractiveness of making money from others' sales, not the products themselves.
Do the numbers add up?
[Note: the data used in the following paragraph is outdated. I am not going to try to keep up with the specific dollar amounts in sales and the number of distributors. The current Amway Global website does not give the numbers needed to determine how much the average distributor makes. Wikipedia claims that sales for 2008 were $8.2 billion, up from $7.1 billion the year before, when the sales force was over 3 million. Sales for 2010 are said to be $9.2 billion.]
According to Amway, their annual sales amounts to about $7 billion and there are 3 million distributors. Thus, the average distributor's sales amounts to about $2,333/yr. If 30% of that is profit, the average distributor makes $700/yr. Klebniov claims that the average income is $780, but the average distributor buys $1,068 worth of Amway goods himself and also has expenses such as telephone bills, gas, motivational meetings, publicity material and other expenses to expand the business. "The average active distributor sells only 19% of his products to non-Amway affiliated consumers," according to Klebniov. "The rest is either personally consumed or sold to other distributors." In the United States, the Federal Trade Commission requires Amway to label its products with the message that 54% of Amway recruits make nothing and the rest earn on average $65 a month. No such labels are required in other countries, but the facts are clear. Most people who get involved in Amway will not make money.
Far from boosting their incomes, the vast majority of those who become Amway distributors, particularly those in 'the system', are likely to end up losing money.
The majority of the wealth of the tiny number of top-ranked distributors in this country comes not just from the sale of Amway products but from selling motivational materials and organizing seminars and rallies for the people below them (Thompson).
Amway has made a very few people very rich while paying its foot soldiers more in inspiration than in cash (Thompson). There is nothing particularly unique about this in the history of business. What is unique is the faith, devotion and hope that the foot soldiers have. (Note: the numbers in the paragraph are from 2005-2006.)
Is Amway a cult?
Critics of Amway have compared it to a cult whose main product is Amway itself. Amway folk do resemble religious devotees in some respects. They have great faith in their company, its products, and the hope for wealth and early retirement. They attend seminars and meetings that are reminiscent of revivalist meetings, where the power of positive thinking replaces (or is accompanied by) faith in Jesus. Instead of a parade of souls healed by faith, Amway faithful are treated to testimonials of early retirement with plenty of money. While there have been some accusations of persecution of those who have left the flock, by and large Amway devotion seems harmless enough. Amway doesn't seem to differ much from other zealous big corporations which preach positive thinking about the business of business in endless motivation seminars and retreats, books, tapes, brochures, among other things (Klebniov).
Graham Baldwin of the United Kingdom compares an Amway motivational meeting to a revival or cult meeting. The former university chaplain tries to help people break away from religious cults with his program called "Catalyst." Soon after one of his broadcasts, he got a call from a man
who explained how the group he had joined a year earlier was slowly taking over his life. There were the huge monthly meetings at venues like Wembley Conference Centre where he and thousands of other followers were worked into a passionate frenzy then told to go out and find as many new recruits as possible; there was a powerful doctrine that frowned on television, newspapers and other 'negative' influences; there was the strict dress code and advice on how to bring up children and relate to loved ones; there was the fear that to quit would mean giving up hope of a happy future.
However, having seen the television show featuring Baldwin, the man now alleged that he was being subjected to mind control techniques and being manipulated by those above him. He wanted advice on making a possible break. Baldwin asked which cult the man was in.
"It's not a cult. It's not a religion. It's something called Amway" (Thompson).
To some of Amway's critics, Amway may look like a religious cult, but to others it just looks like a shell game. The ministers of the faith work their magic by constantly calling your attention to the quality of their products, their concern with ethics, the wealth of their company, their association with Coca-Cola or MCI, the claim that they don't have to pay the middleman or advertising costs, and the numerous testimonials of the faithful who have passed through the valley of death and have arrived on the mountaintop with buckets of gold. Meanwhile, you do not notice that the products are secondary to the process of recruiting new distributors of those products. You do not notice that the wealth and associations of the company are irrelevant to its promises of wealth to the millions of distributors recruited. You do not notice that many costs, such as mailing, handling, doing forms, advertising, and driving personal vehicles to deliver or pick up products, are picked up by the distributors themselves. You do not notice that even though some people make a decent or more than decent living exclusively through Amway, the chances of all or most distributors making such wealth are absurdly small. You do not notice that while the leaders talk about ethics they are stimulating resentment and greed. And of course you never hear the testimonials of those who feel cheated by Amway; dissidents are not allowed to give their testimony at revival meetings.
The shell game gets even more complicated because when it is pointed out that most people who are Amway distributors either lose money (they buy more products from Amway than they sell) or make a very modest income, the ministers of the faith don't respond honestly and directly by saying that that is what should be expected from such a system. Instead they claim that no one said you would get rich quick at Amway; no one promised great wealth with little work. Those who fail do so because they are failures. They don't work hard enough. They don't devote enough time to their distributorship and recruitment. The failures need motivation!
Paul Klebniov writes that
Former distributors and Amway officials say that like many movements based on a cult of personality, Amway's attitude toward any insider critical of the organization has bordered on paranoia. Edward Engel was Amway's chief financial officer until 1979; he resigned over a disagreement with DeVos and Van Andel [the founding fathers of Amway] on how to run the Canadian operations. This apparently branded him a traitor; he says he and his family received threats for years after his resignation. "It was a Big Brother organization," says Engel today. "Everyone assumed that the phones were tapped, and that Amway had something on everybody."
In 1983 Engel's former secretary, Dorothy Edgar, was helping the Canadians in their investigation of the company. She was roughed up in Chicago, after she was told to "stay away from Amway." Engel, who picked her up after the incident, says he believes her story. Amway would not comment on the incident.
There was extremely bad publicity in 1982 when a former distributor, Philip Kerns, quit to write a damaging expose called "Fake it Till You Make It." Kerns charges that Amway used private detectives to follow him and rough him up. Kerns' expose prompted the "Phil Donahue Show" and "60 Minutes" to run uncomplimentary pieces on Amway. Amway's recruitment dropped off; with it, sales plunged an estimated 30% in the early 1980s.
In 1984, another former Amway insider, Donald Gregory, says he started to write a book on Amway, but the company obtained a gag order against Gregory in a Grand Rapids court" (Klebniov).
Even so, the vast majority of Amway distributors are probably decent people who believe in the quality and value of Amway products and who are in it to make money in a legal and ethical way. They are not responsible for what the founders or "uplines" do. They are not making wild promises about making millions of dollars with just a few hours of work a week to their friends. The average Amway distributor is undoubtedly not like James Vagyi.
Amway comes to Hungary
Now that capitalism has come to many former communist nations in Europe, Amway has spread its ever-replicating roots into countries such as Hungary and Poland. James Vagyi, the lead recruiter in Hungary, tells potential recruits that the minimum income is about $9,000 a month [700,000 forints]. Mr. Vagyi says to a group of potential recruits, "If 10 million people were persuaded for 40 years to build socialism in Hungary, you can each find six people to do this." If those six find six who find six who find six, you will be rich in no time. Mr. Vagyi shows his audience a videotape that ends with a message from Amway's co-founder, Richard DeVos: "Ethics and caring for people are the fundamentals of Amway's business." Maybe. But apparently some distributors have cynical views of ethics and the only people they seem to really care for are themselves. Still, isn't this true in every business? Aren't there always a few bad apples who give the whole group a bad reputation?
Is the appeal to greed or to need?
It isn't very likely that the majority of Amway's distributors follow Vagyi's example. Nor do they follow the example of Michael Aspel who used a curious recruitment video in London. The video "features couples who live in enormous detached houses and have luxury cars, talking about how much freedom and independence the Amway opportunity has given them. The narrative tells how the company is built on "ethics and integrity" and how it has helped "thousands improve the quality of their lives" (Thompson).
Furthermore, there is no doubt most Amway meetings are not like the one described by Paul Klebniov:
One weekend this summer over 12,000 enthusiastic people gathered for a rally in Richmond, Va. A handful were wealthy distributors of Amway Corp's products; the rest wanted to be. The meeting began with a prayer and a Pledge of Allegiance. On stage, Bill Britt, the master Amway distributor who organized the rally, introduced the other top distributors, who had arrived in their Cadillacs and Mercedes, flaunting expensive furs and jewelry. With the introduction of each of these role models, the crowd cheered.
Stories such as Klebniov's inevitably lead to the question, Does Amway encourage fraud? The answer is No. However, one of the main criticisms made of Amway and other MLM organizations, is that they inevitably encourage unscrupulous people to defraud the gullible into thinking that with a little hard work they can become rich beyond their wildest dreams. These unscrupulous people become rich themselves, not by selling Amway products but by selling the concept of Amway and "inspirational materials" such as books, tapes, seminars, etc., aimed at motivating a person to think positively. Critics argue that while it is possible to make a decent living selling Amway products, a realistic person should not expect more than a supplement to one's income from selling the products. The real money is in recruiting people into Amway. The really big money is in selling motivational materials, i.e., hope.
books and articles
Butterfield, Stephen. Amway, the Cult of Free Enterprise (Boston: South End Press, 1985).
Conn, Charles Paul. The Possible Dream: a Candid Look at Amway (New York: Putnam, 1985).
Klebniov, Paul. "The Power of Positive Inspiration," Forbes, December 9, 1991.
Fitzpatrick, Robert L. and Joyce Reynolds. False Profits - Seeking Financial and Spiritual Deliverance in Multi-Level Marketing and Pyramid Schemes (Charlotte, N.C.: Herald Press, 1997). See my review of this book.
Smith, Rodney K. Multilevel Marketing: a Lawyer Looks at Amway, Shaklee, and Other Direct Sales Organizations (Grand Rapids, Mich.: Baker Book House, 1984).
Thompson, Tony. "The Hidden Persuaders," Time Out, June 22-29, 1994.
websites & blogs
What's Wrong With Multi-Level Marketing? Dean Van Druff
The Mirage of Multilevel Marketing by Stephen Barrett, M.D.
new Court Grants Approval of Class Action Settlement Against Amway Corporation in Gift Card Lawsuit Consumers Will Be Able to Redeem $20 Million Worth of Expired Gift Cards
"Amway received millions of dollars from consumers for gift cards that were never redeemed and that contained 'redeem before' dates that have passed," said James Kawahito, class co-counsel of Kawahito, Shraga & Westrick LLP (Los Angeles). "In California and many other states, laws designed to protect consumers make it illegal for gift cards to contain any expiration date."
The settlement for deception regarding gift cards comes on the heels of an earlier settlement for "abuses in the operation of Quixtar’s multi-level marketing business....These abuses included structural incentives toward recruitment of other distributors rather than merchandizing; misleading statements regarding Individual Business Owners’ (IBOs) business prospects; overpriced goods that were difficult to market to retail consumers; and inducements for IBOs to spend substantial amounts of money on motivational books and tapes."* The suit, filed in 2007, alleged that Quixtar (which has since been dissolved by Amway) is an illegal pyramid scheme because most of its sales are to distributors rather than retail customers. The plaintiffs also charged that the company's arbitration policies prevented most distributors from recovering their losses if problems arose. The settlement called for payment of $34 million in cash and $21 million in free products. [/new]
Quixtar (dissolved back into Amway beginning in 2007)
ZDNet reported on Amway's entry into e-tailing which is known as Quixtar. All Amway agents (now to be known as IBOs: independent business owners) have been invited to open up their own e-mall, selling not only Amway products but products of other manufacturers as well. The emphasis, as with Amway, will be on multi-level marketing, i.e., recruiting new Quixtar agents who are encouraged to recruit agents ad infinitum. Agents will get a cut of sales made by those they recruit, and by sales of recruits of recruits, ad infinitum theoretically.
Why would the 5th and 6th richest men in the world, Rich Devos and Jay Van Andel (d. 2007), founders of Amway, want to get involved with Internet sales? For one thing, there is a lot of money to be had in e-commerce: they're hoping for $1.5-$2 billion in sales the first year...better than Amazon.com or E-Bay. Secondly, sales at Amway have dipped recently (18.5% drop in 1998).
Why not call the new company E-Amway instead of Quixtar? That might have something to do with name repulsion.
Will it work? It will certainly work for Devos and Van Andel. They will have millions of agents to sell products, including their Amway products, from the day they open on September 1, 1999. Unlike Amazon.com, who had to spend some time recruiting agents to sell their products, Quixtar will be able to bank on Amway agents to aggressively market their products from the get-go. How much money will the Quixtar agents make? They may think they will become nanosecond millionaires but my guess is that they will fare about as well as they did as Amway agents.
Note: Quixtar eventually dissolved back into Amway.
Team of Destiny® (TOD/TEAM®)
The Team of Destiny® or TEAM® website describes itself as ''a group of Independent Business Owners (IBOs) teamed together to have fun, make money, and make a difference." You will not be able to find out any more about TOD/TEAM from their website unless you have a guest number, which must be provided by an IBO of TOD/TEAM. Why the secrecy? TOD/TEAM is actually an MLM subsidiary of Quixtar®.
Network 21 (aka Network TwentyOne or N21) trains MLM folks (aka IBOs) affiliated with Amway and Quixtar. It was founded by Amway and Quixtar IBOs Jim and Nancy Dornan in 1989.