Multi-Level Marketing Pyramid Fraud

Only available on StudyMode
  • Topic: Multi-level marketing, Sales, Direct selling
  • Pages : 11 (3896 words )
  • Download(s) : 32
  • Published : January 16, 2013
Open Document
Text Preview
Avon has long been, and is today, the pillar that holds up the credibility of the direct selling industry. It has unintentionally lent legitimacy to multi-level marketing (MLM) schemes that sold outrageous health scams, some that were sued by financially ruined consumers and others that were shut down by regulators for pyramid fraud. By their association with Avon as “direct selling” companies, blatant scams are aided in persuading people that they are legitimate businesses. Anyone who has ever questioned the validity of anymulti-level marketing company has had to answer the defiant challenge: “Are you saying Avon is also fraudulent?” A stalwart of the  Direct Selling Association, Avon is, de facto, multi-level marketing’s greatest ambassador. But, in recent years, the tide may have reversed. Whereas Avon used to shower credibility upon MLM, now MLM may be corrupting Avon. Something very basic  has shifted at Avon especially in the last 6 years, and that shift is now having major, negative consequences. * Avon is increasingly called a pyramid scheme by Internet critics and some ex-salespeople. * “Channel stuffing” – basing “sales” on increasing the number of salespeople who are induced to buy company products – appears to be an official strategy to offset declining consumer demand for the Avon brand and a recessionary economy. * The drive to constantly add salespeople even as sales decline and as salespeople sell less on average, has led Avon to the unseemly practice of info-mercials that  hype an illusory “income opportunity” to desperate and unemployed people. * Avon’s stock is non-performing.

* Now Avon is being investigated for possible violations of the Foreign Corrupt Practices Act, i.e., corrupting officials of foreign governments with bribes. * Avon is reportedly also being investigated in China for violating China’s anti-pyramid scheme law. * In the US, shareholders are filing class action lawsuits against the company’s board. For decades, the public has held on to an old image of Avon as the company of  ”Avon Calling” and the “Avon Lady” long after direct sales people stopped ringing door bells,  most direct selling companies had shifted to “network marketing” and a growing number of  Avon’s sales people were no longer “ladies.” The debasement of the direct selling field has pulled Avon in a new direction from traditional person-to-person selling based on an advertised brand name and customer service to promoting awkward, high pressure house “parties” and to offering financial rewards to salespeople for recruiting friends and family into financially doomed “downlines.” Today, Avon appears to be teetering between its traditional direct selling  model on which it built a renowned brand with a loyal customer base and its newer multi-level marketing model, championed by the likes of Amway and Herbalife. The new model is based upon hyping an “income opportunity” for salespeople. It shapes its marketing message less on its consumer product or service and more on its “financial product” that is akin to a speculative security, a pay day loan or a sub-prime mortgage. Recessionary high unemployment has become Avon’s marketing focus, not beauty and health needs. Wall Street Blindess

Few on Wall Street have acknowledged this profound, strategic fork in the road for Avon. This is probably because few Wall Street analysts have any clue as to how multi-level marketing works. MLM is a black hole within financial reporting. Most analysts only focus on sales volume and product sector trends and don’t examine the MLM sales model or marketing practices. Multi-level marketing operates almost invisibly to Wall Street eyes. It is not understood as a specialized industry with distinct legal, regulatory, ethical, marketing and economic parameters. Avon made its fortune in the old model, but it is an amateur and a dilettante in the brave new world in which brands, pricing and product quality are secondary to the...
tracking img