Nu Skin Situational Analysis

Topics: Multi-level marketing, Sales, Federal Trade Commission Pages: 7 (2298 words) Published: November 16, 2008

Nu Skin International began as Nu Skin in 1984 with a commitment to market personal care products that feature premium, wholesome ingredients with no unfriendly fillers. It is difficult to convey the superior attributes of a product as it sits on a store shelf, so Nu Skin distributes their products through person-to-person marketing through an organization built on multiple levels of distributors and their “down lines”. These multilevel marketing (MLM) companies have flourished in recent years and Nu Skin is emerging as a major player in the MLM industry. While Nu Skin has grown phenomenally in the last few years, there are indications that it still has significant potential (

Identifications of Problems and Issues

Nu Skin is facing many issues in today’s economy. Nu Skin has fallen into the MLM trap, with company leaders too far removed from their customers as they focus aggressively on communicating with existing distributors and recruiting new distributors. Nu Skin offers financially rewarding direct selling opportunities to entrepreneurs who want to own their own business. As a leader in the direct selling industry, their generous compensation plan is designed to provide a healthy return on time invested. Nu Skin provides its distributors with the ability to earn high commissions on a relatively small investment. Distributors work as independent contractors, becoming the ‘boss’ of their own business. This might give the appearance of a pyramid scheme, a business model that involves the exchange of money primarily for enrolling other people into the program without any product or service being delivered; however, there is a clear difference between pyramids and MLMs. The method of conducting business as an MLM often closely resembles pyramid schemes. The key distinction between these schemes and "legitimate" MLM businesses is that MLM income is earned solely from the sales of the associated product or service. While these MLM businesses also offer commissions from recruiting new members, this is not essential to successful operation of the business by any individual member. Another problem facing Nu Skin is the fact that their competition is strong and credible and comes from many avenues such as retail stores, mail-order companies, and Internet retailers as well as other MLM companies, such as Mary Kay and Avon. Companies such as Mary Kay and Avon, the number-one MLM in beauty product sales, both use MLM in their business model, however, they focus primarily on their products. But using distributors can create other problems. MLM recruits have a short “life-span” and normally quit relatively soon after signing up. By using distributors, Nu Skin looses control over the sales process and relies on possibly unmotivated distributors to sell their product. As in most MLM-based businesses, Nu Skin’s recruiting methods might seem aggressive, pressured and illegal. Nu Skin also faces litigation and has agreed to settle Federal Trade Commission (FTC) charges that they falsely represented the earnings potential of Nu Skin distributors, and that they made false and unsubstantiated claims for three products -- a baldness treatment, a wrinkle lotion and a burn cream. The FTC alleged that Nu Skin could not produce adequate substantiation for the claims, and therefore violated a 1994 FTC order requiring the firm to have competent and reliable scientific evidence to support benefits claims for any product they sell. The FTC also alleged that the respondents made deceptive earnings claims to prospective distributors through ads and promotional materials. According to the complaint, these materials state that distributors "will earn in excess of $60,000 - $80,000 their first year without jeopardizing their present income," and that "a lot of other people are earning $14,000 a month [...] $168,000 a year" (Federal Trade Commission, 1994, para. 9). The FTC further alleged...

References: Anonymous. (1991). Case 4: Nu Skin International.
Federal Trade Commission. (January 10, 1994). Multilevel marketing company and three of its distributors agree to pay $1.2 million. Retrieved July 6, 2004 from
Kottler, P, & Armstrong G. (2001). Principles of Marketing. New Jersey: Prentice Hall.
Nu Skin. (1997). 1997 Annual Report. Retrieved July 5, 2004, from
Nu Skin. (2002). 2002 Annual Report. Retrieved July 5, 2004, from
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