March 4 By Tom
The Herbalife Business Model needs no introduction, as it’s been around for almost 40 years, selling wellness, cosmetics, health and weight loss products using a network of distributors worldwide. In recent times, it has been put under the regulator’s microscope, reviewing its legitimacy as to whether they have broken any direct-selling, (MLM) laws.
During its 40 years, it has gained an army of supporters; But, also it has gathered its share of disgruntled people, either users of products or duped distributors.
They have a network of, 3.7 million distributors, who sell products in about 90 countries worldwide.
Herbalife is a direct-selling company, so the commission structure is an MLM based formula, with bonuses and commissions focusing around recruitment to personal sales and those of their downline.
When recruitment is a more predominant factor, with much less emphasis on personal sales, then the focus of earning money isn’t smooth.
Mark Hughes founded the Herbalife global company in 1980.
In July 2016, a settlement between the Federal Trade Commission, (F.T.C.), and Herbalife, where Herbalife paid $200 million to nearly 350,000 people who lost money running a Herbalife business.
Additionally, the F.T.C. said those people were victims of dishonest and misleading claims of earning an income.
The F.T.C. when on to say that Herbalife will also radically restructure their business operation; And, this will be a win for consumers.
Many will argue, Herbalife is the closest M.L.M. company there is to be a pyramid scheme. Maybe that’s why the F.T.C. pursued them in 2016.
Their marketing system relies solely on revenue-generating through its distributor network; And, they, (distributors) can make money selling products and enrolling new distributors into the business.
While this may be true, general observations suggest that greater emphasis is on the recruiting side of the business.
What Is Multi-Level Marketing
Marketing companies who train their focus toward products in the health, wellness, cosmetics, weight loss and to a lesser degree home decor.
They target people who are desperately in search of earning a few extra dollars to remove the financial squeeze that regularly confronts them.
Generally, a high percentage of people who have little to no knowledge of M.L.M. companies, also known as network marketing or direct selling, join them in the hope of supplementing their family income.
Two of the great lines they’ll use, “Work from home”, Be your boss”, and offer little to no training.
Usually, the starting point will be, recruit family and friends into the business, earn commissions and set yourself a shot at reaching the magical six-figure plan. At the same time, that may be true, but only for a very few, whereas the vast majority perished in the process without earning “ONE.” single commission cheque.
Big Name M.L.M. companies such as Avon, Mary Kay, Pampered Chef and Amway use such flippant tactics to trap people into joining.
Typically, their gross turnover is way more than, $3 plus billion in sales; According to the Direct Selling Association, their representatives. Historically, they have a distributorship in the millions, so is it any wonder they reach such dizzy heights in sales.
The Herbalife shakeup in 2016, raises questions what’s the difference between what is legitimate and what is a pyramid scheme. So, the goalposts have moved slightly; And all to the advantage of distributors and customers.
Lawsuit And Herbalife
The F.T.C. alleged that the Herbalife Brand deceived potential distributors into assuming a substantial income was more than feasible using their business model for retail sales of the company products.
What’s more, they also found that the basic principle of their business model encouraged distributors into buying products and, besides, recruit others to follow the same policy.
It also highlighted this would raise the chances of advancement within the company business plan as opposed to that of actual consumer demand.
Practices of this nature violate the F.T.C. act relating to M.L.M. trading. Those who run the gauntlet will be tracked down and prosecuted.
Moving forward Herbalife has been instructed to restructure its current system to a more balanced plan where success will be wholly dependent on whether distributors sell products, contrary to the current format where the focus is all about recruitment, then outcomes.
Herbalife under the terms and conditions of the 2016 agreement, must stipulate with a distinct meaning regarding those who want to join for the business opportunity. And, those who participate for the privilege of purchasing the products at a discounted rate.
What that all means for those joining the business opportunity. A minimum of 80% of net sales need to be actual sales to real buyers, and failure to comply will attract financial ramifications; The 2016 order will remain in place for seven (7) years.
Those who take up the business opportunity, rewards need to be two-thirds of the qualified retail sales. While the remaining one-third from personal purchases.
The agreement also advised Herbalife that they can expect monitoring to occur, in determining that they are conforming to the M.L.M. guidelines.
Herbalife, for the next seven-years, must hire an Independent Compliance Auditor to monitor company activities to determine they are complying with the new compensation plan.
Auditors are required to report their findings directly to the F.T.C. Should any of the requirements be violated, then appropriate action will follow.
Head Winds And Herbalife
An investigation commenced in 2004 by Israel’s Health Minister, that related to liver complaints from persons who had used Herbalife products. The studies revealed that liver problems and Herbalife products were closely related in that the product contained toxic ingredients.
A private U.S laboratory did Bio-Medical Research for testing. Results found that there was a relationship with the products and liver complaints. However, Herbalife challenged the findings believing that there was no conclusive evidence to support the conclusions.
The legal stoush didn’t finish there, in 2009, an Israeli woman sued Herbalife International and Herbalife Israel, claiming that her liver damage resulted from the use of Herbalife products.
Doctors at the University Hospital from Bern in Switzerland performed scientific studies in 2007, along with the liver unit of the University Medical Centre in Israel. Both reports identified that there was an association connected with Herbalife products and Hepatitis disease.
Consequently, the health minister in Spain released an alert informing consumers of Herbalife products to be aware of the findings. Herbalife accepted the results and co-operated fully with the authorities.
A review of cases implicating Herbalife products and liver disease by a twelve (12) member scientific panel that related to several European countries concluded in the following statement:
“The analyses of these cases and information regarding their circumstances have not allowed us to establish a causal relationship” between liver anomalies and Herbalife’s dietary supplements.
Further investigation in January 2009, by the Scientific Committee of the Spanish Agency for Food Safety and Nutrition (AESAN), also arrived at the same conclusion.
Herbalife And Pyramid Scheme Allegations
Over the Herbalife journey, many critics have labelled Herbalife as being a pyramid scheme. Those same detractors argue that Herbalife does little to quieten the non-believers otherwise. Little effort gets directed toward the individual distributors who continually abuse the M.L.M. laws of fair trading; And, it comes as no surprise Herbalife Nutrition always deny the allegations.
Way back in 2004, a class-action suit representing 8,770 past and present distributors accused Herbalife of, basically operating a “Pyramid Scheme”. A settlement reached, totalling six (6) million dollars, in favour of the class-action and without Herbalife admitting guilt.
A Brussels commercial court in November 2011 judged Herbalife being a “Pyramid Scheme”. However, in March 2012, Herbalife appealed the decision, and 19 months later the Belgian appeals court ruled in favour of Herbalife, therefore reversing the original decision.
Is Herbalife A Pyramid Scheme Or Not?
We’ve already established that it’s challenging for distributors who join Herbalife to earn money. Also, we identified that others make a substantial income from Herbalife, but, they are few.
Pre 2016 Herbalife’s philosophy focused around recruitment and product, rather than real sales to real people.
Post 2016 that all changed thanks to the F.T.C. ruling relating to trading benchmarks. It impacted enormously on Herbalife as they were now required to comply with the M.L.M. trading laws governing the industry.
No more will there be the continual growth using the old tactic of full-on recruitment.
Herbalife C.E.O. commented that, unquestionably, recruiting has in the past been the foundation of the company growth. Furthermore, he went on to say, (Quote), “We’re still a recruiting company, and we’ve got not to be” (Unquote).
Because the company has existed for 30+ years, how can it be a “Pyramid Scheme”?
The depth of the membership regulates the number of years they continue to be around. Every pyramid scheme eventually runs out of puff, through the lack of recruits.
Large M.L.M.s/ Pyramid Schemes take much longer than the microsystems as they operate on a far grander scale of membership.
Herbalife, for instance, operates in ninety (90) different countries worldwide, so the market opportunities continually expand as they enter the new ground.
Companies of this magnitude will naturally take a very long time to catch up with its tail. From what I understand, Herbalife needs to recruit something like two (2) million new distributors yearly, given the number that quit each year.
The consensus generally, seems to be by those M.L.M. companies who tread a fine line. Believe that if you sell products, then you’re not a pyramid scheme.
Not to be confused by this type of tactic. Lots of Pyramid Schemes sell a product; it’s the “Ponzi System” that doesn’t.
While it is true, in the main most M.L.M.s, do sell products; But, history has repeated itself over and over, where products are well overpriced, and, in other instances, are of little to no value to the consumer.
“Pyramid Schemes”, predominately pay to recruit. In fairness to Herbalife, that isn’t the case.
Their system works in line with other M.L.M.’s where the upline receive a commission from distributors below them when a purchase takes place. That is standard practice with most M.L.M. companies, so that isn’t anything new. The problem starts when distributors are encouraged to recruit for the sake of extra sales and not from real sales of real products.
Is It Risky Being A Herbalife Distributor
Herbalife has been operating for more than 30 years; in that time, they have experienced many difficult challenges, mainly being on the wrong side of the M.L.M. trading policy.
Erring on the wrong side of fair trading has come at a significant financial loss, but, have managed to rise above that, and continue to remain in business.
They do, however, continue to straddle that fine line as to whether they are a legal M.L.M. business or an illegal Pyramid Scheme.
For that reason, if you’re contemplating joining the Herbalife M.L.M. plan, then proceed with absolute caution.
- Weight loss plan is straight forward and easy to follow, with a variety of replacement.
- Calorie intake with careful fat monitoring supports healthy eating.
- Products being soy-based are reported to improve cardiovascular health, but not yet proven.
- Overall helps with health and lifestyle.
- Replacement shakes exceed the recommended daily intake of sugar.
- No evidence to back up the theory that protein shakes provide practical health benefits.
- Weight loss products are exceedingly high in caffeine and surpass the suggested daily intake, and that will increase blood pressure.
- Ingredients contain traces of shellfish very dangerous for those who are allergic to shellfish.
- Products carry a hefty price tag in comparison to other health products available with similar benefits.
My Final Thoughts
What is Herbalife?
- Is it the global nutritional company?
- Is it a genuine M.L.M. company?
- Is it a camouflaged Pyramid Scheme?
I’ll leave you to ponder over these scenarios.
One specific thing, Herbalife is a direct-selling company, where their products can only be purchased online, with a network that expands into ninety countries, and something like 3.5 million-plus distributors.
Every distributor is required to place a minimum monthly product order; and, in the past, all sales got lumped into one basket, so the distinction between genuine sales and distributor personal sales never was recorded as two separate issues.
New distributors were under a false belief that a good income was possible by just buying products.
That was up until 2016 when the F.T.C. deemed the logic of sales was somewhat distorted, and they needed to change. Furthermore, Herbalife, for using dodgy tactics, received instruction under the direction of the F.T.C. to repay 200 million dollars to 350,000, past and present distributors.
Is it true that some distributors join Herbalife for the privilege of buying products at a discounted price?
“YES” that is true.
However, prior to 2016, Herbalife was providing indifferent statistics of who had joined for the business opportunity and those who were passive (buying products only).
Post 2016 that all changed their record-keeping must identify a clear distinction of each category.
Is it fair to say Herbalife has changed?
The company has changed its ways, for example:
- No more lead generation, they are entirely banned
- Amended its buyback policy to be more in line with expectations
- Re-jugged the qualification thresholds
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