Thursday, March 17, 2011

Wouldn't you pay a little more for quality and convenience?

So the cat's out of the bag!  Somebody's played the role of questioning child to the Emperor's New Savings and noted those promised discounts are as invisible as the opulent robes in Hans Christian Anderson's classic.  When I was prospected and offered catalogs, I came to this conclusion fairly quickly after a personal cost comparison.  Other less discerning shoppers may only notice when their bank accounts start to dwindle after signing on as an "IBO".  Experienced Ambots are prepared for this question, though.  Last week, I recounted a dialogue with my sponsor-to-be, that I have since understood to be fairly typical.  Notably, at the end, he appealed to convenience.  Another common tactic is the appeal to quality.  If you're confronted with these, don't let the Ambot wriggle off the hook so easily!  Remind him that savings were promised, and if not delivered, we're dealing with deceit.  But deceit aside, are the claims legitimate?  Last week, the first appeal was debunked real-time, as I suggested a typical Amway shopper would need to make just as many supermarket trips for perishables (meat, eggs, milk, cheese, veggies), no matter how many dry goods he purchased from Amway.  The time savings are nominal.  The second claim has been examined and debunked before, and it will be again, but if you want to know more about claims of quality, I suggest you check out this post from Joecool or read the associated article at USA today.  There are many other Consumer Reports to peruse online at Amquix and AUS.

Why are the prices so high though?  Today I want to answer this question, because I'm not sure it's entirely clear.  The obvious part is common to all multi-level marketing systems.  A heavy percentage of each purchase is paid out to IBO's as bonuses (Amway reports 32%).  Most Ambots know this figure, but they're not sure what to do with it.  I say that because it has been very common for them to boast something such as, "Amway cuts out the middle-man and passes on the savings to IBO's!"  This is part and parcel of the insidious "savings" lie I blogged about last week.  The truth is that MLM's are an incredibly inefficient means of distributing product.  The middle men haven't been cut out; they've been expanded into a staggering web of underpaid and unpaid sales agents.  Consider that if Amway sold its entire inventory online to the public, they could do so at 68% of the current distributor "wholesale" price and make as much profit as they currently do....assuming anyone actually bought the products.  As such, I see that 32% as a massive mark-up.  As a teenager, I worked as a stock boy and was baffled that we were only making a few pennies profit on most 3 dollar items on my aisle.  Consider that the mark-up on items at your local grocer is less than 5% over wholesale on most items, with some items even sold at a loss to attract customers.  It turns out that middlemen aren't nearly as pricey to the consumer as a sprawling upline.

That 32% alone, though, doesn't account for the entirety of the mark-up, which we've seen may go over 100% for some items.  I once believed that the price mark-ups were a necessary consequence of paying percentages to a bloated expanse of middlemen known as IBO's.  However, after reading a letter by former Double Diamond, Randy Haugen, I became suspicious that prices weren't always quite so high.  Specifically, Haugen alleged the prices "just seemed to continue to drift upward".  There's also evidence of much greater price inflation in that Amway was able to slash prices of homecare products by nearly 50% when they were forced to drastically change their business operations in the UK.  So what else makes the prices so high?  I believe the rest of the answer is in a country song by Merle Travis:

"You load sixteen tons, and what do you get?
Another day older and deeper in debt.
Saint Peter don't you call me, 'cause I can't go;
I owe my soul to the company store"

My dad used to sing this song when I was a kid, but I didn't know what "the company store" was or why this poor coal miner owed his soul to it.  I later discovered that company stores were once used by employers to create a closed market through which employees could spend their wages.  Generally, wages would be in the form of "scrips", which were currency only accepted at the company store.  This created a local monopoly, allowing employers to raise prices without retribution, penalizing, exploiting, and essentially enslaving their captive consumer base.  This came to be known as a "truck system", and is widely illegal.

How does this relate to Amway?  Well it occurs to me that the price comparisons we have are all from the last 20 years.  By the early 90's, Amway essentially was what it is now--an illegal product-based pyramid scheme driven by distributor hyperconsumption, all operating as a facade for the cult-like, highly lucrative motivational organizations (AMO).  Prior to the late 70's, the tools businesses were not operating, and Amway functioned more similarly to Mary Kay or Tupperware, slightly more legitimate businesses, whose distributors subsist on a preponderance of retail sales rather than personal consumption.  A pre-AMO Amway, relying more on retail sales, had incentive to make prices competitive.
What happened when the tools businesses exploded, however, is that recruitment for the kingpins became more lucrative than total retail sales.  They were more interested in having distributors "plugged in" to the system than encouraging them to retail product to make a modest profit.  Amway began losing retail customers and began strictly shifting product to a captive, indiscriminate consumer-base whose M.O. was simply to make an arbitrary PV "goal" rather than to get value for their dollar.  Amway corporate realized its fortuitous predicament and began slowly elevating prices, gradually enough that these frogs in the water pot wouldn't notice the change, knowing all along that the PV hungry mob didn't actually care what that PV bought them, so long as they got PV, along with their precious nominal "rebate". This captive customer base couldn't possibly care less about value for their dollar, viewing their exorbitantly over-priced purchases as "the cost of doing business". 

IBO's are spending real money as opposed to scrips, but the similarities between Amway of the last 30 years and the old company stores are striking.  Without retail customers, Amway is operating a closed market, selling mediocre products with artificially-high prices to a captive consumer base.  Any profits realized are ultimately devoured by personal consumption, and the most ambitious IBO's become enslaved to this monthly cycle.  Perhaps they might replace their war-cry, "Freedom, flush that stinkin' job", with that Merle Travis classic:

Saint Peter don't you call me cause I can't go.
I sold my soul as an IBO...


  1. Let's use this example also. Take double x for example. It costs nearly $80 for a 30 day supply as opposed to a fraction of that cost for a similar competitor. IBOs use quality or "phyto nutrients" as their justification for paying that price. Well, here's the big question. Does the addition of phyto nutrients drive that price up? Why are Amway employees allowed to buy that same double x for about $12?

  2. O.K, Joe, that's shocking. $12????? I've been buying XX for 15+ years every month for that $80 price tag. Need to throw up now.

    CASSETTE TPAES will do that to you. I'm so ready to switch.


  4. Thank you for this blog!

    It is a great analysis about the Amway scheme. My good friend is getting into this nonsense and tricked me into a meeting. First off it came off really cultish almost like a church experience (no offense to churches) but I was hearing AMENs and THATS RIGHTS! The numbers that they spouted off never added up even though they were glossed over and stated like factual typical numbers.

    Something stunk about it and I just couldn't put my finger on it. I know about Amway because my parents did it and almost lost there house because of it. I found out after the meeting once I talked to my Dad about it.

    Thank you again because knowing that this scheme is hurting people and almost put me out of a house as a kid (not knowing) gives me a drive to open peoples eyes. It might even save my friend who is already tight on money and building castles in the sky...

  5. Thanks anon for that story. Unfortunately it is all too typical for recruits to be "tricked" into going to meetings. My would-be sponsor told me it was an "e-commerce" seminar and there would be an "e-commerce guru" speaking. In fact it was just an amway meeting and a local emerald speaking. The deceit starts up front and never stops. I started this blog to expose their half-truths and double-speak.

  6. The e-commerce thing is so true. I thought I was being introduced to a company that had actual products to sell. They will get more credibility if they focus on retailing than just forcing people to recruit people in order to make profit.


  7. I don't know of one person who buy steak and pottoes on-line. We all go the grocery store b/c that is still the most convenient way to buy groceries.

    Trying to say shopping on-line will save you the trip is crap. I still gotta go the store to buy cream for my coffee. Amway doesn't sell instant coffee and that is the ONLY coffee I will drink.

    Quixtar (amway on line) flopped precisely b/c it was too freaking expensive; and I don't want a case of Cheerios. One box is sufficient, thank you.

    We had it beaten into our heads constantly on stage that if we were serious, we would buy only from amway catalogs.

    At the time, I was paying $.99 - 1.25 for a qt. of soy milk. amway's was 3.00 a qt. So not gonna pay that - almost 3 times as much????

    And, amway kingpins, please don't bother telling me it's b/c it's the business model of the future. This IS the future and you are woefully behind.

    BTW, anyone priced artisty cosmetics lately? Good gravy.

  8. Exambot;


    I am NOT willing to pay a little more for convenience. No one is, these days. Get a grip, ambots. Look at the world around you. People can't put gas in their cars. Do you think they are going to pay top dollar plus for your already extremely over-priced crap?

    From stage, the diamonds used to ridicule those who shoped at Costco laughing at how you had to buy a six-pack of Cheerios. Anyone looked at how you have to buy from an amway catalog? That's right! 6-packs. What a surprise.

    The daimonds' only leverage was shame and ridicule. When they can't compete, they destroy.

    They've taught their ambots well. When ambots can't substantiate their arguments, they go for the character of the ex-ambots.

    When 'happy girl' couldn't defend her points from an educated platform, she resorted to deciding we were old frumpy (usually fat) dino rejects. She was fun if for nothing more than the entertainment value.


  9. Thought you might be interested in post I did on how IBO's have done in Tax Court

  10. The high prices are intentional. The supposed Jay Factor pricing effectively makes the products all but impossible to retail. A retail business? Really just a 'closed market swindle.' Ambots are defacto slaves who must pay to be enthusiastic about being conned.

  11. This is what was described as money circulation scheme by Indian judiciary. The Amway's business model is illegal and attracted the provisions of the penal provisions of Prize Chits & Money Circulation Schemes (Banning) Act, 1978. Three year rigorous imprisonment for indulging in such activities.

  12. My direct up line is an emerald and he has been very successful in the Amway business, Nothing fake about his lifestyle or his motives. Although I have a considerable Amway business of my own I have never recruited one single IBO. I have the best business model that has ever been created with the strongest compensation plan in the direct selling industry. Amway is a 12 Billion dollar a year business that has been around for 53 years. I share what I have and if someone is interested great I commit to help that person be successful. If they’re not interested I don’t waste my time or theirs. Truthfully Amway is not for everyone in fact most people don’t have what it takes to succeed not just in Amway but in any type of business that takes dedication, commitment, ambition, loyalty, honesty, and integrity. Not everyone can be a star athlete or a brain surgeon and not everyone can be an Amway diamond. But by no means does that diminish the business. Opportunity is what you make of it. Before you criticize the Amway business make sure you know what you’re talking about. Like my dad us to say it’s better to be thought a fool than to open your mouth and remove all the doubt.

    1. Thanks for your comment, Anonymous. It's been a while since my last blog post, but you comment, rife with airy slogans, encourages me to post again. My posts on this blog are heavy with facts and logic. That doesn't stop you from suggesting I don't know what I'm talking about. Your reply includes only 2 "facts" and one of them is incorrect. The rest is Ambot speak. From your view, this counts as convincing data. To critical observers, they appear to be recycled "talking points"

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