Avon is NOT a “Good” MLM

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avon-mlmLast week I wrote about Good MLMs Versus Bad MLMs. The truth is that there is no such thing as a “good” multi-level marketing company. Oh sure… MLM supporters will tell you that some “direct sales” companies are doing it right, and some are doing it wrong. They will tell you that every company has “bad apples,” but that you have to look past those and see the good people.

These arguments are all false. Companies call themselves “direct selling” in order to direct attention away from the fact that they are recruiting schemes. MLMs are all endless chain recruitment schemes in which 99% of participants are guaranteed to lose money. That is not a business… it is a game rigging in favor of the owners of the company, and participants are guaranteed to lose no matter how hard they try. Promoting this as a “business opportunity” is unethical and immoral.

It therefore follows that if the company and the opportunity are unethical and are not a business, the people promoting the company and opportunity cannot be good. A horrible, deceitful “opportunity” does not change into something right, moral, and ethical, no matter how “good” the person promoting it is.

Recently Avon resigned from the Direct Selling Association, citing ethics concerns. The company says that the DSA does not protect consumers enough, and that Avon does protect consumers by:

  • Not encouraging the sale of inventory or business support materials to distributors
  • Having reasonable return polices, so distributors are not left with excess inventory
  • Limiting commissions paid to three generations, rather than infinite

Sounds great, doesn’t it? Except Avon is really no different than any other multi-level marketing company…. they just don’t do MLM very well. Robert FitzPatrick analyzed Avon in an article on Seeking Alpha. He says that Avon is really no different than Herbalife, an MLM that has been heavily criticized over the last two years.

For years, Avon was a true “direct selling” business, with no connection to the recruiting into multiple levels that is at the heart of multi-level marketing. FitzPatrick explaines, however, that in 2005 Avon changed to the MLM model of business because its sales were lagging. The company introduces a “Sales Leadership” program described as:

“…a multi-level compensation program which gives Representatives the opportunity to obtain earnings from commissions based on sales made by Representatives they have recruited and trained, as well as from their own…”

That, my friends, is classic multi-level marketing. Your hint is the multiple levels of commissions. FitzPatrick writes:

Within a few years, the hallmark MLM emphasis on financially rewarding salespeople to recruit still more salespeople, ad infinitum, was full blown at Avon. In the largest ad buy in Avon’s history and delivered to the largest American television audience of the year, Avon’s 2009 Super Bowl television commercial featured, not its cosmetics, but its MLM business opportunity. “To find out more about the “opportunity” the Avon ad advised, “contact an Avon representative.”

In the midst of the Great Recession, while the cosmetics industry was contracting along with national job opportunities, and while Avon’s own revenue was declining, Avon used the Super Bowl to claim it could solve consumers’ income problems. Avon had truly entered the world of Amway, which for years had been claiming to offer “the greatest income opportunity in the world” that was “recession proof.” That Amway “opportunity” turns out to be the opportunity to recruit recruiters who gain the opportunity to recruit recruiters, etc., with money flowing from last to first.

Avon started leaning more and more heavily on recruitment, with a North American executive saying, “Right now, our direct-selling opportunity is really the No. 1 product that we have to sell.” So the company’s number one product was no longer any sort of cosmetic, it was the “business opportunity.”

Avon would have you believe that it is better than Herbalife, but the companies have much in common. FitzPatrick discusses in detail the recruiting numbers for Avon, the discrepancies in figures it reports to the media versus figures reported to the Securities and Exchange Commission, and the heavy reliance on exponential recruiting.

The bottom line is that Avon is not a “good” MLM. There is no such thing as a good MLM, and the endless chain recruitment scheme of Avon is no different than that of all other MLMs…. all of which are bad for consumers.

20 thoughts on “Avon is NOT a “Good” MLM

  1. Scott

    I am no fan of Avon, but have to say that since your opinion comes from an admitted bias (in which all MLM are, by definition scams), your opinion is as invalid as anyone that declares that all MLMs are not. If you were open to the possibility that some are legitimate businesses, even if many are not, your opinion would be worth entertaining. But as it is now, you clearly are mired in the abyss of confirmation bias (i.e. seeing what you want to see). I’ll lump your opinion along with the folks that profess that thier MLM is ‘the best’.

  2. Tracy Coenen

    Scott – There is no bias whatsoever. I have done hundreds of hours of research, and have not found a multi-level marketing company that is not a recruiting scheme. You are welcome to suggest one that is not, and also to provide the proof that it is not. I do not believe you could do that, but you are welcome to try. Bias is a tendency or inclination. I do not have a bias. Rather, I have come to a conclusion that is supported by reams and reams of evidence.

  3. Scott

    The fact that you make the declaritive statement that “There is no such thing as a good MLM,” regardless of what you have based that determiniation on, has created a bias toward finding facts which support that conclusion. Every researcher has a bias (frankly, the more a researcher believes they don’t have a bias, the more biased they tend to be.). If you used terms such as ‘have yet to find one” or ‘in my exhaustive but incomplete research” (ie, unless you have examined EVERY single MLM company), your statement would be valid. As it is, the fact that you have come to that conclusion without examining EVERY single MLM company, does show a predisposition to find come to that conclusion.

    I’m not here to defend the industry, or any particular company — doing show would likely invalidate my opinion in your mind anyway, and come off as self-serving.

    I do have to ask at what percentage of participants in a business making a profit equate to said business or industry make it a legitimate business? You state “99% of participants are guaranteed to lose money.” I am curious to see how you support that number. Among franchised restaurant chains, the failure rate was 57 percent over the three years (1996-1999) and among independent restaurants, the rate was 4 percent higher – 61 percent. (http://researchnews.osu.edu/archive/restfail.htm). Is the franchise restaurant business a scam? Perhaps not a wise investment (especially considering the start up costs), but a scam?

    I suspect your failure rate also includes people that signed up as customers to purchase products at wholesale (cuz frankly, paying retail for any MLM product is just silly depending on the enrollment fee). The fact that those folks did not ‘make money’ does not mean that they ‘failed’ at the business, when they actually didn’t attempt to make a profit to begin with. And for those that did attempt to make money, what percentage actually worked it as a business rather than a hobby? If one buys a Subway franchise, but only opens the doors one day a week, does that de-ligitimize the business, or the business owner? If I have a membership to Costco, but dont retail the cases of toilet paper that I bought at member prices, does that mean that I have failed as a business? Since when does selling product at retail make a venture legitimate (and conversely, wholesale, a scam?)

    The problem is that unscrupulous hucksters pitch fast money to naive prospects — and that anyone with several hundred dollars are suddenly ‘in business’, and considereed by folks such as yourself, when frankly they aren’t — which makes it easy to consider their venture a ‘failure,’ when it was never a business to begin with.

    I am fully supportive of calling out and exposing scams and fraudulent businesses in any industry (ie. Zeek — saw that one coming way before it hit the fan). I am just not a fan of generalizations and painting of an entire industry with a broad brush based on past history/reputation (i.e. lawyers, used car salesmen). I respect your desire to protect the unknowing that fall prey to the wolves — as there are in any industry.

    I too have avoided pitches by several dubious MLM companies, such as Zeek — #1, if the enrollment fee is more than $50 a year, that is a sign that people are making money from signing people up. But if less than that, it is frankly not possible to make money solely by signing people up and by those people buying product they arent actually consuming.

    Finally, your conclusion is based on your examination of reams and reams of evidence — my question is, when you examine that evidence, what are you expecting to find? Information that contradicts your existing conclusion, or that supports it? My sense is that even when you do see any evidence that contradicts your existing conclusion, you work real hard to find a way to make sure it is discounted. In the wisdom of Lucy Van Pelt, “If the facts dont fit my theory, then the facts must be wrong!”

    thank you for the work you do! I just wish it was less slanted toward supporting your pre-exisiting conclusion.

    I am curious your take on the legitimacy of the insurance business. I was recently involved with a very large household name insurance company, that just so happens to have nearly the same structure and processes as MLM companies…. ie, I got 5% of the production of reps that I recruited, and they the same… and the more I recruited, the faster I advanced and the higher my title…. Manager, Director, Regional, etc… sound familiar?

  4. Tracy Coenen

    Scott – I’m sorry if the words in the article were not precise enough for you, and if my follow-up comments did not clear things up. I stand by what I said… I’m happy to examine proof in support of a contention that a particular MLM is not an endless chain recruiting scheme.

    Follow the link for more information on the 99% statistic and how it was calculated. The 99% includes everyone who became a distributor. You may be implying something that I have heard often from MLM supporters…. “Most didn’t want to make money or didn’t try to make money.” That’s a red herring. The companies tout the “unlimited earnings” potential and the “income opportunity” until it is pointed out that almost no one profits… then they fall back on the “no one really wanted to make money; they just wanted to buy the products at wholesale” argument,

    No, traditional insurance companies are not MLMs, and traditional insurance agencies are not MLMs. However, Primerica IS a multi-level marketing company that sells insurance, so they indeed are an endless chain recruitment scheme.

  5. Scott

    So perhaps we need to be clear on the point of contention for you. Is it that people only make money by recruiting people, not by selling/consuming products? Is it the % of people that make money? Is it the hyperbole claims?

    By including everyone that becomes a member as a ‘distributor’ (perhaps a qualifying definition would be helpful), you are making a leap in assuming that they all are pursuing it as a money-making venture; as a researcher you know that your conclusions are therefore based on an erroneous assumption. Certianly in many companies (especially the get-rich-quick scams like Zeek) that can be assumed, but not so in many consumable product-based companies.

    To go with the Costco analogy, what that is like assuming that everyone that is a member is purchasing items to resell. Clearly that is not the case (excuse the pun).

    While some people that fly on airplanes are pilots, the vast majority of people on planes are just passengers, just happy to go along for the trip, with no desire to actually fly the plane. 🙂

  6. Tracy Coenen

    Almost no money is made by retailing the products. Very little actual retailing to third party consumers happens. And the number of people who join just to buy the products? That number is very small. Regardless, MLM is rigged in a way that almost everyone is guaranteed to lose money. It is simple math.

    But you are a wonderful shill for MLMs, because you make false comparisons. The franchise comparison is false because a franchise is an actual business. The airplane comparison is false because it has nothing to do with MLM.

    Thanks for your participation.

  7. Scott

    I’m not making false comparisons — if I am, please point out how they are false, instead of simply declaring them so. And if your theory is that everyone that joins an MLM wants to make money, but only 1% actually do, then my airplane analogy is correct (if the average airliner carries approx 200 passengers +/-, and most have two pilots, then the 1% is accurate…).

    Why is retailing products an important aspect of legitimacy? The concept of wholesale/retail is artificial, and merely a marketing ploy — is it not so much that distributors are purchasing at wholesale to sell retail, but actually purchasing at retail with permission to re-sell?

    So the distributor being the end user is not an issue (ie the Costco / Sams model — no member is required to retail or re-sell any purchase).

    MLM is not “rigged in a way that almost everyone is guaranteed to lose money;’ frankly that would be a self-destructive paradigm. Comp plans are created with the knowledge that not everyone will take the necessary action to succeed with it. That is how the math works. A true ponzi or pyramid scheme is destined to self-destruct; but a well-designed comp plan is sustainable. Well-designed being the key. That and an actual quality product offering.

    What is your basis for determining that a franchise is an ‘actual business’. What are your parameters for that definition?

    Thank you for the discussion!

  8. Tracy Coenen

    Scott – Thanks again for participating but this will be our last interaction. The difference between pilots and passengers on an airplane is obvious, and I don’t need to explain it. There is no comparison between them and participants in a multi-level marketing scheme.

    Retailing is so important because that is what MLMs say they are about. They SAY it is all about the product. I know, of course, that the product is just the front for the recruiting scheme. They say it’s not… and if they’re right, then there should be actual sales to third party consumers. The extreme lack of such sales is one more bit of proof that they are pyramid schemes.

    http://www.sequenceinc.com/fraudfiles/2011/04/why-retailing-does-not-occur-in-multi-level-marketing-companies/

    Yes, MLM is rigged so that 99% are guaranteed to lose. The model is very profitable for the owners of the company, and it is very profitable for the fraction of one percent at the top. Everyone else is sold a dream that they have almost no chance of achieving, but the con is very well crafted and honed so it continues to work. Yes, eventually all pyramid schemes should collapse. They have not, even after decades of existence for some of them, because of the large world population. There are always new, unsuspecting victims to be had.

    Obviously, if I have to explain why a franchise is a real business, then you are not up to understanding most of what is on this blog. Franchises are real businesses because they sell real products or services to actual consumers. MLM, in contrast, doesn’t sell much other than a recruiting opportunity that is almost guaranteed to take the consumer’s money. MLM tries to recruit every customer to essentially become a competitor (who will recruit more customers who then become competitors). That is not a business.

    http://www.pinktruth.com/2013/03/mary-kay-is-not-a-business-opportunity/

  9. Anita

    I curiously read through the discussion with you and Scott and in the end I have to say this.

    1) Your comments that ALL MLM’s are schemes and suck people into them is only partially true. There can’t be an “all or nothing” thing going on. Why do I say that? Your last comment … “There are always new, unsuspecting victims to be had.” perturbed me because whether it’s a large retail store, a particular direct marketing company, a small mom and pop shop… there’s alway one out of the many that will do exactly what you said…. take advantage.
    So you can’t discount ALL MLM’s in that scenario.

    2) Just because a franchise is “classified” as a “real business”… btw who defines this stuff anyway?…does not mean they can’t be unscrupulous. As an example, Baskin and Robbins is a franchise yet any particular owner can take advantage of “unsuspecting victims” such as young people new in the workforce. Law specifies certain amounts to be paid to someone 18 years and older, yet time and again they take advantage of them, or at least try by offering to pay a lower amount to some unsuspecting soul and/or to someone that desperately needs money or a job.

    3) What about the “sweat shops” ? I won’t even go there but if you really want to do justice in this world, do your research there.

    In conclusion, I will give you credit for pointing out a lot of flaws in the MLM industry, but hey.. there are flaws in every industry.

  10. roderick jacob

    Hi. We have Prime Meridian enterprises and Multisure insurance companies in South Africa and they use MLM. Are these scams? Is Avon a scam or just a bad MLM?

  11. with all of the exchange of word I have read here, there is only one point here, Scott pretend that he is not defending MLM’s but just the generalization, but it was too obvious that he is protecting the industry of MLM’s, since he was part of an insurance company that was actually an MLM.
    his grasp of knowledge is very well verse and we can actually believe that he is actually saying truth, but everything that Tracy had said was all true. we might say that 1% fraction was exaggerated but with my wild estimate with a binary system that has a exponential increase in numbers, only the top person would earn, if one person need to recruit at least 14 people to earn then that was 7%, if 7% was good for you then you are wrong,
    then again of course, if you work hard with these kind of business model, you will surely earn an enormous amount of money, but we only have 6-7 billion human and half of this figure barely eat decent, and another fraction of this earn just right to live a day, we call it “isang kahid isang tuka” in the Philippines, or for each work you make, you will have one meal. then you have less than 3 billion people to recruit in the world, if you will do the exponential computation, then if a person needs to recruit 14 without the multiple account sign in, then 14^9 is already 20 billion people already. then there was what we call market saturation to recruit,
    now to defend it with we had product, the follow up question to that would be , will you actually buy those product if you will not earn base on the opportunity they told you?
    With regards to avon the answer might be yes, they are selling real products for years but if every single person is an independent distributor, then there will no more customer but a distributor buying for their own use.

    when you were actually eaten by this system, you will make yourself believe that this was true and legitimate, but if you will seek for reality you can actually see it as a scam, but then again since you were part of those guys who worked hard for this and you have actually earn, you are now part of the owner’s chess piece that would defend them at any cost, while they are enjoying your hard work while sitting and having listening how you defend.

  12. warren

    The main thing to take away is that MLM’s are too good to be true. I would say at worst, if you are not being scammed by an MLM, you are certainly being shafted!

    Like anything, be wary about what you are getting into, there are benefits to everything, and maybe MLMs have some.

    There does seem to be an inherent tension in the fact that when you buy into an MLM, they dont have to support you. It really depends on the ethics of the owner.

    If a business is there to make money, do they really care if the distributor makes money? once they get paid for recruitment?

  13. Tammy Fournier

    Scott is right. Yiu are biased and exhibit faulty analysis skills. I know of many MLMs that sell great products, offer discounted products through a “wholesale” membership, and members join to get that discount. I’ve been told of the income opportunity but never been pressured. It wasn’t a scheme and I’m no victim, as you rudely call all people who join. Seriously? Every Costco /Sam’s member is a victim? You need to do more REAL research and try to report REAL findings.

  14. Ford

    I can’t believe the shills on here. How much are you all getting paid to argue at a third grade level? Was the directive “Make the most absurd illogical falacious argument possible, then use it as an example for your friends who you should convince to post as well. We’ll pay you for the first three friends who post”? Scott, go to college and take literally any 100 level business class and come back here. You’re a dumbass.

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