Amway

Bronwyn Rideout (May 9, 2022)

(or Scamway, if you are so inclined)

Country of Origin: Michigan, United States

Year Founded: November 9, 1959

Founded by: Richard DeVos and Jay Van Andel

Year MLM established in New Zealand: December 21, 1971

Generally sells: Initially started with food supplements, and has since expanded to sell 450 products across health, beauty and homecare.

“Cult” products: Best known for LOC, a multipurpose cleaner, SA8 Laundry detergent, and a dishwashing liquid. Nutrilite, the health supplement product line, is its best seller.

Is there a buy-in?: 99 AUD/119 NZD minimum build-your-own registration pack, where you have to purchase a minimum of $119 NZD of Amway's Top Products.

Name for workforce: Independent Business Owners (IBOs)

Compensation Plan?: Amway's compensation plan is not clearly outlined or available for non IBOs to access directly from their website. However, here are a couple of YouTube videos, from both an Amway supporter and a detractor, that illuminate the mathematics a bit:

Elise Hewlett

Zachary Spear

I'll go into this more when I talk about the mathematics behind the products but, as with all MLMs, the retail value of the product is NOT what is not relevant to the compensation scale, the PV and BV (see below) are. This is something that is not clear in the videos above; so when Hewlett talks about an $800 spend, what they mean is an $800 BV, whereas the actual amount paid to Amway is much more.

As with other MLMs, the compensation structure is not a strict commission-based model where one gets a set percentage of each sale made. Instead, it is a convoluted model whereby each product has a personal volume (PV) to it which is at a lower value than the product being sold, with a secondary business volume (BV) which is used to calculate the percentage of bonus one will receive on the total PV of the IBO and their downline. The PV to BV ratio is currently 1 PV : 3.97 BV, which seems generous, but when you get the calculator out, it turns out it isn't all that great. As Hewlett demonstrates, an $800 gross monthly spend will only get you $72 commission, while a downline of 4 other IBOs also dropping $800 per month can earn you nearly 3 times that amount, $192, for a total of $264/month.

You can play with this Amway calculator to see how much you'd have to sell, or how many people you would need to recruit, in order to match your current annual salary. It also includes the differential calculation that determines how much of a bonus the upline can earn from the downline.

While you are not required to purchase products for yourself, it does help with bolstering your PV and BV, which in turn helps you to climb the reward ranks listed here. Similar to other MLMs, once your downline starts to out-earn you, they can breakaway from being your downline and you cannot earn BV based on them and their downline, so it is beneficial to constantly recruit mid-level achievers who will bring in sales, but not too many sales.

Complicating the PV/BV divide are the partnerships Amway has with companies like Tower Insurance, Spark, and Hertz, which allow distributors to earn PV and BV on insurance policies and car rentals, while Spark offers device subsidies and account credits on 24 month plans.

Income Disclosure Statement?: There is one for the United States, but not for Australia or New Zealand. As usual, there is no disclosure on the number of distributors in Amway. In 2021, it appears that 33% of IBOs had no sales, earned any compensation, or did any recruiting. Of the IBOs that did receive payment, the top 1% earned $87,901 USD per annum average, while the top 10% earned $14,537 average and the top 50% earned an average of $3,414. This is income calculated on sale, and does not include any voluntary or mandatory business expenses incurred during the running of an Amway business. The average income over all IBOs at the rank of Founders Platinum and below were $766 USD. In 2016, this was as low as $206 USD.

Has a reputation for: Being one of the O.G. MLMs, that through good luck and success in the courts paved the way for other MLMs to thrive. Their products are acknowledged as being of good to excellent quality but even then, the prices are excessively inflated. Long seen by detractors and ex-distributors as cult-like in its operations.

Should you be worried?: A common recruitment tactic is for a couple involved in Amway to invite another couple for dinner, drinks etc. What seems like a fun night out becomes a long recruitment pitch, which sadly works more often than it should; many a swinger has been disappointed, but jokes aside this is a predatory tactic that takes advantage of the eagerness of many couples to make new connections.

The Amway Primer

Amway (American Way) was founded by long-time friends Jay Van Andel and Richard DeVos in 1959. Prior to that, both had been business partners in a series of ventures including being distributors for another MLM, Nutrilite Products, which Amway eventually bought out fully in 1992.

As one of the big name MLMs to have survived into the 21st century, Amway has been a pioneer on the legal scene in the US, Canada, and China. In a 1979 ruling, the US Federal Trade Commission ruled that Amway was not a pyramid scheme, but was still guilty of false income claims and price fixing. In 1982, DeVos, Andel, and executive vice president William Discher were indicted on several charges, such as the underreporting of imports and defrauding the Canadian government of $28 million between 1965 and 1980.

Amway launched in China in 1995, but in 1998 it was faced with a crisis there when the Chinese government banned all forms of direct marketing (on April 21st, 1998). U.S. trade officials tried to claim that the business of Amway, Avon, and Mary Kay was legitimate, whereas the Chinese government claimed that the ban was really targeted at Chinese and Taiwanese firms. At the time, Amway had invested $100 million with 80,000 active distributors. If you have read the Mary Kay instalment of this series, then you might recall what a growth market China is for the booming middle-class in the areas of the Health and Beauty sectors. Amway appears to have weathered this storm, with the Asia market keeping it afloat in leaner times, and direct selling being legal since 2005 - though with serious restrictions on recruiting.

Here are some great videos and resources on Amway from the usual suspects

Product Math

MLM product maths is always a challenge, but at the back of the April 2022 Amway catalogue there is a helpful guide.

Here, we'll look at whitening toothpaste (all skeptics can breathe a little easier, since Amway is not advertising a fluoride-free formulation). For a standard sized tube, the consumer will pay $11.20. The PV will be 2.23, and your BV is 8.85. Without a downline, an IBO would need to purchase/sell 45 tubes ($504) of toothpaste to get onto the first level of the commission scale discussed in Hewlett's and Spears' videos. Your BV from the toothpaste alone is $398.25, but since you are only at the bottom rung, your payout is only going to be about $12. To move to the next tier in the compensation scale, an IBO would need a downline of at least 3 people selling $100 PV. The commission from this downline would be $35, meaning the IBO would make a total amount of $60, which wouldn't quite cover the cost of the annual renewal fee of $69 AUD.

With distributors encouraged to purchase Amway products for their own use, plus other business expenses, $12 to $60 is a pretty paltry rebate on a $504 spend. Obviously, a distributor will not spend/sell $504 on toothpaste alone; if they purchase for themselves or a VIP customer is buying, then they pay the wholesale price of $10.18.

Or, you could go to Countdown and just buy a tube of Colgate for $8.49:

Amway has incentive trips and awards programmes to bolster sales for certain product lines. It is within the qualifying criteria for these trips that one can see that achievement is not just based on pure sales numbers, but also on increasing targeted sales of certain products, as well as attendance in specific training courses. For example, in this current programme that is boosting sales in the health and beauty lines, it is not just MORE sales, it is an exponential increase in sales with attendance in at least 2 training programmes. Programmes like this cast some suspicion over claims made by Amway distributors regarding these products; are they best-selling because they are good, or because they were just the easiest products for distributors to move in order to qualify.

Is it a cult?

Amway is not only about selling overpriced homewares and recruiting. Amway is invested in the ongoing “improvement” of its distributors, and offers free training and seminars. Amway currently claims that the most anyone will have to pay for an online seminar is $10, however third-parties may charge a “fee”. In the days before the internet, of course, Amway had a reputation for pushing motivational books, tapes, CDs and videos which would cost $$ to purchase, not including the costs incurred with travel, accommodation, and food/drink required to host your own recruitment or teaching session.

The accusation that Amway is a cult has been attached to it for almost as long as it has been in operation. Stephen Butterfield, author of Amway: The Cult of Free Enterprise, and other commentators agree with this assessment; not so much in the religious sense, but in their shared tactics. A Huffpost article from 2019 explores how MLMs like Amway employ cult-like tactics to isolate their distributors and increase their reliance on the MLM.

The Skeptic's Dictionary briefly explores why Amway may be seen as a cult, particularly when it leans into toxic positivity, but prefers to see it more as a shell game where victims are distracted from the truth that the real earnings are from recruitment.

The DeVos connection to the religious/conservative right

This isn't to say that there is no connection to religion in Amway. Again, similar to other MLMs, Amway is associated with religion - although rather than having roots in Utah and Mormonism, Amway is very embedded in both conservative Christianity and the Republican Party. Amway was a major contributor to the GOP throughout the 90s, and even used its voice-mail system to rally voters for some campaigns. A private foundation of president Doug DeVos donated money to an anti-gay marriage organisation in 2012. Unlike, say, Young Living, the religious leanings of Amway's leaders is not embedded in its advertising or products.

If the DeVos name sounds familiar, well, Richard DeVos is the late father-in-law of Betsy DeVos, whose term as the Secretary of Education under the Trump administration was drenched in controversy from the moment the announcement was made.

THAT Queenstown incentive trip, and the implications for government stance on MLMs

From a Western/New Zealand perspective, I always see incentive trips being to other places. As in, the American MLMs love going to Las Vegas or the Caribbean, while in Australasia, Australia is a popular destination.

In 2016, John Key announced that Destination Queenstown and Tourism New Zealand were successful in their bid to bring nearly 10,000 Amway distributors from China to Queenstown for their incentive trip. It was seen to be a potential economic boon to the region, with an estimated $50 million to be earned. It was also presented as a reason to push for a full convention centre as, at the time, there were no facilities with a capacity beyond 500 people. From April 2nd to May 16th, 2018, over 6000 Amway distributors from China travelled to Queenstown in groups of 600 to cruise the Milford Sound, Bungy Jump, see some sheep shearing, and have a Gala dinner. It was expected that nearly 10,000 visitors would visit over several years, bringing $50 million to the local economy.

Tourism New Zealand is the organisation responsible for marketing New Zealand as a tourist destination, but also has government ministers sitting on its board. During the initial announcement John Key was quoted as saying: “This is by far the biggest incentive business New Zealand has ever won, and it sends a strong message that New Zealand is a serious contender in the global incentive market. China is now our second largest and fastest growing tourism market, contributing nearly NZ$1.7 billion (£800m) to the economy in 2015. And Chinese tourists have the highest daily spend of any of our visitors.”

In response to a OIA request made in May 2021, Tourism New Zealand still saw a future for further collaborations with Amway China, while a Commerce Commission response to a 2019 OIA request about Amway in general states that it has not investigated Amway as a pyramid-scheme.

The message is clear, at least for Amway, that the New Zealand government is A-Okay with MLM operations in this country.

What's a skeptic to do?

The one thing that is missing for New Zealand consumers when it comes to most MLMs is a proper Income Disclosure statement. These are not required here or in the States. However, most MLMs provide an income disclosure statement for the US market, likely as a precautionary measure in the event of a lawsuit or anti-MLM media blitz; in fact the US Federal Trade Commission actually exempts MLMs from this requirement. While it is nice when an MLM does provide one for New Zealand, as per the above nasdaq article, MLMs take advantage of the exemption to construct the disclosure to their advantage. The absence of certain facts and figures, i.e. the number of distributors actually working for the organisation, is glaringly obvious but has stood up to legal scrutiny thus far.

If the New Zealand Government continues to take a permissive stance on MLM operations, then as a community we should be pushing back on them to ensure that New Zealand consumers have appropriate information about actual income projections.