Everything About Amway MLM Company
Amway is a multi-level marketing company that sells health, beauty, nutrition and home care products around the world. The company was founded in 1959 and in 2018 reported a sales of $8.8 billion. Amway has been under the scrutiny of officials in many countries and institutions such as the Federal Trade Commission (FTC) for its alleged pyramid scheme.
Amway combines direct selling and multi-level marketing strategies. Amway distributors are known as independent business owners (IBO) who may directly sell the products to customers but can also sponsor and coach other people to become IBOs. The IBOs can earn and income both by selling the products personally plus a performance bonus based on the sales volume they and the IBOs they have sponsored have generated. People also register with IBOs to avail discounted prices for products.
Harvard business school has described Amway as one of the most profitable direct selling companies in the world and attributed its success to their use of an elaborate pyramid-like distribution system in which independent distributors received a percentage of the merchandise they sold and also a percentage of the merchandise sold by their downline (distributors recruited by them).
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Though they are so popular and successful in different parts of the world, they have still gained some notoriety and have been accused of their pyramid scheme. Robert Carroll of the ‘Skeptic’s Dictionary’ has described Amway as a legal pyramid scheme which uses the devotion of its affiliates and distributors to conceal poor performance rates by the distributors. There has been more than one instance in which Amway went under investigation.
Back in 1979 ruling, the Federal Trade Commission found that Amway did not fit the definition of a pyramid scheme because of two reasons –
- Distributors were not paid to recruit people.
- It did not require distributors to buy a large stock of un moving inventory.
- The company and all the distributors were required to accept the returns of excess. inventory from down level distributors.
- Distributors were required to maintain retail sales of at least 10 per month.
Hence Amway was not guilty of scamming people. But FTC did accuse the company of ‘price-fixing and making exaggerated income claims’. The company was ordered to stop the retail price-fixing and allocating customers among distributors. It was also prohibited for misrepresenting the amount of profit, earnings or sales its distributors were likely to achieve.
The company was also ordered to support such statements with actual averages per distributors. It was pointed out that more than 50% of the distributors did not make any money with the average distributor making less than $100 per month. Amway violated this order with a 1986 ad campaign for which they were fined $1000.
Independent consumer watchdog agencies have released studies which show that between 990 and 999 of the 1000 participants in MLMs which use Amway type of pay plans end up losing some money. According to the Skeptic’s Dictionary, in the United States, the FTC requires Amway to label its products with the message that 54% of the Amway distributors make nothing at all and the remaining 46% makes less than $65 a month.
Another notable case against Amway occurred in India in the year 2006. Following a public complaint, Andhra Pradesh and Telangana state police initiated raids and seizures against Amway distributors in the state. A petition was filed against them claiming that the company had violated the Prize Chits and Money Circulation Scheme (Banning) Act. All the corporate offices associated with the company were shut down. The Reserve Bank of India (RBI) had notified the police that Amway India may be violating some laws regarding ‘money circulation scheme’.
The state government of Andhra Pradesh enacted a ban on Amway media advertisements. Following this, in 2011, Kerala police shut down Amway offices in various districts of Kerala. Products worth 21.4 million rupees were also seized around the time. Kerala Police also arrested William S. Pinckney, Managing Director and CEO of Amway India Enterprises along with two other directors of the company from Kozhikode on charges of running a pyramid scheme. In June 2013, the court lifted the freeze on Amway offices in Kerala.
In 2017, Chandigarh court framed charges under Section 420 of the Indian Penal Code and the Prize Chits and Money Circulation Scheme (Banning) Act against two Amway directors, William Scot Pinckney and Prithvi Raj Bijlani. A revision plea moved by the directors against the charges was dismissed in 2018.
US class action settlement
In 2010, Amway announced that it had agreed to pay $56 million – $36 million in cash and $22 million in products – to settle a class action that had been filed in the Federal District Court in California in 2007. Amway, though the settlement was not an admission of wrongdoing or liability, acknowledged that it had made changes to its business methods as a result of the lawsuit.
Amway has also gotten involved in a few more legal issues over the years, but still reigns as one of the most successful MLM companies in the world. Most of the allegations against Amway depends on the laws of a particular country. It can be observed that Amway as a whole is not a scam whatsoever. But the mode of operations of Amway may violate laws of certain countries. Also, most of the cases were charged against individuals running the business instead of Amway as a company.
In fact, Amway was the #1 direct selling company in the world in 2018 with over $8.8 billion. They have renewed their methods of operations after each legal action and currently operates in different countries around the world with great success. It is not a ‘get rich quick scheme’. If you start an Amway business, the amount of money you make depends on your efforts. They do provide training sessions to business owners every year. ‘There are no quotas or purchase requirements, but make no mistake: to make money, products must be sold’.