Tuesday, July 25, 2006

Amway Exposed, Part Two: The "Tools" Scam

Continued from yesterday's post on the potential for making profit in the Amway system.

Despite the lack of opportunities for profit from Amway, someone has been making a lot of money from the Amway system. According to various accounts, including the Dateline investigation, approximately 20 "“elite"” distributors have tapped into a multi-million dollar market outside of the traditional Amway product distribution system. While most of these high-level distributors refuse to release their income statements for fear of showing where the actual money comes from, the distributors have accumulated millions of dollars through techniques that are not available to the vast majority of IBOs.

So what's the trick to making all of this money? The lucrative "tools"” business, which includes books, monthly meetings, larger seminars, and motivational tapes. These "tools" are sold at the expense of Amway distributors that have been fooled into the system.

Official Amway policy states that the motivational "tools" aren't required to be a successful distributor, and this probably helps them escape some of the criticism over the way the Amway system is structured. While the tools aren't explicitly endorsed, the Amway system creates a culture that encourages the exploitation of distributors through the purchase of these "tools." Amway distributors are told that these tools are essential to success:

"Do you want to be wealthy in Amway? Do you want to stand on the stage and claim victory over your life..and claim it that you overwhelmed whatever challenge you had?... Do you really want to do that? You'll have to come to a dream weekend. You'll never make it without a major function." Louie Carrillo Tape DBR659 - Power of a Dream (source)


"I am so thankful that we listened to them (our sponsor) from the start, because that's got us to where we are today. I see so many people struggling with why do I need tapes, why do I need books? Why do I need all these things? And it's because the people that are getting you in the business want you to be successful. They are not telling you for any other reason. It's for your own good. Everything that you hear, you should do. And you know Jim and I all along have said "if Tim and Cindy tell us to do it, we are never going to question it." Jim & Tricia Richardson Tape "Stories to make you smile" PN2161 (source)


'Nonstop' pressure to buy

Chip Minto, a former distributor from Philadelphia, said he spent as much as $800 to $1,000 a month on the motivational events and materials. He was earning, on average, $85 a month.

"It gets ridiculous," he said. "And it's nonstop. You're paying for something at least once a week. If you didn't have something to do (a business seminar) on a weekend, you were lucky." (From the Grand Rapids Press - e-mail me if you would like the full article.)


We know that most Amway products are not sold to consumers outside the system, but rather within Amway distributors themselves. You are now also aware of the "tools" business and the kinds of pressures on distributors to buy in to these "motivational" materials. The relevancy of the "tools"” business compared to that of actually selling products to consumers becomes even more clear when looking at the way that the Amway elite make their money. According to an examination by John Hoagland, Emerald and Diamond distributors get a cut from the sale of the motivational tools. In his examination of one Diamond's 1099 form, the Diamond made nine times as much money from the "tools" as profits from his Amway downline.

The Dateline investigation came across a different figure, but the difference is still staggering:

But what he did let slip when he didn't know the camera was rolling was that one of the elite distributors we saw on stage is making most of his money from the motivation business.

Fredericks: Probably three quarters of it.” [emphasis added]

Sandler: “And that's from seminars -- holding seminars?

Fredericks: Seminars, rallies, functions, motivational tools, tapes, books, speaking engagements, appearances.


Finally, Dexter Yager himself attributed 2/3 of his income to his "tools" sales.

All of this ends up hurting the little guy. The less than stellar income reports from average Amway distributors don't even include the costs that push most IBOs into negative numbers, such as the costs for travel and the aforementioned "tools."” According to a "“Time Out"” feature on Amway:

Colin and his wife would go out showing the plan four or five nights a week, often driving hundreds of miles to see potential prospects. Although their network and sales volume grew, they still found they were spending far more on petrol, telephone calls and other expenses that they were making.

Then there was the cost of the 'system' itself. "We'd get a tape each week and a book each month. Then we'd be expected to attend weekly training meetings and monthly rallies and seminars. Although it was only a few pounds at a time, it really did start to add up.


There are emotional costs associated with the tools too. From the personal experience of one former IBO at a seminar:

It really is pathetic. I remember seeing downline distributors on the front row at rallies throwing their fists into the air screaming and crying how they're going diamond someday. Every single one of them TODAY are not in Amway anymore.


This focus on the "tools" and the "“motivational" aspect of Amway rather than the products themselves emphasizes a fundamental truth about the viability of Amway as a business model. Given that the incentives for high-level Amway elites are much greater to get their distributors to buy their tools rather than to actually go out and sell products themselves, it stands to reason that the tools are emphasized and the products aren't actually sold. Hoagland arrives at a similar conclusion:

As a side note, the same people who are making money off the tools are the same people pushing their distributors to purchase more tools. The idea is that if the distributors want to be a Direct themselves, they should purchase more tapes, attend more meetings, etc. At the same time the distributors are doing this, the upline makes more money. It makes you wonder if these distributors are really in the illegal tools-moving business rather than in the legal product-moving business?


Regardless of the legality of this system, the bottom line is that the vast majority of IBOs go into the system thinking that they are going to make lots of money, and come out having spent more money on "tools"” and operational costs than what they brought in from their sales of actual products.

Ultimately, the profitability of Amway and its hidden tools scam is very relevant to the discussion people are having across Michigan. In his efforts to become governor of Michigan, Dick DeVos asserts that his business experience makes him the best candidate to turn Michigan's economy around. If DeVos says that his business model is the recipe for Michigan'’s success, Michiganders must know about the Amway business model. His claims and history need to be examined so that voters can make an informed decision about their choices this November.

There is nothing about the Amway business model that bodes well for the rest of us. DeVos touts his business experience and economic development abilities as the reason to vote for him, but he made his money by allowing his business' participants to be cheated through the "tools" scam. By his own logic, this is the kind of government we should expect from a DeVos administration -- one that doesn't care about ordinary people.

There's a lot more from where this came from. Stay tuned, kids.

-Nirmal

(cross-posted on Michigan Liberal)

Update: Front paged! Also, thanks to Pohlitics for the plug and a thank you to whoever submitted me to the Cult News Network.

Edit Again: Thanks to Stone Soup Musings for the plug. Read the rest of the post too, its really good.

7 Comments:

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At 11:51 PM, Anonymous Anonymous said...

Oh my god! This is awesome, I hope that you do a Part 3. Or even a Part 4. Or maybe even a Part 20!?!

 
At 3:44 PM, Anonymous Anonymous said...

Check out:
www.amquix.info/amway.html

 
At 7:12 PM, Anonymous Anonymous said...

Nice idea with this site its better than most of the rubbish I come across.
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At 1:33 AM, Anonymous Anonymous said...

Looks nice! Awesome content. Good job guys.
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At 10:52 PM, Blogger Emil said...

I am relieved to hear the "tools" business exposed for what it is: a profit generating enterprise in and of itself. I was in Amway in 1979 and again in 1990 and the second time it took me only a couple of months to realize I was being duped by my upline. What can I say, I was a fool, but at least I got out the 2nd time before I bought MORE TOOLS.

 
At 5:59 PM, Anonymous Anonymous said...

I was solicited by an Amway distributors. He was very rude and pushy. In any case I never joined. I knew something was fishy about this Amway business. I couldn't figure out why. With the internet, everything is exposed. Oh, the chance of going diamond is 1 out of 14,000. I would rather do Ebay. With Ebay, you can easily make $800 to $1,300 a month. Plus, you don't need to attend seminars or buy tools.

 

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