Amway is a multi-billion dollar a year company based on multi-level marketing (MLM) of products as varied as soap, water purifiers, vitamins and cosmetics. Amway proponents are fond of asserting that their products are of the highest quality, their company is very large [millions of Amway distributors and billions of dollars in annual sales] and does business with such giants as Coca-Cola and MCI.
Critics of Amway have compared it to a cult whose main product is Amway itself.
Amway folk do resemble religious devotees in some respects. They have great faith in their company, its products and the hope for wealth and early retirement. They attend seminars and meetings that are reminiscent of revivalist meetings, except that instead of faith in Jesus what is preached is the power of positive thinking. Instead of a parade of souls healed by faith, Amway faithful are treated to testimonials of pockets lined with money. And while there have been some accusations of persecution of those who have left the flock, by and large Amway devotion seems harmless enough and doesn't seem to differ much from other zealous big corporations which preach positive thinking about the business of the business in endless motivation seminars and retreats, books, tapes, brochures, etc. (Paul Klebniov, "The Power of Positive Inspiration," in Forbes, December 9, 1991.)
Amway proponents are fond of asserting that their products are a good value, that the consumer gets his or her money's worth. What company doesn't make such claims for their products? Nothing unusual here. But Amway claims that its products can be sold cheaper because the middlepersons have been eliminated by MLM. Advertising costs have been eliminated, too. Yet, Amway products are not inexpensive, and in the free market one can find as good a value elsewhere as anything Amway has to offer. This is not to say that Amway products are shoddy or overpriced, only that they are oversold by their worshippers in the same way that IBM or MCI or Coca-Cola is oversold by its sales staff and advertising firms. The fact is, however, that middlepersons haven't been eliminated in Amway; they've been replaced by the U.S. Mail Service, UPS, FedEx and the Amway distributors or customers themselves who collectively must drive billions of miles a year to distribute their products. Furthermore, while advertising of specific products is not done by Amway, advertisements selling the wonders of Amway itself are. (I have seen a few ads for Amway products on the WWW. One of the ads is for a water purifier but it does not mention in the ad that it is an Amway product. I assume that such ads must be paid for by the Amway distributors themselves.)
One of the main criticisms made of Amway is that MLM, or network marketing as some call it, inevitably leads to unscrupulous people defrauding the gullible into thinking that with a little hard work they can become rich beyond their wildest dreams. These unscrupulous people become rich themselves not by selling Amway products but by selling Amway and "inspirational materials" such as books, tapes, seminars, etc., aimed at motivating a person to think positively. Critics argue that while it is possible to make a decent living selling Amway products, a realistic person should not expect more than a supplement to one's income from selling products. The real money is in recruiting people into Amway. The really real money is in selling motivational materials.
In other words, to Amway's critics, Amway looks like a shell game. The ministers of the faith work their magic by constantly calling your attention to the quality of their products, the wealth of their company, their association with Coca-Cola or MCI, the claim that they don't have to pay the middleman or advertising costs, and the numerous testimonials of the faithful who have passed through the valley of death and have arrived on the mountaintop with buckets of gold. Meanwhile, you do not notice that the products are secondary to the process of recruiting new distributors of those products. You do not notice that the wealth and associations of the company are irrelevant to its promises of wealth to the millions of distributors recruited. You do not notice that many costs, such as mailing, handling, doing forms, advertising, and driving personal vehicles to deliver or pick up products, are picked up by the distributors themselves. You do not notice that even though some people make a decent or more than decent living exclusively through Amway, the chances of all or most distributors making such wealth are absurdly small. And of course you do not notice the testimonials of those who feel cheated by Amway because they are not on the program to speak at revival meetings.[note]
The comparison of an Amway motivational meeting to a revival or cult meeting is made by Graham Baldwin. The former University chaplain who tries to help people break away from religious cults with his program called "Catalyst" did a television program on cults. Soon afterward he got a call from a man
who explained how the group he had joined a year earlier was slowly taking over his life. There were the huge monthly meetings at venues like Wembley Conference Centre where he and thousands of other followers were worked into a passionate frenzy then told to go out and find as many new recruits as possible; there was a powerful doctrine that frowned on television, newspapers and other 'negative' influences; there was the strict dress code and advice on how to bring up children and relate to loved ones; there was the fear that to quit would mean giving up hope of a happy future.However, having seen the television show featuring Baldwin, the man now alleged that he was being subjected to mind control techniques and being manipulated by those above him. He wanted advice on making a possible break. Baldwin asked which cult the man was in.
`It's not a cult. It's not a religion. It's something called Amway'. Time Out
The shell game gets even more complicated because when it is pointed out that most people who are Amway distributors either lose money (they buy more products from Amway than they sell) or make a very modest income, the ministers of the faith don't respond honestly and directly by saying that is what should be expected from such a system. Instead they claim that no one said you would get rich quick at Amway, no one promised great wealth with little work. Those who fail do so because they are failures. They don't work hard enough. They don't devote enough time to their distributorship and recruitment. The failures need motivation!
Still, the vast majority of Amway distributors are probably decent people who believe in the quality and value of Amway products and who are in it to make money in a legal and ethical way. They are not making wild promises about making millions of dollars with just a few hours of work a week to their friends. The average Amway distributor is undoubtedly not like James Vagyi.
Now that capitalism has come to many former communist nations in Europe, Amway has spread its ever-replicating roots into countries such as Hungary and Poland. James Vagyi, the lead recruiter in Hungary, tells potential recruits that the minimum income is about $9,000 a month [700,000 forints]. In the United States, some recruiters make equally wild claims but the Federal Trade Commission requires Amway to label its products with the message that 54% of Amway recruits make nothing and the rest earn on average $65 a month. No such labels are required in Hungary. And, as Mr. Vagyi says to a group of potential recruits, "If 10 million people were persuaded for 40 years to build socialism in Hungary, you can each find six people to do this." And, if those six find six who find six who find six, you will be rich in no time. Mr. Vagyi shows his audience a videotape that ends with a message from Amway's co-founder, Richard DeVos: "Ethics and caring for people are the fundamentals of Amway's business." Maybe. But apparently some distributors have unscrupulous views of ethics and the only people they seem to really care for are themselves. Still, isn't this true in every business? Aren't there always a few bad apples that give the whole group a bad reputation?
It isn't very likely that the majority of Amway's distributors use the recruitment video used in London by Michael Aspel which "features couples who live in enormous detached houses and have luxury cars, talking about how much freedom and independence the Amway opportunity has given them. The narrative tells how the company is built on 'ethics and integrity' and how it has helped 'thousands improve the quality of their lives'." [Time Out]
No doubt most Amway meetings are not like the one described by Paul Klebniov:
One weekend this summer over 12,000 enthusiastic people gathered for a rally in Richmond, Va. A handful were wealthy distributors of Amway Corp's products; the rest wanted to be. The meeting began with a prayer and a Pledge of Allegiance. On stage, Bill Britt, the master Amway distributor who organized the rally, introduced the other top distributors, who had arrived in their Cadillacs and Mercedes, flaunting expensive furs and jewelry. With the introduction of each of these role models, the crowd cheered. (Klebniov)
Even though the vast majority of Amway distributors are probably decent folk an investigation by Time Out reported the following:
* Far from boosting their incomes, the vast majority of those who become Amway distributors, particularly those in 'the system', are likely to end up losing money.* Support groups headed by senior distributors within the Amway organization are adopting cult-style tactics to recruit and motivate those below them. Help groups such as Catalyst, the Cult Information Centre and Family Action Information and Rescue (FAIR) are increasingly receiving calls from worried Amway distributors and their families, concerned about the techniques being used to keep them in the organization.
* The majority of the wealth of the tiny number of top-ranked distributors in this country comes not just from the sale of Amway products but from selling motivational materials and organizing seminars and rallies for the people below them.
So, what is Amway, anyway? Amway is a multi-billion dollar a year business. (Over 5 billion in sales in 1994, I'm told.)
Amway is based on the marketing method called multi-level marketing or network marketing. This technique involves a distributor joining Amway by buying a couple of hundred bucks worth of Amway products. This entitles the distributor to recruit new distributors. Income is generated by sales of products by the distributor plus "bonuses" from sales of his or her recruits.
Here are a few descriptions from former and present Amway agents as to how it works.
Bob Queenan (RMQ031C@dukepower.com)It goes like this:
If I buy $200 of stuff from Amway this month, I'll get a 3% bonus check (3% of $200 = $6). If I share the opportunity with nine others, and we each buy $200 of stuff from Amway this month, they each were responsible for $200 and will get $6, but I'm responsible for $2000, moving me to the 12% level. I get $240. However, I'm responsible for paying the bonuses of the people right below me - $54 - so I keep $186. I make more because I did more, I found nine people who wanted to buy at a discount and get a bonus for doing it. After I reach the 25% bonus level there are other bonuses that kick in, but they're all based on the volume of product flow, not on signing people up or having lots of people.
Steve PotterIn an MLM you are rewarded for the sales you create -- not only directly, but indirectly as well. You get profit for any retail sales you make, plus you get a bonus on the sales made by people you enrolled into the company, and people they enrolled, and people THEY enrolled, and... By getting a small percentage of many people, your income can grow to a very large number.
For example: let's say your company sells Widgets, and the average person in the company buys $100 in Widgets each month. (This might be for resale or for personal use, depending on the company.) Now let's say you get 5% override bonuses, and your plan pays 7 "levels" deep. Watch what happens if you find 5 hard workers, who each find 5 hard workers, who each find...
Level #people $volume $bonuses 1 5 500 25 2 25 2500 125 3 125 12500 625 4 625 62500 3125 5 3125 312500 15625 6 15625 1562500 78125 7 78125 7812500 390625So, if each person found 5 people, and each bought $100 each month, you would earn almost $500,000 per MONTH! Great stuff, hey? Let's all go out and get rich!
Here is the description of Amway as given by Edward Bertsch, Independent Amway Distributor (techint@winternet.com):
Amway uses networks of independent distributors to move their products into the marketplace. This is called "network marketing" and is a simple hierarchical structure. You, as an Amway distributor, would sell products to any friends, relatives, and other contacts who are interested. You would purchase whatever products you feel are to your advantage. You will of course pay wholesale and when you sell products you charge retail.
You will make in the neighborhood of a 30% profit on this conventional retail sales activity. In addition to retail sales, though, you can make money based on the performance of additional distributors you sponsor.
The objective is to create distribution networks consisting of people who will use our products and those who will commercialize, as well as use, our products. Therefore, all those involved will benefit in two ways:
- By buying the products at cost, meaning a discount at an average of 20% - 30%.
- By earning a 3% to 25% commission, according to the volume of business generated by the network.
Besides the two mentioned above, there are other profits available also based on your volume and size of network.
Another important point is the minimum time necessary to create such a network (around 10 to 12 hours weekly). For example: If you start your business working 10 hours weekly and you obtain 6 associates who also dedicate 10 hours weekly, you now have 70 hours productivity. You only dedicated 10 hours. These 70 hours generate income for all those involved. Depending upon your situation, this business may be worked on a full or part-time basis.
This business system has experienced enormous success in the United States and in over 60 countries and territories worldwide. The goal is to create an extensive network and to find 6 leaders (family members, friends, business associates, etc.) who want this opportunity. The next step is to teach each leader how to build a network of 100 associates. This would give you a network of over 600 people. When this goal is achieved, your next step is to repeat the process until you have a total of 20 leaders. Your network would now consist of over 2000 people.
Once you have helped someone build to a certain volume of business, you can qualify to receive one of the additional bonuses. This bonus, called Residual Income, means that 4% of the total volume of business generated by the personal network of this person will be paid to you monthly.
[http://www.winternet.com/~techint/amway.html]
Amway defenders take offense at describing this method of sales and recruitment as akin to a pyramid or chain letter scheme. It is true that legally MLM as practiced by Amway is not an illegal pyramid scheme. Amway has been taken to court for being an illegal pyramid and the courts have ruled that since Amway does not charge people either for joining Amway or for the privilege of recruiting others as distributors, it is not an illegal pyramid. According to MLM defender Steve Potter,
A "pyramid", as usually defined by the FTC and state Attorneys General, is an illegal multi-level scheme wherein people pay an "entrance fee" for the opportunity to recruit others to do the same.
Furthermore, illegal pyramids and chain letters have no product. Amway has lots of products: from laundry detergent to vitamins, from cosmetics to walter filters, and household products galore.
Nevertheless, there are several distinct aspects of this practice that need to be addressed. One is the aspect of the chain or line of distributors whose income depends primarily not on their own sales of Amway products but on sales made by others whom they've recruited. The actual practice gets fairly complicated. Here is how one Amway distributor described it to me:
Now we get into the actual mechanisms. While my product volume is low, it makes sense to combine my order with other orders to reduce the paperwork that Amway has to deal with. So the way I order from Amway is to call my "upline" and place my order. My upline combines my order with others and calls Amway directly. Amway would normally ship direct to the upline, and we'd all go over and pick up our products. In my actual case, I live too far away from my upline to make that practical, so I order through my upline, but get direct shipments from Amway.
Do I sell to other distributors? No, we all buy direct from Amway.
Do other distributors order their products through me? Yes, I combine the orders and send them to Amway.
Do I get money from my distributors? Yes, for the products they buy. I write a combined check to Amway.
Do I profit if my distributors buy more? Yes, I do -- so do they, but yes, I do.
Is my bonus from their money? It's from the bonus pot, which is filled with money saved by not paying middlemen. Bob Queenan (RMQ031C@dukepower.com)
Am I missing something here? Haven't the distributors become their own middlemen? Aren't the distributors selling to each other? Isn't income mainly generated by recruiting new members to the organization? (Each new recruit will probably buy some Amway stuff.) Isn't Amway Corporation the big winner in this scheme?
An Amway customer is not just buying a detergent, but is recruited into being a minister of a faith with a complicated bookkeeping scheme. Why not just go to your local store and buy soap, you ask? Because the agent is someone you know, or who knows someone you know, who's invited you over for coffee to tell you about a great opportunity. Odds are good that you'll either buy something out of politeness or a genuine need for soap or vitamins. Perhaps you will become an agent yourself. Either way the agent (distributor) who sold you the soap or vitamins makes money. If you become an agent (distributor) then part of every sale you make goes to your recruiter. The new recruit is drawn into the system not primarily by the attractiveness of selling Amway products door to door, but by the opportunity to sell Amway itself to others who, hopefully, will do the same. The products seem secondary to the process of recruitment. Yet, the distributors will learn to talk about little else than the product and its "quality." What justifies MLM is the high quality of its product. What entices the recruit, however, is likely to be the attractiveness of making money from others' sales, not the products themselves.
Do the numbers add up? If the annual sales of Amway is $5.4 billion and there are 1.8 million distributors, the average sales is $3000/yr. If 30% of that is profit, the average distributor makes $900/yr. Paul Klebniov, in a 1991 article, claims that the average income is $780, but the average distributor buys $1,068 worth of Amway goods himself and also has expenses such as telephone bills, gas, motivational meetings, publicity material and other expenses to expand the business. "The average active distributor sells only 19% of his products to non-Amway affiliated consumers," according to Klebinov. "The rest is either personally consumed or sold to other distributors." ( Forbes, December 9, 1991.)
Amway has made a very few people very rich while paying its foot soldiers more in inspiration than in cash, according to the Time Out article. There is nothing particularly unique about this in the history of business. What is unique is the faith, devotion and hope that the footsoldiers have.
Even the most unscrupulous Amway recruiters do not claim to be psychics nor do they make paranormal claims as part of standard recruiting procedure. But their techniques are similar to those used by dishonest ministers who claim they're healers and by dishonest magicians who claim they're psychic. They lie and bank upon other people's vulnerability to sucker them in. If a modern Dante were to write a Divine Comedy, he or she would have to create a special circle in hell for those frauds who delude and often rob those rendered vulnerable and susceptible to their snares because of poverty, illness or ignorance.
On the other hand, to those decent folk who are just trying to make a living by selling a product and a process they are proud of to friends and neighbors, in an ethical and legal way, all a skeptic can say is "good luck."
See related entries on MLM harassment and pyramid scams
How Amway changed my life by Russell Glasser
Amway: The Untold Story by Sidney Schwartz.
Ex-cult comments on Amway
Time Out
The Power of Positive Inspiration by Paul Klebniov.
GIGO Marc Paschal's excellent page on junk email and get rich schemes.
Make Money Fast by Arnold Kling
What's Wrong With Multi-Level Marketing?
Amway or Scamway
The Amway HomePage
The MLM Yellow Pages
Butterfield, Stephen. Amway, the Cult of Free Enterprise (Boston: South End Press, 1985).
Conn, Charles Paul. The Possible Dream: a Candid Look at
Amway (New York: Putnam, 1985).
Smith, Rodney K. Multilevel Marketing: a Lawyer Looks
at
Amway, Shaklee, and Other Direct Sales Organizations (Grand
Rapids, Mich.: Baker Book House, 1984).
"Former distributors and Amway officials say that like many movements based on a cult of personality, Amway's attitude toward any insider critical of the organization has bordered on paranoia. Edward Engel was Amway's chief financial officer until 1979; he resigned over a disagreement with DeVos and Van Andel [the founding fathers of Amway] on how to run the Canadian operations. This apparently branded him a traitor; he says he and his family received threats for years after his resignation. "It was a Big Brother organization," says Engel today. "Everyone assumed that the phones were tapped, and that Amway had something on everybody."
In 1983 Engel's former secretary, Dorothy Edgar, was helping the Canadians in their investigation of the company. She was roughed up in Chicago, after she was told to "stay away from Amway". Engel, who picked her up after the incident, says he believes her story. Amway would not comment on the incident.
There was extremely bad publicity in 1982 when a former distributor, Philip Kerns, quit to write a damaging expose called "Fake it Till You Make It". Kerns charges that Amway used private detectives to follow him and rough him up. Kerns' expose prompted the "Phil Donahue Show" and "60 Minutes" to run uncomplimentary pieces on Amway. Amway's recruitment dropped off; with it, sales plunged an estimated 30% in the early 1980s.
In 1984, another former Amway insider, Donald Gregory, says he started to write a book on Amway, but the company obtained a gag order against Gregory in a Grand Rapids court." (Klebniov)