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how to lose friends and family via multi-level marketing, aka direct selling organizations

Two weeks ago, my organizations class discussed a chapter from Nicole Woolsey Biggart’s classic study of direct selling organizations (DSOs) as charismatic organizations.  DSOs rely upon people using their personal networks to recruit customers and, more importantly, new members who distribute products and services. Members share a portion of their sales with sponsors, or those who recruited them to the organization; such sponsors derive most of their income from recruited members’ sales.  DSOs’ techniques are more commonly known as multi-level marketing, which have been criticized by some.

In past years’ discussions of the DSO reading, students listed familiar examples of DSOs like Tupperware, Cutco, Amway, and Mary Kay.  This time, students named a new DSO that I wasn’t familiar with: Primerica.  Two said that they had studied for their license to sell Primerica life insurance.  After class, I looked up Primerica’s business model.  One of the summary articles (bonus: 300 page prospectus) noted Primerica’s origins (citigroup) and flagged one of its sources of revenues as the $199 license fee that members-in-training front, along with a recommended monthly fee.

In the financial sector, another DSO Herbalife has been the epicenter of an unusually vocal feud between two hedge fund managers, one of whom is shorting Herbalife’s stock and the other of whom is going long. In explaining the rationale for their fund’s position on Herbalife, Bill Ackman and his analyst Shane Dineen gave a 3 hour-long presentation with a 300-plus slide Powerpoint analysis that claims that “Herbalife Displays Indicators of Being a Pyramid Scheme.” During the presentation, Ackman and colleagues argued that Herbalife is primarily about recruiting people for a “business opportunity” rather than selling products or services. For example, the presentation describes how the top 1% of distributors claim 88% of Herbalife’s compensation.  Not surprisingly, in a subsequent cnbc interview, the Herbalife CEO countered Ackman’s analysis as an attempt to “manipulate our stocks.”

Ackman’s analysis inspired at least one blogger to journey to Queens to visit a Herbalife nutrition club’s meeting and post about his impression. On the other hand, a Herbalife distributor who has been disappointed by his business opportunity results has filed a suit using claims similar to Ackman’s contentions. An executive summary version of Ackman and Dineen’s Powerpoint analysis underscores the potential impact of DSOs upon distributors’ networks:

Recruiting family members, friends, work and church acquaintances and others in their communities into a rigged game, one that is highly likely to exact financial and emotional harm on those loved and trusted by them, has an impact that cannot be repaired or recompensed with dollars alone.

In class discussions over the years, students have made similar conclusions, with some sharing experiences about how they no longer can socialize with relatives and friends who are members of DSOs because of the relentless pressure to buy and join.  Others continue to do part-time work as DSO members who were recruited by family.

Teaching resources on DSOs
Here are recent studies of DSO practices:
Paid to Party: Working Time and Emotion in Direct Home Sales by Jamie L. Mullaney and Janet Hinson Shope (Rutgers, 2012)
Making Up the Difference: Women, Beauty, and Direct Selling in Ecuador by Erynn Masi de Casanova (University of Texas Press, 2011)
The Hard Sell: An Ethnographic Study of the Direct Selling Industry by John Bone (Ashgate, 2006)

– The Tupperware! documentary is a great complement for teaching Biggart’s work

More on Ackman vs. Ichan
Despite the cnbc announcer’s attempts to steer discussion towards the two callers’ opposing positions on Herbalife, Ackman and Carl Icahn revisited an old disagreement, with traders ohhhing in the background. A Vanity Fair article delves into the origins of their feud and other feuds over what sound like spot agreements gone sour.  Word on the street is that Ackman may have another presentation on the ready.

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Written by katherinechen

October 31, 2013 at 11:05 pm

One Response

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  1. […] should always need to learn new things if you want to make your multi-level marketing company grow. You can do things like read books and do research on the Internet for social media, […]

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