Three Ways to Use Loyalty Programs to Drive Customer Growth

The strategic importance of becoming more customer-centric is not a tightly guarded secret in retail. For example, Amazon’s mission statement says it “strives to be Earth’s Most Customer-Centric Company.” And, “customer” is the most frequently used word in Jeff Bezos’ shareholder letters going back to 1997. Recognizing the importance of customer-centricity is relatively easy. Implementing it can be the challenge.

Within direct selling, customer-centricity has been an increasingly important factor in driving growth in the last several years. It also provides opportunities for increased relevance, loyalty, and growth in a highly competitive, post-pandemic retail environment.

First, let’s review record-setting growth in direct selling in 2020, with a particular focus on customers.

According to DSA’s 2021 Growth & Outlook Survey, US direct selling set record highs in 2020 in:

• retail sales ($40.1 billion), a 13.9% Year Over Year (YOY) increase
• direct sellers (7.7 million), a 13.2% YOY increase
• and preferred customers*… DSA began collecting and reporting data on preferred customers in 2017. Since then, the count of preferred customers has increased from 17.6 million to 32.6 million in 2020 in the US. This is an 85% overall growth rate and a 19.4% increase YOY.

49% of U.S. direct selling companies are estimated to have a preferred customer program. Although this percentage has also increased over the last few years, it means that a bit more than half have not created a preferred customer program, representing a large opportunity for direct selling companies.

There are now several success stories on salesforce-customer segmentation and the benefits of preferred customer programs within direct selling, including this example from a recent DSA webinar from Tim Sanson (VP of Global Strategy and Analysis) at Herbalife Nutrition.

The DSA-Ipsos 2020 Consumer Attitudes & Entrepreneurship Study reinforces that direct selling was on-trend in the last year among consumers. According to this study, 79% of Americans are favorable/neutral toward direct selling, and those consumers surveyed value the following most about direct selling:

• “I feel good about supporting a small business” (69%); and
• “The personal service that direct sellers provide” (67%).

In addition to the success stories within direct selling, there are several examples outside direct selling that reinforce the importance of preferred/loyalty customer programs in driving growth:

Source: Forerunner

Below are three ideas to explore on how direct selling companies can create new or improve current preferred/loyalty customer programs to drive growth:

1. Customers have access to unprecedented amounts of information and countless alternatives in making shopping decisions, and loyalty programs can be an attractive differentiator

“We’ve seen that balance of power in the information age, the access consumers have to the info about the brands they want to shop and frequent. It’s shifted even further, and it’s accelerated in favor of the consumer who now shops for anything, anywhere, anytime, and does so with a different mindset from even a few years ago,” said Matthew Shay, CEO of National Retail Federation. “In this environment, understanding the customer and anticipating what they need, what they want, and then offering products, services, and the experiences that resonate with that customer is increasingly critical to the success and survival at a time when the industry is evolving so quickly.”

As the American consumer becomes more knowledgeable, expectations increase, and behavior continues to shift, it’s important for retailers to continue to meet consumers where they are and find more ways to add value.

Loyalty programs may be one such way of adding value as consumer adoption of these programs seems to be high. A Forerunner survey finds 75% of consumers belong to a loyalty program, 48% belong to 3 or more programs, and 61% are more likely to spend where they are a program member.

2. While many direct selling companies have sophisticated salesforce incentive/recognition programs in place, similar types of rewards can be a valuable retention tool for customers.

“Find opportunities for recurring low actual cost and high perceived value rewards and recognition to keep customers coming back, build brand affinity, and create an emotional connection with customers” suggests Jason Bornstein, former director of customer acquisition at Bonobos. “In a market where starting an online business is easier than ever, acquiring customers has become more expensive and competitive… The brands of the next decade will win with loyalty, not acquisition.”

3. Loyalty programs could particularly help grow Gen Z customer-base.

A survey earlier this year from digital experience company, Sitecore, found that although 80% of Gen Zers said they’re more willing to try new brands online than before the pandemic, 57% said they’re less loyal to brands than before the crisis.

71% percent of Gen Zers want the shopping experience to be personalized, and 76% said their favorite brands should reward them for their business, the survey found.

Building long-term relationships with Gen Z is vital for the long-term growth of brands. So, leveraging loyalty programs with customized messaging could be one particularly beneficial strategy of growth among a notoriously fickle cohort.

DSA’s 2021 Growth & Outlook Report (to be released later this summer) will be providing more detail on how direct selling companies can drive customer-centric growth. In the meantime, I hope you find these ideas useful to learn from peers within direct selling and from leading retailers outside of direct selling to meet consumers where they are and earn their loyalty!

*Definition: Preferred customers have signed a preferred customer agreement with a direct selling company where they may be eligible to pay wholesale prices for products/services. They are not eligible to sell products/services to others, and they are not eligible to earn.

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Global sales volume decreased by 4.3% as compared to 2018 and this was happening for the first time in the last four years. However, one should read this with caution due to the nature of Chinese figures as explained below under “Markets”.

Please see below graph for previous years.

MARKETS

In 2018, the United Sates and China had tied for the #1 position in sales in the world. WFDSA announced the U.S. as the global leader by a large margin this time, even though sales in the country was almost flat in 2019.

WFDSA explains this situation, saying, “During 2019, China implement a 100-Day review of the nutrition supplement industry. The disruptive nature of this event affected the availability of some data, therefore the estimate of China sales is based on the data sources available and is directional only.”

Korea ranked the third by a small margin ahead of Germany (each having roughly 10% share). Japan was the 5^th largest market in 2019 (9% share). They were followed by Brazil (5%), Malaysia (3%), Mexico (3%), France (3%), and Taiwan (2%).

The largest ten markets accounted for 78% of global sales. This situation was almost the same in 2018.

From the regional perspective, Africa/Middle East reported the highest growth (11.6%). South Africa is this region’s largest market (42% of regional sales).

Americas also posted 0.7% sales growth. This was mainly due to the growth in South & Central America (3.1%). Sales in North America declined by 0.8%.

Sales increased in Europe by 0.8% and declined in Asia/Pacific by 10.3%.



DIRECT SELLERS

Last year’s sales force figure of 129.9 million people represented a considerable increase from 2018 (up 9.7% from 118.4 million).

The largest number of direct sellers were in Asia/Pacific region (68.4 million or 53% of the global sales force). The second was Americas with 30.9 million (24% share). The U.S. had the largest number of direct sellers (16.4 million) in this region. There were 14.1 independent contractors in Europe.

PRODUCT CATEGORIES

The two largest product categories were still wellness and beauty and these together made about 2/3 of global sales, again in 2019.

“Wellness” remained in 2019 as the largest product group sold globally in this channel, increasing its share from 33% in 2018 to 36%. Asia/Pacific is where this category was the strongest (51% share). Philippines represented the most extreme case in this region where 80% sales was generated by nutrition products.

The second biggest category “Cosmetics/personal care”s share declined to 29% from 31%. Regionally, beauty is the strongest in Americas (33% of total sales). Chile (82%) and Brazil (75%) are this region’s leading beauty markets.

WFDSA states in its reports that some country figures represent the whole direct sales market, some others represent only the volumes of the local DSA members, and some numbers are basically WFDSA estimates. Still, these reports always give us significant indications how the industry is doing.

Click for a review of WFDSA’s statistics for 2018.

(*) WFDSA’s  all sales figures in US Constant 2019 Dollars to exclude the impact of foreign exchange and ensure comparability, using average annual exchange rates from the International Monetary Fund.

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Hakki Ozmorali is the Principal of WDS Consultancy, a management consulting and online publishing firm in Canada, specialized in providing services to direct selling firms. WDS Consultancy is a Supplier Member of the Canada DSA. It is the publisher of The World of Direct Selling, global industry’s leading weekly online publication since 2010. Hakki is an experienced professional with a strong background in direct sales. His work experiences in direct selling include Country and Regional Manager roles at various multinationals. You can contact Hakki here.

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Ben Gamse
Five Key Insights from New DSA & Ipsos Consumer Attitudes & Entrepreneurship Study 

DSA’s Industry Research Committee commissioned Ipsos for the first time to conduct its 2020 Consumer Attitudes & Entrepreneurship Study, which provides insight into:

• American attitudes toward the gig economy and entrepreneurship in general
• How to make direct selling the best opportunity to be an entrepreneur
• Consumer attitudes toward evolving technology such as social media, e-commerce, and mobile commerce and their impact on direct selling.

Here are five of the key takeaways from the study:

1. Americans’ interest in entrepreneurship and supplemental earning opportunities is high.

 Despite the U.S. unemployment rate returning to a 50-year low earlier this month, wages have remained stagnant over the past 50 years. Additionally, credit card, student loan, and medical debt is an increasing burden for many Americans. Younger Americans, in particular, are not accumulating wealth at the same levels as previous generations.

Within this context, this study finds that 77% of Americans desire flexible, entrepreneurial/income-earning opportunities. Interest in these opportunities is highest among younger generations, with 91% of Gen Zers and 88% of Millennials interested in entrepreneurial opportunities.

2. High interest in entrepreneurship has coincided with the rise of the gig economy. Despite increased competition for entrepreneurs, direct selling is seen as an attractive option.

Favorability ratings toward direct selling and gig work are comparable. Direct selling compares particularly well against other options in terms of being low-risk and having low start-up costs.

3. Direct selling has broad, diverse appeal.

Demographics of potential direct sellers generally match the U.S. population/current direct sellers. Men are as interested as women in becoming a direct seller, even though men currently represent only about 25% of current direct sellers. Young people and minorities are also particularly receptive to entrepreneurial opportunities.

4. U.S. consumers continue to be positive about direct selling.

Perceptions toward direct selling have remained stable at about 80% over the last 10 years. Most consumers find value/appeal in the good feeling of supporting a small business (69%) and the personalized service (67%) that direct sellers provide.

5. Social media can help direct sellers be more effective and improve the customer experience.

89% of Americans are on at least one social media platform, and the majority of users say they log in at least once per day. Almost half of Americans (46%) would welcome contact from direct sellers regarding business opportunities on social media.

This study was released to all U.S. DSA members earlier this month. Check out the following resources for even more information about this study:

• Sales & Marketing Conference presentation on How to Make Direct Selling the Best Opportunity to be an Entrepreneur
• Direct Selling News article on: “3 Key Insights from New Study DSA Commissioned from Ipsos on How to Make Direct Selling the Best Opportunity to Be an Entrepreneur”
• Consumer Attitudes & Entrepreneurship Report Infographic
• Ipsos Press Release

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This week’s featured article is a brief compilation of industry news of significance from 2019. As you scroll down, I am sure you will agree with me that it was most certainly another exciting year for the industry with all the positives and the negatives.

I have also included articles from The World of Direct Selling that attracted much interest last year.

> Herbalife CEO Richard Goudis Resigns Over Comments He Made Before Taking the Job
> New Avon Names Laurie Ann Goldman CEO
> Stella & Dot to Exit European Market
> China Launches Campaign to Regulate Health Product Market
> Nerium Gets New Name
> Jeunesse Posts Record Year with $1.46B in Annual Sales
> Mary Kay Celebrates 50 Years of an American Icon – the Mary Kay Pink Cadillac
> LuLaRoe Founders Accused of Hiding Millions to Avoid Creditors

Most-Read Article in January on The World of Direct Selling:
What Direct Sellers Can Learn from the Corporate Training Industry (Vince Han)

> Amway Reports Sales of $8.8 Billion USD in 2018
> USANA Posts Another Sales Increase as China’s Direct Selling Clampdown Looms
> Avon Sees Revenues Decrease in Q4, Full Year 2018
> Herbalife Neared $5 billion Mark in 2018; Waits for Other Shoe to Drop in Goudis/China Probe
> Medifast Announces 87% Revenue Increase in Q4 and 66% for the Full Year
> Nu Skin Expands to Peru
> Skin Care Billionaires Rodan and Fields Return to the Teen Acne Market

Most-Read Article in February on The World of Direct Selling:
The 7 Giants’ 2018 Growth Review (Hakki Ozmorali)

> Fact or Fiction? Let’s Set the Record Straight – US DSA President
> Brazil’s Natura and Avon Confirm Deal Talks
> Nature’s Sunshine Reports $365 Million Sales for 2018, Up 7%
> Tupperware Parties: Suburban Women’s Plastic Path to Empowerment
> Two Mary Kay Executives Make Black Enterprise’s 2019 Most Powerful Women List
> Why Direct Sales Appeals to So Many Moms

Most-Read Article in March on The World of Direct Selling:
Common Pitfalls that Prevent Profitability in Direct Selling Start Ups (Dan Murphy)

> DSN Announces the 2019 Global 100
> Young Living Celebrates 25 Years of Global Growth
> Amway Disrupts Its Own Beauty Business, Launching 50 New Mobile Apps
> More Than 100 LuLaRoe Sellers Have Filed for Bankruptcy
> How Blake Mallen Capitalized on the Gig Economy Before It Was a Thing
> Brazilian Cosmetics Giant in ‘Advanced Talks’ with Avon
> Mary Kay Recognized by Forbes as One of America’s Best Midsize Employers 2019

Most-Read Article in April on The World of Direct Selling:
Marketing’s New Role to Keep A Direct Selling Company Relevant (Jonas Hedberg)

> Oriflame’s Co-Founder Jonas af Jochnick Has Suddenly Passed Away
> Nu Skin Named the World’s #1 At-Home Beauty Device System Brand by Euromonitor
> Tupperware Names CEO Tricia Stitzel Chairman of the Board
> AdvoCare Business Changing
> Founding Family Offers to Buy Out Oriflame
> It’s Official: Natura Buys Avon

Most-Read Article in May on The World of Direct Selling:
AdvoCare Abandons MLM: Uncertainty Returns to Direct Selling (Jeff Babener)

> WFDSA Announces Record-setting 2018 Direct Selling Business Results
> LG to Acquire New Avon North America
> US DSA Announces 2019 Awards Winners and Highest Performing Companies
> Natura’s Avon Acquisition Creates the First Latin American Beauty Powerhouse
> Retail Was Never in Our Plan and It Won’t Happen in Future Also: Frederic Widell, Oriflame VP
> Kirsten Dunst Is Making a Show About a Cult-Like MLM Company
> Amway, the Family Business that Became Global (Google-Translated Text)

Most-Read Article in June on The World of Direct Selling:
2019: The Year Direct Selling As We Know It Changed Forever (Brett Duncan)

> Happi Magazine Announces Top 50 Household and Personal Products Companies
> Canada DSA’s Recipients of the 2019 DSA Awards
> Amway Sues Sellers for Trademark Infringement, Faulty Product Distribution
> As India Hicks Closes Her Luxury Label, Is This the End of Tupperware-Party Shopping?
> USANA: China’s 100-Day Crackdown Has Damaged Consumer Confidence; Sales Drop by 15%
> Mary Kay Champions Business Excellence, Ethics and Social Responsibility, Reaps Rewards in Europe
> Nature’s Sunshine Announces New Global Leadership Structure and Appointments
> Pampered Chef Succeeds in Trademark Infringement Battle

Most-Read Article in July on The World of Direct Selling:
Five Ways the Direct Selling Industry Can Achieve Sustained Growth (Ben Gamse)

> New Amway CEO Shares Digital Vision
> doTERRA CIO Todd Thompson: Social Selling Is Taking off
> Executive Changes at Scentsy
> LG Closes $125M Acquisition of New Avon
> Coty and Younique to Part and Focus on the Development of Their Respective Strengths
> US Direct Selling Association CBD Memo: Ingestible CBD-Infused Products Violate DSA Code of Ethics
> “Tupperware-Style” Retail Makes a Comeback with 27% Growth in UK

Most-Read Article in August on The World of Direct Selling:
Why Are They Leaving Our Company? (Hakki Ozmorali)

> DSA Canada Responds to Globe & Mail Article
> Natura Lands in Asia and Starts Operations in Malaysia
> Tracy Britt Cool to Leave Pampered Chef to Start New Venture
> Rodan + Fields to Launch in Japan
> WorldVentures Expands to Brazil
> Nature’s Sunshine Announces Entry into CBD Market
> MONAT Expands into Europe with Its Launch in Ireland and Poland
> Amazon Challenges Amway, Modicare and Oriflame Ruling in Supreme Court

Most-Read Article in September on The World of Direct Selling:
Natura and Avon: Will This Acquisition Work for Both Sides? (Hakki Ozmorali)

> AdvoCare Will Pay $150 Million To Settle FTC Charges
> FTC v. AdvoCare: Enforcement Action Demonstrates Importance of Compliance Programs
> Uber Is Launching a New App That Matches Freelance Workers with Businesses
> Herbalife Announces CEO Succession Plan
> How Mary Kay China Is Trying to Stay Relevant with Younger Beauty consumers
> Beautycounter Appoints COO and CCO
> Origami Owl CEO Chrissy Weems Explores the Roots of a Successful Business
> USANA Announces Appointment Promotion of Walter Noot to Chief Operating Officer
> Oriflame to Focus on Wellness, Position as Healthy Lifestyle Brand: CEO Magnus Brannstrom

Most-Read Article in October on The World of Direct Selling:
FTC vs. AdvoCare: A Teachable Moment for Direct Selling (Jeff Babener)

> Neora Files Suit Challenging FTC’s Attempt to Change Direct Selling Laws
> Herbalife, Younique, LuLaRoe And Other MLMs Suddenly Under Fire
> LuLaRoe: From Startup to Over $1 Billion in Less Than 4 Years. Lessons and Growing Pains
> Tupperware Appoints Chris O’Leary Interim CEO
> U.S. Charges Two Former Herbalife Executives in China over Bribery Scheme
> UK DSA Announces 2019 Star Award Winners
> Jeunesse Enters Global Essential Oils Market

Most-Read Article in November on The World of Direct Selling:
AdvoCare, Neora, an Ever More Aggressive FTC! What Now? (Alan Luce)

> Kyani Founders Identified as Victims in Plane Crash
> Former New Avon CEO: Company Reneged on $1M Severance
> USANA Announces Retirement of Founder and Chairman, Myron W. Wentz
> Why Market America Is a Legitimate and Thriving Business
> US DSA  2019 Sales and Marketing Conference Reveals New Data on Direct Selling and Independent Work
> The 10 Beauty Brands That Defined the 2010s

Most-Read Article in December on The World of Direct Selling:
5 Keys to Communications Confidence in 2020 (Crayton Webb)

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Hakki Ozmorali is the Principal of WDS Consultancy, a management consulting firm in Canada specialized in providing services to direct selling firms. WDS Consultancy is a Supplier Member of the Canada DSA. It is also the publisher of The World of Direct Selling, global industry’s leading weekly online publication since 2010. Hakki is an experienced professional with a strong background in direct sales. His work experiences in direct selling include Country and Regional Manager roles at various multinationals. You can contact Hakki here.

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Alan is a US DSA Hall of Famer, and member of the DSEF’s Circle of Honor. He’s served in executive roles at Tupperware, PartyLite, DK Family Learning and other companies, and has been a part of launching more than 30 direct selling companies over his career.

Guest post by Alan Luce
AdvoCare, Neora, an Ever More Aggressive FTC! What Now?

In recent weeks, the direct selling industry has been shocked by one revelation after another involving the Federal Trade Commission’s actions against direct selling companies. The stunning transformation of AdvoCare from a marketer with an MLM compensation plan to a single level plan due to an FTC enforcement action was still being absorbed when, BANG!, along comes the FTC action against Neora (formerly “Nerium”) and Jeff Olson and the counter civil suit by Olson and Neora challenging the FTC’s actions. Adding to the confusion was a recent address to DSA members by Andrew Smith, Director of the FTC Bureau of Consumer Protection wherein Mr. Smith expressed the agency’s belief that MLM is a legitimate business model, while then spotlighting fundamental areas of direct selling as we’ve known it as problem areas. (*) Wow! Where did that come from?



Industry legal advisors tell us that there is no case law to support the position that simply having a compensation plan that pays more than two levels deep may be enough to make the company a target of FTC enforcement. There is no FTC Trade Regulation Rule to that effect either. What’s more, just last year the FTC sent a letter of guidance to DSA setting out the parameters of what companies should and should not do to operate legally and there was no mention that “more than two levels of compensation” absent any other evidence could put a company in jeopardy. Rather, it seems that this idea, along with several others expressed by Mr. Smith, in his address to DSA are new unpublished standards that are being applied retroactively by the FTC staff in enforcement actions.

Applying new “standards or rules” that have never been published retroactively seems more than a bit bizarre as a rule making process, not to mention unfair to direct selling companies that may be held liable for violating a rule that they did not know existed. That such an unusual process violates basic fairness and due process is a significant theme in the Olson/Neora civil suit against the FTC.

In time the courts will rule on whether the FTC has the authority and power to create new rules and apply them retroactively without notice in enforcement actions against companies and individuals. As an industry direct selling companies are going to have to challenge the FTC for over reach and abuse of its power. All of this will be worked by individual company cases and the industry trade associations.

BUT, in the meantime what should companies do to protect themselves?

How do they organize their marketing programs and plan for the future? Direct selling, like any form of business, needs clarity as to what the “rules of the road” are for their form of distribution and certainty that the published guidelines, by agency rule making or court precedent, will be in place for a reasonable period of time. Many believed that the FTC’s letter to DSA last year was intended to provide some of that certainty and predictability. It didn’t as the recent actions against AdvoCare and Neora make abundantly clear. So, what now?

Well if you want legal advice, you need to go to the attorney who advises your company. But if you want some practical management advice, let me offer a few ideas of things you can/should do now to protect your company from an unwanted and unexpected challenge by the FTC or a similar state agency.

1. FTC actions are still most often initiated due to exaggerated earnings and opportunity claims and/or complaints from former distributors. And when the FTC does move it is usually when if finds a number of issues with company and/or distributor actions. For example, exaggerated earnings and life style claims coupled with not have enough retail sales to end users who are not participants in the compensation plan, plus paying commissions on kits, etc, etc.

So, step one in my play book would be to take a hard look at company literature and social media messages delivered by the company. Are any claims made about income factual with full disclosure about what percentage of the field makes that income? Does your corporate material focus too much on mansions, and exotic cars and travel?  Do a full review with your company attorney and compliance folks and try to look at the material as the FTC would. If its questionable, change it quickly.

Now, review your policies to ensure that it is a clear violation of company policy to make exaggerated earnings and lifestyle claims. Working with the advice of counsel, it may be necessary to republish revised company policies.

2. Actively monitor materials that your distributors produce on their websites, webinars and social media. The FTC will hold the company, as well as the individuals as they did in AdvoCare, liable for offending independent distributor communications. Move quickly to have them removed and take disciplinary action if they violated existing company policies.

3. If your compensation plan pays commissions on the kits, samples and self-purchases bought by newly recruited sellers to their uplines, consider whether you want to continue that feature of your plan. That seems to be a red flag to the FTC and other regulators. What the final rules may be on this issue is unclear at this time.

4. Is your company able to accurately and easily produce data that unequivocally demonstrates that 70% or more of your sales are made to retail customers who are not participants in the compensation plan? If so, keep that date up to date and easily accessible. Review your compensation plan, recruiting literature, fast start programs, social media to be sure that your material focuses on retail sales. Monitor your field materials to be sure that they are following the company lead on communicating about retail sales to end users.

If you do not have accurate data about retail sales and/or your plan and communications do not focus on retail sales, you may want to consider adding a preferred customer club for lower level sellers to convert to and looking to ways to incent retail selling and the enrollment of preferred customers.



5. If you are in good shape on items “1” through “4” above, then you may want to hold fast for the time being on your compensation plan if it pays overrides on more than two levels. At this point, while Smith’s recent comments do not directly express the opinion that a compensation plan of more than two levels may be considered an illegal pyramid scheme, many experts have interpreted this nonetheless based on the statements relative to compensation plans that are overly dependent on recruiting for success in the business. (*)

Remember, the FTC and other agencies tend to focus their enforcement activities against companies where they can allege multiple violations of existing standards as well as in recent actions trying to establish new standards and rules. So, review the recent enforcement actions and settlements with a qualified attorney who works with FTC cases to be sure that your corporate and field practices are in full compliance with the established case law and published agency trade regulation rules.

If you are a new company, just getting started and seeking to avoid any of these conflicts, there are consultants and industry attorneys who can advise you as to the best practices and policies that will protect you from conflict with regulatory agencies going forward.

This is a fast moving and confusing time for direct sellers. Do what you can to ensure that your company is focused on retail sales, makes honest and accurate income claims that do not exaggerate the possibility of making high incomes or enjoying an extravagant life style. And make sure that your sales force members are not making inappropriate claims either. Encourage your trade association to take action to protect legitimate direct sellers and, if you possibly can, help provide the funds necessary to mount that defense.

(*) These statements have been updated since the original publishing of the article to clarify the intent of the author.

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He has lectured and published extensively on direct selling. Jeff is a graduate of the University of Southern California Law School. He is an active member of the State Bars of California and Oregon.

Guest Post by Jeff Babener
FTC vs. AdvoCare: A Teachable Moment for Direct Selling 

History is Written by the Victor

Ring the bells that still can ring
Forget your perfect offering
There is a crack, a crack in everything 
That’s how the light gets in
– Anthem, Leonard Cohen

Quiet Uncertainty

It was like the calm of quiet uncertainty before the storm. In May, 2019, 26-year-old leading direct selling company, AdvoCare, announced that it would exit MLM in favor of a one level direct sales model. It indicated that it was doing so, and “had no choice,” after confidential talks with the FTC. That was it. No other explanation. And the industry asked: What is this all about? It may be true, as T.S. Elliot said, “the world will end in a whimper, not a bang.” For a detailed article on the May withdrawal and ramifications, see AdvoCare Abandons MLM: Uncertainty Returns to Direct Selling.

A Jarring Dissonance

The FTC Speaks

And then, in October 2019, a cacophony, as the other shoe dropped. The FTC announced a stipulated judgment in which AdvoCare was proclaimed online and in newspapers across the country as a pernicious pyramid scheme that had swindled hundreds of thousands.

The settlement came with a $150m fine, life time MLM bans for AdvoCare’s CEO and top distributors, and the FTC spiked the ball in the end zone, noting at its press conference, “It is significant that we have a large and well known multilevel marketing company that is admitting that it operated as a pyramid… “

Sending an underlined message across the bow of the direct selling industry, the FTC online blog labeled the case as “the landmark settlement.”

Buyer’s Remorse

“Foul!,” called AdvoCare in an immediate responsive press release:

“The FTC incorrectly stated in a press conference that AdvoCare had admitted to operating as a pyramid. This is categorically false. AdvoCare forcefully rebutted this charge in its discussions with the FTC. To this day, AdvoCare denies it operated as a pyramid.”

Actually, AdvoCare was technically right… No such admission had been given (although it had stipulated to the veracity of the factual allegations in the Complaint), prompting the Director of the FTC Bureau of Consumer Protection to later apologize at the Washington, D.C. DSA Legal and Regulatory Conference.

A pyrrhic victory for AdvoCare, whose marketing program and opportunity for thousands of distributors was totally gutted. “Elvis had left the building.”

FTC Has Non-Legal Leverage. What Now?

This was the third major DSA member company hit by the FTC in less than 5 years. And the FTC accomplished its goals, without litigation, but rather the sheer leverage it had over the companies and individuals based on their unique factual situation. For Vemma, an asset freeze. For Herbalife, the overriding need to address its position as a publicly traded company. For AdvoCare, industry speculation about the unstated jeopardy of owners and board members, as well as existential threat to the business. For better or worse, the FTC accomplished its objectives in all three cases without taking the matter to formal adjudication. Therefore, the new quasi legal standards were set by FTC leverage, without firing a litigation shot, rather than by actual case law. Case law did not change.

Serious? To paraphrase a general counsel of one of the industry’s largest MLM companies: “Our first priority is not to prepare for a FTC confrontation, but rather to use our best efforts to stay off their radar in the first place.”

More to come? Could well be. The industry was left with a choice. It could wring its hands or treat this as a teachable moment for its future. As they say, a new reality, and “it is what it is.”

From the industry’s perspective, were the penalties draconian? Absolutely. Might it have been more appropriate to adopt a remedial solution rather than ban the entire MLM model? Absolutely. But that is another issue for another day.

The initial instinct of the industry was to recoil from a near death blow to a 26-year-old industry leader and longtime DSA member, complaining of a new era of FTC bullying. But, as the facts unraveled, some real concerns arise as “the crack in the bell lets the light in.” Maybe, it was not about bullying after all. The industry needs to pay serious attention and self- reflection about guidance it provides to its own companies.

Fact Checking the FTC and AdvoCare

What were the facts in issue from the standpoint of the FTC and AdvoCare? Well, as far as AdvoCare, we will never know. The company capitulated, without even filing one defensive document. And so, all we really can discern is what the FTC alleged. And from a legal standpoint, their version “stands” because, notwithstanding a preamble that states that AdvoCare neither admits nor denies any of the allegations in the Complaint, the stipulated order for permanent injunction and monetary judgment, recites:

VI.(D) The facts alleged in the Complaint will be taken as true, without further proof, in any subsequent civil litigation by or on behalf of the Commission against Settling Defendants…”

And so, we won’t really hear AdvoCare’s explanation. All we have is the uncontested FTC Complaint allegations. And history suggests that this “neither admit nor deny” stipulated order will morph into a “de facto” FTC guidance in the future.

The big picture said the FTC is that the facts support that AdvoCare crossed the line from operating a legitimate MLM program to a program that was instead an illegal pyramid scheme.

For the uncertainty created by no clear adjudication of such important issues, the industry owes “no thanks” to AdvoCare for its decision to merely “roll over,” despite contending after the settlement order that it had forcefully rebutted the pyramid charge in pre-settlement discussions with the FTC. Unfortunately, the “game over buzzer” had already sounded.

History Repeats Itself: Omnitrition Déjà Vu…

Other than ramped up aggressive enforcement and penalties (life time MLM bans for the CEO and lead distributors and forcing AdvoCare to abandon the MLM model), those looking for new insight in the AdvoCare prosecution, will not find it.

This was the opinion of the FTC and its Director of the Bureau of Consumer Protection, Andrew Smith, and a historical legal perspective would come to the same conclusion.

The AdvoCare prosecution can be summed up in a few words:

1. Inventory Loading. In other words, “pay to play,” “buy in to active qualification for “active” rank commissions and rank advancement commissions; purchasing far more product than realistically needed for either personal use or to meet resale demand to customers, focusing on recruiting business builders who buy inventory and encourage others to do the same.

2. Exaggerated Earnings Claims. It is eerie, but this is a “history repeats itself” moment. In 1996, in Webster v. Omnitrition, (79 F.3d 776) the U.S. Court of Appeals for the 9^th Circuit, held Omnitrition to be a pyramid scheme based on the company recruitment of business builders qualified with  inventory loading, who in turn, did the same. Omnitrition was co-founded by Charlie Ragus. In 1993, Ragus founded AdvoCare. It is a sad irony that 26 years later, the Ragus founded AdvoCare MLM program would be shuttered by similar inventory loading accusations as in Omnitrition.

The Omnitrition Court held that the well venerated Amway safeguards meant nothing if not enforced and if, in the presence of inventory loading:

The promise of lucrative rewards for recruiting others tends to induce participants to focus on the recruitment side of the business at the expense of their retail marketing efforts, making it unlikely that meaningful opportunities for retail sales will occur. Koscot, 86 F.T.C. at 1181. The danger of such “recruitment focus” is present in Omnitrition’s program. For example, Webster testified that Omnitrition encouraged him to “get to supervisor as quick as [he] could.” Ligon states:

[T]he product sales are driven by enrolling people. In other words, the people buy exorbitant amounts of products that normally would not be sold in an average market by virtue of the fact that they enroll, get caught up in the process, in the enthusiasm, the words of people like Charlie Ragus, president, by buying exorbitant amounts of products, giving products away and get[ting] involved in their proven plan of success, their marketing plan. It has nothing to do with the normal supply and demand in this world. It has to do with getting people enrolled, enrolling people, getting them on the bandwagon and getting them to sell product…

FN3… First, Omnitrition produced evidence of enforcement only for its ten customer rule. Even assuming that Omnitrition’s enforcement measures are effective, it is not clear that these measures serve to tie the amount of “Royalty Overrides” to retail sales. The overrides are paid based on purchases by supervisors. In order to be a supervisor, one must purchase several thousand dollars’ worth of product each month. That some amount of product was sold by each supervisor to only ten consumers each month does not insure that overrides are being paid as a result of actual retail sales.

Fast Forward 23 years and it all sounds the same. Said the FTC in its Press Release and Blog about AdvoCare:

Press Release:

AdvoCare operated an illegal pyramid scheme that pushed distributors to focus on recruiting new distributors rather than retail sales to customers. The compensation structure also incentivized distributors to purchase large quantities of AdvoCare products to participate in the business and to recruit a downline of other participants with the same incentives. The clear directive of this structure was, as one AdvoCare distributor explained during the company’s Success School training, to “recruit business builders who recruit business builders who recruit business builders…”

The FTC alleged that under the AdvoCare compensation plan, participants were charged $59 to become a distributor, making them eligible to receive discounts on products, and to sell products to the public. To earn all possible forms of compensation, however, participants had to become “advisors,” which typically required them to spend between $1,200 and $2,400 purchasing AdvoCare products and accumulate thousands of dollars of product purchase volume each year, according to the complaint. The FTC alleged that the income of AdvoCare advisors was based on their success at recruiting, with the highest rewards going to those who recruited the most advisors and generated the most purchase volume from their downline.

To recruit people, the FTC alleged, AdvoCare and the other defendants told distributors to make exaggerated claims about how much money average people could make—as much as hundreds of thousands or millions of dollars a year. The FTC alleged that distributors were told to create emotional narratives in which they struggled financially before they joined AdvoCare, but obtained financial success through AdvoCare. Distributors were also allegedly told to instill fears in potential recruits that they would suffer from regrets later if they declined to invest in AdvoCare.

The FTC alleged that the defendants told consumers that they could realize large incomes by promoting AdvoCare and that their earning capacity was limited only by their effort. For example, AdvoCare promoter Diane McDaniel told consumers that “the sky is the limit. I’m the variable. I get to decide what I truly want according to the effort I put forth” and that “there is incredible profit that can be made through infinity.”

In reality, the FTC alleged, AdvoCare did not offer consumers a viable path to financial freedom. In 2016, 72.3 percent of distributors did not earn any compensation from AdvoCare; another 18 percent earned between one cent and $250; and another 6 percent earned between $250 and $1,000. The annual earnings distribution was nearly identical for 2012 through 2015.

FTC Blog:

… people paid AdvoCare thousands of dollars to become “distributors,” buy inventory, and become eligible for cash bonuses and other rewards. But, the FTC says, AdvoCare rewarded distributors not for selling product but for recruiting other distributors to spend large sums of money pursuing the business opportunity. That push to recruit is a classic sign of a pyramid scheme.

On the earnings front, the FTC also alleged that AdvoCare earnings disclosures played fast and loose with earnings averages by extrapolating data of one month’s earnings into an annual earnings average, when in fact, the month chosen might not be a recurring event.

Legal observers are perplexed how it could happen after Omnitrition litigation that the same “front loading” fact pattern might occur again in a related successor company. Probably, the answer is that, unless one is extremely careful, these things just “creep up on you.

Unfortunately, the cultural problem was not new and was a bit of a “tiger by the tail.” The focus on recruiting and duplicating “front loading” business builders was suggested by a legal expert, who was also a former insider knowledgeable observer, to predate the FTC Order by more than a dozen years:

AdvoCare leaders encouraged new distributors to “buy their Advisor order” ($2,000) so they could begin earning commissions sooner. This was ingrained in the distributor culture… there were efforts made to discourage this and ensure that products purchased through “advisor orders” were sold to retail customers. …AdvoCare was a victim of its own success and it was unable to reign in leaders… Existing problems only become magnified when you go through a period of hyper-growth similar to what AdvoCare experienced.

Based on the “uncontested” alleged facts set forth by the FTC, serious pyramiding issues are raised. And that is all we have. Without a vigorous defense by AdvoCare, or, in fact, any defense at all, and based on the FTC Settlement Order providing that “facts alleged will be deemed to be true,” it is far more than a challenge for industry supporters to come to the support of AdvoCare in this dispute. This is a true loss for the direct selling industry. The silence of AdvoCare left the industry in an awkward uninformed position with no arrows in its quiver, akin to a performer on stage pleading, “Throw me a bone, I’m dying up here.”

State of the Law

The FTC and the direct selling Industry are totally in sync on one point:

Nothing about the FTC/AdvoCare settlement changes the existing legal standards for pyramid vs. legitimate direct selling. Those case law standards weave their way in FTC cases from the Koscot case through Amway through Burnlounge:

Koscot: Multilevel commissions must be based on sales to ultimate users.

Amway: Multilevel companies must adopt procedures that encourage retail selling.

Omnitrition: (9^th Circuit Class Action): In the presence of front-loading and lack of enforcement of the Amway standards, companies can expect pyramid challenges.

Burnlounge: The primary incentive to distributor purchases or payments should be a genuine need, whether for resale or personal use, as opposed to qualification in the compensation plan. Are distributor payments and commissions driven by recruitment and qualification in the plan, on the one hand, or sales to ultimate users?

Andrew Smith, FTC Director of the Bureau of Consumer Protection, was in total agreement, in his presentation to the October, 2019 Washington D.C. DSA Legal and Regulatory Conference.

In a well-received presentation, and to the surprise of many attendees, he emphasized multiple times that the FTC is supportive of the MLM model. He went out of his way to express his opinion that, in some ways, MLM is a superior business model because:

1. It provides flexibility and opportunity to individuals to earn extra income.

2. It provides a warm and attentive experience, and qualify products, to retail consumers.

He stated that the FTC welcomes compliant MLM companies. And his standards were not measurably different than existing case law.

The FTC seems to have retreated from its all-out assault on recognition of personal use, as argued and rejected by the BurnLounge court. Its attention is now turned to the basic question of whether a MLM program is placing its focus on sales to ultimate users, which includes personal use purchases in reasonable amounts and wholesale purchases for resale, in amounts reasonably calculated to fulfill retail consumer demand and for which the company can track the flow of product to ultimate users such that compensation reasonable relates to sales to ultimate users. (As an aside, the Director played slightly “fast and loose” in describing the Koscot test as paying compensation “unrelated to product sales,” omitting three key words of Koscot, “to ultimate users,” thus leaving the erroneous impression that only product sales to non-participant retail customers should count. Such a position would be a misrepresentation by omission of the Koscot/BurnLounge standard.

But overall, Director Smith’s description of the state of the law seemed consistent with case law. He suggested this analysis:

1. Does the scheme emphasize recruiting over sales to consumers? Are compensation results driven by recruiting others? Are distributors focused on recruitment and duplication rewards arising from recruiting other distributors to “buy?” Does that plan have a qualifier relating to recruitment?

2. Does the program have incentives to buy goods that are not based on satisfying a distributor’s own personal needs or reasonable inventory to supply retail customers? A telltale pattern would be monthly purchases just enough to meet compensation qualification activity requirements. Another would be front-loading which Director Smith indicated as an attribute of pyramid schemes. His observation of AdvoCare was that distributors were encouraged to buy and did buy for more than they reasonably needed or could use.

 He stated that the FTC key questions are:

1. How do distributors really make money in the plan?

2. Does the company have incentives that promote recruiting and purchasing over sales?

3. Is the company gathering data to track product sales to end consumers?

Director Smith stressed:

1. At the FTC, we want you to be successful as a MLM.

2. However, we also want you to be in compliance as an MLM.

3. Effectively, he said, “we are not looking for a fight, and we want you to stay off our radar,” and he implored companies to examine and reexamine their programs to remove any practices that would put a company on the FTC radar.

4. He stated the FTC position, which no one in the industry disputes, is that a pyramid headhunting inventory loading recruitment scheme is unsustainable as a business model.

Unless completely cynical, given the tenor of his presentation, it seems fair to take Director Smith at his word. Refreshing! The industry can live with this going forward.

Guidance for Radar Avoidance in a Post-AdvoCare World

Every breath you take
Every move you make…
I’ll be watching you
– Every Breath You Take, Sting, The Police

If you are looking for life in a post-FTC vs. AdvoCare/Herbalife/Vemma world, here are some common sense guidelines to create the strongest defense to your MLM program and for promoting anti-pyramid practices aimed at staying off the FTC radar:

1. Overriding Goal… The Big Picture.

The compliant MLM “acid test” will be a mandate and demonstration of significant sales to non-participant retail customers. Bottom line analysis by FTC and state AGs:

A product or service with real retail customers and a good ratio of retail customers to distributors to demonstrate that people buy the product because they want it, and not just to qualify in the marketing plan.

Upline commissions must derive from sale of product to ultimate end users.

With a high retail customer to distributor ratio, experience suggests that most other legal issues (assuming no outrageous earnings or product claims) tend to recede into the background.

2. Track. Track… Flow of Product to and Use by the Ultimate User.

After Vemma, Herbalife and AdvoCare, few priorities are as important as tracking and verifying the flow of product to and use by the ultimate user, whether it be a nonparticipant retail customer or distributor for personal/family use. The short answer: Track the flow and use of product to both nonparticipant retail customers and distributor personal/family use. In fact every company and the DSA should launch a joint initiative with leading direct selling software companies to develop software which accurately tracks the flow of product such that a company can demonstrate that distributor purchases are, in fact, in reasonable amounts for distributor personal use and reasonable inventory quantities for resale, calculated to meet the ordering needs of retail customers. And software should track that every product sold is used by the ultimate user, whether for personal use by distributors or use by non-participant retail customers.

3. Promote Non-Participant Retail Sales and a Preferred Customer Program.

It is in everyone’s interest, the company, distributors, the industry and regulators, to place an emphasis on retail sales to non-participant customers. After all, the business is called “direct selling,” and not “direct consumption.” The promotion of retailing should find a thread through every piece of company literature and advertising.

In addition the gold standard of retailing is the presence of non-participant preferred customers, i.e., those retail customers that are provided incentives and discounts to commit to monthly or orderly product purchases. From a legal standpoint, a robust preferred customer program makes the statement that there is a real market for the product and purchasers are purchasing because they want the product as opposed to being motivated by qualifying in the business opportunity.

4. Time to Rethink Personal/Group Volume Qualification Requirements for Active Status, Rank Status, Rank Advancement Commission Payout if the Volume is Based on Distributor Purchases that are Not Clearly Documented as End User Personal Use of Distributors or Retail Customers.

In fact, some leading direct selling companies have already initiated elimination of volume requirements for active status, fast start commissions, rank status, rank advancement and payment of enhanced commissions. The FTC has long expressed a deep concern for volume requirements that tend to trigger inventory loading or distributor purchases that are not driven by consumer demand, but instead for purposes of qualification.

Said Former FTC Commissioner Edith Ramirez in her remarks at the DSA Business and Policy Conference in September, 2016: “Any requirements or incentives that participants purchase product for reasons other than satisfying genuine consumer demand – such as to join the business opportunity, maintain or advance their status, or qualify for compensation payments—are problematic.”

In Vemma and Herbalife, companies were restricted on credit that could be accorded to distributor purchases, whether for personal use or resale. Many companies are reconsidering volume requirements that are documented as reasonable personal use or retail sales. Unless a company is prepared to track end destination of product, it should reconsider volume requirements that cause suspicion that the products are purchased to qualify and not driven by consumer need.

Above all, rewards should reasonably relate to sales to end users (personal use plus retail customers.

There are multiple approaches to compensation for multilevel payments on downline purchases.

(a)      The Herbalife settlement limited credit to downline distributor purchases (only about one-third of distributor purchases qualified for credit for MLM commissions.)

(b)      Pay MLM commissions only after verification of personal use or sale.

(c)      Pay MLM commissions at time of purchase, but absolutely track and verify personal use and sale of product purchased for resale.

5. Rethink Distributor Ordering Methods that Produce “Inventory Loading” Accusations. Use a Ramp-Up Authorization Approach that Authorizes Increasing Wholesale Orders Based on Demonstration of Retail Sales.

Above all: Do not allow distributors to purchase more than they can use for reasonable personal use and/or quantities for there is a realistic resale to retail consumer need.

Actually, in today’s world of next day UPS and FedEx, online ordering and direct to consumer shipping, there really is no need any more for large inventory purchases or stocking distributors.

Approaches for Avoiding Inventory Loading:

(a)      Eliminate or reduce volume requirements for active, rank, rank advancement.

(b)      Allow volume, but track and pay only on personal use level of volume or wholesale for resale volume that is verified sold to retail customers.

(c)      Limit amount of inventory or, at least, install a ramp-up authorization based on demonstrated sale and/or personal use.

6. Bulletproof Yourself on Earnings Claims. Don’t be the Nail that Sticks Up and Gets Hammered Down.

Avoid earnings hype in advertising, testimonials and lifestyle presentations. Scuttle the Maserati and the Tuscan villa images. Be realistic… this is the anomaly and not the norm. Take the bullseye off your forehead. In almost every FTC case, the first invitation to regulators is unrealistic earnings claims. The hype “opens” the door or lifts the canopy of the tent. And, as they say, “Once the camel has his nose in the tent, you can be assured that his ‘body’ will soon follow.”

In other words, don’t be the low-lying fruit. Don’t effectively, and unintentionally, “bait” the FTC to initiate an enforcement action by over-aggressive hype and promises.

Absolutely do not make claims of wealth, fast wealth, easy money or sure-fire systems, nor effectively invite the FTC to inquire into a program based on earnings hype and systems based on distributor “purchasing” rather than distributor “selling” and “using.”

And whether legal or not, now is the time to “ditch” the pictures and videos of distributor mansions and luxury cars. Since such MLM-driven lifestyles are clearly the exception to the rule, why wear a red flag in front of a “bull.”

7. Post a Transparent Earnings Disclosure.

As a general matter, the FTC is all about disclosure so that consumers can make informed decisions. Once you have a track record, post a simple and transparent average earnings disclosure. At a minimum, you should disclose:

(a)      What percentage of distributors who have signed up are active, i.e., earning any income?

(b)      Of those that are active, what is the average earnings?

(c)      If any example, testimonial or illustration of a particular income, bonus or lifestyle award is presented, what percentage of active distributors earn at least that amount or above?

(d)      Unless the company surveys average costs of doing business by distributors, earnings averages should be represented as “gross earnings” and that they are not “net earnings.”

(e)      Absolutely disclaim that any earnings illustrations are representations of an expectation of earnings.

(f)       “Pepper” promotional material with average earnings disclosures and disclaimers at every instance that an illustration/testimonial of earnings potential is
provided.

(g)      Either calculate average business costs to disclose net earnings or specifically disclose that average earnings are presented as “gross,” as opposed to “net” and do not take into account distributor business costs.

Irrespective of the depth of the earnings disclosure, do not ever play fast and loose with earnings disclosures, nor “parse” to exaggerate the opportunity.

During his presentation to the DSA Legal and Regulatory Conference, FTC Director raised a new “ask” by the FTC. He suggested that companies should not only present gross earnings, but should also present net earnings which take into account costs of doing business by distributors. Upon questioning, he recognized that this may be a daunting task. At the very least, he suggested that companies should disclose that their typical average earnings disclosures are “gross earnings” and, not net earnings, i.e., they do not take into account distributor costs of doing business. Look for more of this “ask” in the future.

8. Adopt, Follow and Enforce the Amway Safeguards.

The Amway safeguards have been the gold standard and been honored in case after case going on 40 years. Although the FTC may wish to pivot away from the Amway safeguards, the courts have not done so.

(a)      70% rule to avoid inventory loading… no ordering unless 70% of previous orders have been sold or used for personal/family use. Place lids on initial orders and allow a ramp up of size of order over time. Never mandate monthly autoship to qualify for commissions. And avoid front-loading. In the famous Omnitrition case, the court noted that the Amway safeguards are rendered ineffectual as a defense to pyramiding if a company encourages or allows front-loading of product because it becomes clear that commissions are not related to sales to ultimate users when distributors are incentivized to buy huge amounts of inventory that are out of proportion to needs for resale or the needs of personal and family use.

(b)      Adopt and enforce an actual nonparticipant retail sales mandate to qualify to receive commissions. Over the years, that number has been expressed in numbers from five to ten or in sales volume … often with an allowable ramp up over time.

(c)      Honor a buyback policy on inventory and sales support materials for terminating distributors… no less than 90% for 12 months.

9. Consider a Reclassification Program to Convert Non-Earning Distributors to Preferred Customers.

In a new FTC enforcement era, the “name of the game” is demonstrating high ratios of non-participant retail customers to active distributors. In the retailing analysis, non-participant retail customers, who are provided discounts or other incentives in exchange for signing up as “preferred customers,” are like “gold” in “upping” the ratios. Watch for direct selling companies to use major initiatives to convert to preferred customers distributors who are loyal product purchasers, but who are not really “working the opportunity,” i.e., low or no earning in the direct selling opportunity.

The conversion can be voluntary or non-voluntary.

1. Voluntary.

For instance, in the Herbalife settlement, Herbalife was given nine months to work on a reclassification of brand loyal, but low earning distributors, to preferred customers so that the non-participant retailing ratios would be increased for personal use purchases. Other leading companies, such as USANA, followed suit, substantially increasing retailing ratios.

2. Involuntary.

Another path that companies may wish to consider is automatic involuntary conversion. Under this approach a company would adopt an automatic reclassification program that automatically reclassifies non-earning independent representatives to preferred retail customers, all the while providing superb discount pricing, special customer benefits, generous customer appreciation referral rewards. If the converted preferred customer later decides to reactivate, the company might even consider providing an option for the right, after a waiting period or based on customer referral activity, to re-sign up as an active independent representative in a reserved genealogical downline position.

10. Promote Industry Guidance on Compliant Compensation Plans.

Similar to the DSA initiative on earnings claims compliance of the Direct Selling Self-Regulatory Council (DSSRC), support the launch of a DSA task force to develop best practices compensation plan guidelines and to continuously audit and constructively advise member DSA companies for avoiding pyramiding accusations of the sort raised by the FTC in Vemma, Herbalife and AdvoCare.

11. Support Clear Federal Legislation on Direct Selling.

Companies should actively support DSA federal legislative action to set forth clear anti-pyramiding guidelines so that the FTC, states and companies are playing on the same field with the same rules and goalpost settings.

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As the above graph shows, the global industry has shown a sustained growth over time, with a three-year compound annual growth rate of 1.7% for the 2015-2018 period. The  figures expressed here are in 2018 constant USD and at “estimated retail”.

Markets

As far as the top markets are concerned, China leads the industry by a small margin ahead of the US. China grew by 2% and the US by 1.3% in 2018. These two top markets accounted for 36% of the direct selling volume in the world.

The top 10 markets on the other hand, generated about $153 billion sales and that is roughly 80% of the global sales.

Asia-Pacific countries made up the largest region with 46% share. Americas followed by 32%, Europe by 21%, and Africa-Middle East by 1%.

According to the WFDSA figures, the world’s shining stars in 2018 in terms of volume increases were: Vietnam (30%), Argentina (23%), and Israel (15%).



Product Categories

Products under the wellness category produced 33% of sales, and cosmetics/personal care 31%. The following two largest categories were household goods & durables (13%) and clothing & accessories (12%). It is important to note here that these category statistics do not include figures from China, the largest market, as they were not available.

Wellness category had been especially strong in Asia-Pacific and this was again, the case in 2018. In almost all markets, this category generated more than half of the total direct sales volume. The figure for the US in 2018 was 35.6%.

Direct Sellers

The number of direct sellers in the world increased in 2018 by 1.7% as reported. China grew by 2%, reaching 5.6 million according to WFDSA’s estimates. This number decreased in the US by 0.7% (to 16.5 million). Roughly, 60% of the world’s total direct sellers were in the Asia-Pacific region.

This article has aimed at providing a general insight on how the industry performed last year, globally. For more detailed data, you might want to check WFDSA website.

Note:

The WFDSA states in its report that some country figures represent the whole direct sales market, some others represent only the volumes of the local DSA members, and some are basically WFDSA estimates. Nevertheless, these reports always give us pretty significant indications.

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Guest Post by Ben Gamse
Five Ways the Direct Selling Industry Can Achieve Sustained Growth

“Growth & Outlook” is the U.S. Direct Selling Association’s annual market-sizing survey that reports on the size and scope of direct selling, key industry trends, and the industry outlook in the United States.

This year’s survey results were recently unveiled at DSA’s Annual Meeting, and they showed that after a couple years of modest decline, the direct selling industry in the U.S. has returned to growth, with a 1.3% increase to $35.4 billion in retail sales in 2018. Furthermore, DSA is optimistic this growth will continue at between 1-3% for the next three years. However, this projection will not be realized unless the industry takes an active role in shaping its future within a rapidly evolving retail landscape.

I collaborated with DSA’s Industry Research Committee, made up of top market research/business intelligence executives from DSA leading member companies, to better understand market-sizing stats and trends and develop actionable takeaways that can help DSA members and the industry grow. Based on this in-depth analysis, here are five strategies that can help direct selling achieve sustained growth:



1. Segmenting salesforce and customers to better understand your salesforce and become more customer-centric

Segmentation (or better distinguishing between sellers and customers) poses an opportunity for business growth by tracking sales by segment, improving engagement with active and unengaged reps, and tailoring communications by segment. By developing preferred customer/ loyalty programs, companies are more easily able to cultivate customer data and identify how to best empower the salesforce to meet customer needs.

2. Doing research on Gen Z and developing a strategy to attract future generations to products and the direct selling opportunity.

There’s been much research and analysis conducted on Millennials, but few in the industry are familiar enough yet to develop strategies to appeal to Generation Z (those born between 1996-2011). By 2020, Gen Z will make up 40% of consumers and 36% of the workforce, and significant differences between Gen Z and Millennials are emerging.

At DSA’s Annual Meeting, Josh Miller, a 17-year old entrepreneur and Director of Gen Z Studies at XYZ University, informed several DSA execs on how Gen Z is data-driven, competitive, and focused on financial stability and the future. Another fascinating insight Josh shared is that because Gen Z’ers don’t know a world without smart phones and social media, they now prefer face-to-face communication to online interaction. Information like this should help companies recognize if their direct selling strategy and model are poised to succeed with this generation. As the world’s largest upcoming generation, Gen Z represents the future of the labor market and consumer base. The sooner companies realize this, the more likely they will succeed.

3. Learning from the gig economy, which is shaping workforce expectations

With the ubiquity of companies like Uber, Lyft, and AirBnb, it’s easy to forget that the gig economy is relatively new, nebulous, and rapidly evolving. What is evident is that the gig economy has already had a significant impact on reshaping workforce expectations (including direct selling) and will continue to do so for the foreseeable future.

For example, workers are increasingly expecting instant payments. Transportation services like Uber and Lyft allow for immediate payment following a ride, and even Airbnb provides hosts with payment at the start of a customer’s stay.

Another way to learn and adapt from the gig economy is to make connecting with prospects easier. The appeal of many gig roles is that customers are connected to the gig worker through technology. The worker doesn’t need to do anything but show up. Some direct selling companies are addressing this challenge by matching prospects who visit their websites via geographic proximity. Companies may also be more proactive to drive prospects to their commerce sites, but traditionally many direct sellers view this as infringing on their prospect base. This is an area that needs further investigation. But, technology and evolution of e-commerce platforms is likely a step in the right direction.

Another thing direct selling can learn from the gig economy is being able to control the whole business from a mobile device. There are many things we can learn from them that if addressed may make direct selling a better destination for those considering other gig opportunities.

During a tight labor market that’s achieved 50-year lows in the unemployment rate, the gig economy has increased the appeal of flexible, part-time earning opportunities. This should be direct selling’s sweet spot where we can compete and win.

4. Innovating to avoid getting left behind during rapid evolution of retail & e-commerce

Another component of becoming more customer-centric is placing an increased focus on customer retention. It is well documented that the cost of retaining a customer is much less than acquiring a new one. Many e-commerce and gig companies are getting into the retention game with loyalty programs.  A notable example of this is Dollar Shave Club, whose retention rate at 12 months is 50% – far exceeding many direct selling companies. Consider ways to engage loyal customers with targeted communications, product recommendations and promotions, and introducing gamification.

5. Prioritizing key points of differentiation that direct selling offers, and minimizing the impact of perceived weaknesses

The direct selling channel is at a crossroads as the 100+ year old industry sees the retail and labor landscapes rapidly evolving. Questions emerge like how do you stay true to your core identity while embracing technology and change? What is the best path for direct selling moving forward?

The U.S. macroeconomic conditions create favorable tailwinds for direct selling to thrive, and its best path forward likely lies first in prioritizing key points of differentiation.

The late author and management consultant Peter Drucker said, “Waste as little effort as possible on improving areas of low competence. Concentration should be on areas of high competence and high skill. It takes far more energy and far more work to improve from incompetence to low mediocrity than it takes to improve from first-rate performance to excellence.”

Direct selling has the ability to achieve sustained excellence and comparative advantages in certain areas such as personalization, relationships, and experience.

Monica Wood, Vice President, Global Consumer and Member Insights at Herbalife Nutrition and incoming Chair of DSA’s Industry Research Committee said, “Personalization is becoming ever important and is a key differentiator we have in direct selling. Our distributors listen to the needs of their customers and then they customize the wellness solutions we offer based on the individual needs of that customer.”

“Direct Selling, like any industry, needs to evolve with macro and consumer trends, but it should not compromise on its inherent points of differentiation such as the priceless personalized experience a customer has with their direct seller,” says Jeff Kaufman, outgoing Chair of DSA’s Research Committee.

The unique direct selling experience is also a differentiator. As Qualtrics (experience management software company) CEO, Ryan Smith said, “we’re in the experience economy. People will pay a premium for a good experience, and experience is a growth lever… Either you’re intentionally racing to the top with experience or you’re unknowingly racing to the bottom.”



Satisficing on Weaknesses

No matter how hard direct selling companies try, it’s unlikely they’ll be able to beat Amazon on selection, shipping time, and price.

Amazon’s economies of scale, technological expertise, and relentless willingness to incur massive losses to compete for market share/growth make competing across any of these dimensions very difficult.

Will direct selling companies need to be able to beat Amazon on one-day drone shipping? Should direct selling companies match Dollar General on pricing? Beyond egregiously underperforming across these metrics, the answer is likely no. 3-4 day shipping at a breakeven cost or selling cosmetics a dollar above the dollar store prices are likely fine – as long as you have value in other areas (e.g. the personalized ongoing service salesforce members offer their customers). Otherwise, you’re on a race to the bottom.

However, at the other extreme, if we surrender entirely on selection, shipping time, and price, then you’re likely doomed. No matter how good your product is, consumers’ expectations have increased, and no one wants to wait weeks for their next order of protein powder. The answer lies somewhere in the middle. Being good enough to not noticeably frustrate customers here is likely sufficient.

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Jeffrey A. Babener, of Portland, Oregon, is the principal attorney in the law firm of Babener & Associates. For more than 30 years, he has advised leading U.S. and foreign companies in the direct selling industry, including many members of the U.S. Direct Selling Association. He has served as legal advisor to various major direct selling companies, including Avon, Amway, Herbalife, USANA, and Nu Skin.

He has lectured and published extensively on direct selling. Jeff is a graduate of the University of Southern California Law School. He is an active member of the State Bars of California and Oregon.

Guest Post by Jeff Babener
DSA Launches Independent Contractor Initiative   

“As Gregor Samsa awoke one morning from uneasy dreams he found himself transformed in his bed into a gigantic insect…”
Metamorphosis, Franz Kafka

A Kafka Experience 1996:

Dateline Maine 1996 for one of America’s leading direct selling companies:

One day you have no presence; the next day you are the largest employer in the state… at least until the state amends its unemployment statute, in 1996, to follow the federal tax definition of independent contractor exemption for direct sellers:

Service performed by a direct seller as defined in 26 United States Code, Section 3508(b)(2).  Maine 26 M.R.S.A. 13 sec. 1043(11)(F)(28) (Amendment 1996)

Groundhog Day 2018: Deja Vu All Over Again

One day, leading direct selling telecom company, ACN, had virtually no employee presence in Oregon. A day after a seminal Oregon Supreme Court ruling, ACN found itself held to be an Oregon employer, with the accompanying challenges. Future? Uncertain. A similar case is playing itself out for Kirby of Norwich in Connecticut.

And So, the DSA Initiative…

In July, 2018, the Direct Selling Association announced an industry-wide initiative to update state unemployment legislation to be in sync with federal standards, in place since 1982, which call out direct sellers as independent contractors.

Most observers agree that, for the vast majority of 16 million individual U.S. direct sellers, many with incremental average monthly income, often a $100 or less, the compliance costs and taxes of income tax withholding or unemployment taxes, could be devastating to direct selling companies.

With state challenges, already happening in Oregon and Connecticut, which threaten the viability of the direct selling model, the DSA undertaking could not be more timely. The initiative is the legacy of a multiyear effort in which, says the DSA, 38 states have already adopted a similar umbrella exemption that follows the historic achievement of the DSA in the 1982 amendment of the U.S. Internal Revenue Code (TEFRA… Tax Equity Fairness Responsibility Act) recognizing independent contractor status of direct sellers for federal tax purposes. 26 U.S Code § 3508. The most recent DSA accomplishment: North Carolina, effective July 1, 2018.

And the update initiative is reflective of the forward looking wisdom of the 2018 U.S. Supreme Court Wayfair decision (upholding state sales tax collection on interstate online sellers) that, to paraphrase the Court, it is imperative for courts and legislatures to recognize the changing economic realities of how interstate companies do business in the various states. In light of recent state employment direct selling decisions in Oregon and Connecticut, accommodating changing business model paradigms to economic reality is quite important.

Historic Legislation

Prior to 1982, the direct selling industry suffered a cloud over its head, i.e., the potential that the distributors of  direct selling companies might be classified as employees for federal tax purposes, with all the onerous challenges of withholding, record keeping, payment of employee taxes, etc. Such burdens threatened the economics of the direct selling model. The industry needed relief and certainty for its channel of distribution.

Led by former 40 year DSA President, Neil Offen, in 1982, Congress amended the Internal Revenue Code to recognize “direct sellers” as independent contractors for federal tax purposes. In 1995, Congress, recognizing the industry diversification (or as Wayfair might put it: changing economic reality) into sale of telecom and other services, specifically added “sale of services” to its “sale of products” exemption.

TITLE 26-INTERNAL REVENUE CODE

Subtitle C-Employment Taxes

CHAPTER 25-GENERAL PROVISIONS RELATING TO EMPLOYMENT TAXES

Sec. 3508

For purposes of this title, in the case of services performed as a direct seller—

(1) the individual performing such services shall not be treated as an employee, and

(2) the person for whom such services are performed shall not be treated as an employer.

(b) Definitions

(2) Direct seller

The term “direct seller” means any person if—

(A) such person—

(i) is engaged in the trade or business of selling (or soliciting the sale of) consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis which the Secretary prescribes by regulations, for resale (by the buyer or any other person) in the home or otherwise than in a permanent retail establishment,

(ii) is engaged in the trade or business of selling (or soliciting the sale of) consumer products in the home or otherwise than in a permanent retail establishment, or

(iii) is engaged in the trade or business of the delivering or distribution of newspapers or shopping news (including any services directly related to such trade or business),

(B) substantially all the remuneration (whether or not paid in cash) for the performance of the services described in subparagraph (A) is directly related to sales or other output

(including the performance of services) rather than to the number of hours worked, and (C) the services performed by the person are performed pursuant to a written contract between such person and the person for whom the services are performed and such contract provides that the person will not be treated as an employee with respect to such services for Federal tax purposes.

A Multidimensional Issue

First, it must be recognized that the perennial question of employee vs. independent contractor is not a one dimensional issue. There are many legitimate competing constituencies with a stake: small businesses, entrepreneurs, taxpayers, workers, channels of distribution such as direct selling, etc. The quest for solutions is not a zero sum game.

Said the California Supreme Court in its recent Dynamex decision (4 Cal. 5th 903,  2018) holding package/document delivery drivers to be “employees” rather than “independent contractors,” and sending a shot across the bow against the entire “gig” economy of Ubers, Lyfts, etc., and maybe even precipitating a future second guessing of the existing California statutory exemption for direct selling:

Under both California and federal law, the question whether an individual worker should properly be classified as an employee or, instead, as an independent contractor has considerable significance for workers, businesses, and the public generally. On the one hand, if a worker should properly be classified as an employee, the hiring business bears the responsibility of paying federal Social Security and payroll taxes, unemployment insurance taxes and state employment taxes, providing worker’s compensation insurance, and, most relevant for the present case, complying with numerous state and federal statutes and regulations governing the wages, hours, and working conditions of employees. The worker then obtains the protection of the applicable labor laws and regulations. On the other hand, if a worker should properly be classified as an independent contractor, the business does not bear any of those costs or responsibilities, the worker obtains none of the numerous labor law benefits, and the public may be required under applicable laws to assume additional financial burdens with respect to such workers and their families.

And the Court correctly noted, sometimes the decider is a veritable Solomon who must make difficult and compromising choices that will certainly not please everyone:

The difficulty that courts in all jurisdictions have experienced in devising an acceptable general test or standard that properly distinguishes employees from independent contractors is well documented. As the United States Supreme Court observed in Board v. Hearst Publications (1944) 322 U.S. 111, 121, 64 S. Ct. 851, 88 L. Ed. 1170: “Few problems in the law have given greater variety of application and conflict in results than the cases arising in the borderland between what is clearly an employer-employee relationship and what is clearly one of independent, entrepreneurial dealing.

Dark Clouds for Direct Selling

For better or worse, over the last few decades, various leading direct selling companies have become ensnared in state unemployment cases, finding themselves judicially transformed to leading employers in a state, with all the attendant regulatory and financial burdens.

The thrust of the uncertainty is played out in;

1- States that earlier adopted exemptions, but unfortunately with evolving business models, the statutory exemption might no longer deliver the intended protection.

Example Oregon: A hostile work environment for direct selling.

Oregon is a good example where confusion reigns for direct selling companies in the aftermath of ACN Opportunity, LLC v. Employment Department, 362 Or. 824 (2018).

Actually, many years before Congress sought to protect direct sellers, in 1982, the state of Oregon had already done so in 1977. ORS 657.087(2) provides:

“Employment” does not include service performed by individuals to the extent that the compensation consists of commissions, overrides or a share of the profit realized on orders solicited or sales resulting from the in-person solicitation of orders for and making sales of consumer goods in the home.

However, in ACN Opportunity, LLC vs. Employment Department, the state of Oregon asserted that independent distributors of telecom direct seller, ACN, were in fact employees because, in general, their solicitation was not in the home. The Oregon Supreme Court agreed.

If the court really wanted to effectuate the 1977 intent to protect direct sellers, it could have done so.  It could have interpreted that either:

1. The products/services marketed by ACN distributors were for use “in the home;”

2. Or, that distributors used a business based in their home to market products/services.

3. In fact, the Court was thrown a softball that it completely “whiffed” when it was pointed out that, in 1983, the Oregon legislature updated, for tax purposes, the exemption of a “direct seller” to be consistent with the federal statute 3508. It could have interpreted the definition in the 1977 legislation to be consistent with 1983 tax definitional updates.

  
It did not.

ACN also observes that the Oregon legislature adopted that same language in 1983 in ORS 316.209, which defines “direct seller” for tax purposes. See ORS 316.209(3)(a)(B) (defining a direct seller as a person who is “[e]ngaged in the trade or business of selling, or soliciting the sale of, consumer products in the home or otherwise than in a permanent retail establishment”).

ACN argues that it makes no sense for direct sellers like its IBOs to be treated as employees in some contexts (unemployment taxes) but as exempt from the definition of employment in other contexts (income taxes).

The problem, although the State of Oregon in 1977 intended to protect direct sellers, times change and in 2018 it is rare for a direct seller to solicit/sell in the home. And the long story short message from the Court was, effectively “we don’t care…if the direct selling industry thinks it should still be protected, the legislature is the place to go.”

ACN argues that that result will create an “impractical burden for workers and a regulatory nightmare for the state officials tasked with administering Oregon’s employment laws,” jeopardizing the future viability of the direct selling industry in Oregon. If that is true, then it is a policy issue that ACN can present to the legislature to address. (Footnote 6 to Decision)

Having ruled that time had passed by direct selling for its 1977 “home free” ticket, the Oregon court searched for other traditional bases for exemption, but ruled that ACN came up short. Apart from the policy issue, the Court’s legal analysis was subject to legitimate criticism by legal observers that the Court’s analysis was somewhat myopic and tunnel visioned.

1. Said the Court, the company failed to demonstrate that owners maintained business location separate from the company, as grounds for classifying owners as independent contractors, citing that direct sellers were not paying for rent or repairs on separate business facilities. This misses modern economic reality.

 
Try telling 400,000 U.S. Uber drivers that they “really” don’t have their own business because they don’t pay for rent or repairs on a building separate from Uber.

2. The company failed to demonstrate that owners had a right to hire and fire, as ground for classifying owners as independent contractors rather than employees. Its analysis was totally off-base, citing a non-circumvention/non-solicitation paragraph in ACN policies, common to all direct selling companies that has nothing to do with hiring and firing. Again, try telling 400,000 Uber drivers that they are not really operating their own business because Uber insists that the contracted Uber driver is the only one authorized to drive Uber passengers on his/her account in his/her car.

 
The Chief Justice penned a concurring opinion, agreeing with the decision, but imploring the legislature to bring the tracking of direct seller employee/independent contractor status current with “economic reality.” But, in a closer look might suggest that the concurring opinion might easily be construed as opining that the decision was not “bold” enough in addressing and protecting the modern practices and “economic reality” of direct selling and other businesses:

Of course, 1977 was before cell phones, internet (no Facebook, Craigslist, or eBay), and ubiquitous coffee shops (with wi fi) holding themselves out as remote offices where a seller of goods or services might conduct business online or meet with a customer or client. The requirements the legislature used to identify exempt direct sales in 1977—in-person solicitation and sales “in the home”—may no longer be appropriate to delineate some of the kinds of direct sales that the legislature intended to reach when it enacted that exemption. In any event, different models of direct sales have emerged because of technological, social, and economic changes, while the direct sales statute remains unchanged.

… Again, given new technology, a person’s “business” may exist entirely on his or her laptop, tablet, or smart phone. And individuals may view their “business location” as wherever they and their device are located—the aforementioned coffee shop, the city library, or a shared work space such as WeWork—or, if working at their residence, entirely from a deck chair on the porch. The existing statutes often can be useful in determining when a person is an employee or an independent contractor; however, because of the substantial changes in many sectors of the economy—in how work is done, where, by whom and under what compensation arrangements—the results courts reach in those cases may not be those that the legislature intended.

… Whatever direction such legislative or administrative changes might take, it is apparent that existing statutes and regulations do not address the realities of important parts of today’s work environment. If that legal framework can be updated to align contemporary workplace realities with the state’s policy objectives, individual workers and employers—as well as the regulators and courts who apply the laws—will benefit.

Bottom line: Right or wrong, the high court has spoken; the only remedy is legislative.

2- States that have not adopted Section 3508 type exemptions, applying a common law test and/or statutory test referred to as the three prong ABC test, to which direct selling companies typically struggle to fulfill prong C:

The ABC Test:

A) The worker is free from the employer’s control or direction in performing the work.

B) The work takes place outside the usual course of the business of the company and off the site of the business.

C) Customarily, the worker is engaged in an independent trade, occupation, profession, or business.

Connecticut Is a Second Prime Example of the Need for Legislative Update

In 2018, the Connecticut Supreme Court, noting that the legislature had abandoned use of a favorable common law employment/independent contractor analysis with a statutory ABC Test, held that there was a challenge with Kirby of Norwich and prong C of the ABC test, and therefor its sales representatives, in that case, were now reclassified as employees rather than independent contractors, with all the attendant obligations. Kirby of Norwich v. Administrator, Unemployment Compensation Act, 328 Conn. 38 (2018)

And again, the message to the direct selling industry is a polite “too bad.” Times may be changing and you should look for relief in the legislature and not the courts:

Although we recognize the appeal of the plaintiff’s arguments, we are not persuaded that we should overrule JSF Promotions, Inc. We acknowledge that a narrow interpretation of part C of the ABC test imposes significant burdens on businesses, like the plaintiff…

We will not interpret the ABC test in such a manner.¹⁴ Although we are sympathetic to the plaintiff’s claim that part C creates certain, undesirable practical consequences as applied to the specific facts and circumstances of this case, any decision to alter or modify part C on the basis of a determination that, under such facts and circumstances, its costs outweigh its benefits must be made by the legislature, not this court.¹⁵

Even after acknowledging the DSA’s amicus brief that identify 31 states that have gone so far as to statutorily exempt direct sellers as independent contractors rather than employees, the Connecticut Supreme Court punted to its statutory ABC test. In essence said the Connecticut Court, “good luck…you are on your own.”

The amicus curiae contends that, in states without such statutes, direct sellers have been recognized as independent contractors under the common law “for decades.” The only case addressing that question in Connecticut, however, is Electrolux Corp. v. Danaher, supra, 128 Conn. at 342, 23 A.2d 135, which, as we have explained, was decided before the legislature amended the act to include the ABC test. Other jurisdictions are split on the issue of whether a putative employee must actually be engaged in an independently established occupation to satisfy part C of the ABC test. It may well be that exempting direct sellers from the act, regardless of whether they are actually engaged in an independently established occupation, is the better public policy. As we have indicated, however, that policy judgment is one to be made by the legislature, not us. (emphasis added)

The DSA Initiative Is Timely

Over the decades, the DSA has done a stellar job in protecting the direct selling industry from the challenges of “employer designation.” Its success approaches 40 states. However, the recent adverse cases in Oregon and Connecticut, suggest that its new initiative is timely. In addition the Dynamex California case is a shot across the bow of the “gig” economy, and the direct selling industry should be vigilant that it is not caught in a new legislative Dynamex tsunami. The DSA has indicated that its upcoming initiative will focus on Connecticut, Oregon, and Indiana.

If the industry is looking for simple clarity and guidance, citation to the federal independent contractor tax standard, it is suggested that the model exists in the most recent DSA-sponsored legislation from North Carolina:

North Carolina
H 931/S 717
Effective July, 2018
Employment:
Exclusions. – The term excludes all of the following:
… Service performed by a direct seller, as defined in section 24 3508(b)(2) of the Code.

This approach is clean, direct and sends a clear message to protect the viability of the direct selling model.

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The XV World Congress, co-hosted by the World Federation of Direct Selling Associations and the French DSA will take place in Paris, on 1st to 3rd of October 2017.

France, the 2nd largest direct selling market in Europe, is proud to host the 2017 Congress which will be THE place to be for anyone interested or involved in direct selling. Digital and technical revolutions, new managerial trends, and most recent legal developments impacting our business model will be amongst the many topics debated in this prestigious event having “Own the Future” as theme.

High profile speakers, leaders of our industry, media representatives and academia will be presents in this unforgettable event. Emma Crosby, the well-known BBC journalist, will moderate the plenary sessions, and two keynote speakers will share with us their vision of a fast-moving world in constant transformation. Pascal Lamy, former Director of the World Trade Organization (WTO) will enlighten us on the main political and economic challenges we will face in the coming years. On a totally different topic but equally interesting, Bertrand Piccard, the famous Swiss aeronaut who flew around the world with “Solar Impulse”, the first plane only powered by solar energy, will tell us why protecting our natural environment is so crucial for the future.

Besides a CEO Panel discussion between four key leaders of the direct selling industry, the programme of the Congress features a range of interactive workshops which will address a broad variety of subjects that are crucial for the evolution of our businesses:

Generation Y, or Millennials, as they are also called, grew up with new technologies and bring a whole new vision of the workplace. Direct selling companies follow this trend closely as a growing number of young people are interested by the direct selling work.

The collaborative economy is a fast growing business trend. Its concept based on a “doing more with less” approach is in line with the current economic climate. How does direct selling relate to the collaborative economy? The success of this new peer-to-peer entrepreneurial business trend will push retailers and consumers to reinvent the way of doing business.

The evolution of Consumerism and Distribution. Today’s consumers are more, and often better, informed than the seller due to their habits of researching products and services online before making purchase decisions. How can we adapt our companies’ strategies and our business model to the new purchasing habits initiated by this digital revolution? Will customer loyalty be affected by this evolution, and if so, how?

Social Media & Direct Selling. What is the future of social networks in our industry? What is the contribution of new technologies to sales methods and how can these tools best be used?

The company of the Future. Expert predicts robots will take over 30% of our jobs by 2025 and many blue collar jobs will disappear. Flexibility, balanced and healthier life styles, new schedules at work, all these new trends emerge, supported by new technologies. Our companies must adjust their operations to these new trends. How can they meet this challenge?

Wellness products: Tomorrow’s health & connected tools. In the near future, scientists will be able to analyse everyone’s health with the help of connected tools such as the “health watch”. Will these new connected health tools make significant advances in the future and will they boost direct sales of wellness products that occupy an increasing share in the direct selling sector?

Last but not least, this Congress will be a unique opportunity to meet and network with all the key players of our industry, and to socialize during three exceptional evening events, which include a dinner cruise on the Seine river and an unforgettable gala dinner in the Château de Versailles.

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As we come to the end of another year, I wanted to ask some of the prominent persons of the direct selling community what they see coming in 2017.

“What will be the most important issue, whether it be an opportunity or a threat, in the direct selling industry that will need a closer focus Next Year?” was the question.

You will read in this week’s article, their responses:

Oscar Cano Arias, Managing Director of Direct Selling Europe (DSE):

“Yet again, ethics will be a top issue in the year 2017. Due to the lack of serious and effective self-regulations in the US, the FTC is determined to react. In 2015, the FTC closes down Vemma accused of operating a pyramid scheme. Then, in July 2016,  it adopts a Resolution against Herbalife that could have not been tougher: “Herbalife is going to start operating legitimately, making only truthful claims”… “Herbalife will have to restructure its business so that participants are rewarded for what they sell”… “Herbalife will have to compensate consumers […] as a result of unfair and deceptive practices”. 2017 will see new FTC Guidelines for the US direct selling industry, likely to include main points of the Resolution against Herbalife. Direct Selling Europe (DSE) welcomes the FTC move and invites the FTC to publish its new Guidelines the earliest possible. In the meanwhile, DSE continues working with all stakeholders to make sure that the interests and image of the well reputed and sustainable companies are well preserved.”

Jeff Babener, Legal Counsel at Babener and Associates:

“The thrust of the message of the October 2016 presentation of the FTC Chairwoman, Edith Ramirez was “more FTC regulation is coming… live with it”. On notice going forward: The FTC would reject a legal standard accepted by courts for 40 years, The Amway Safeguards Rule, and proposes guidance to “upend and reject” decades of industry practices that recognize full credit for personal use by distributors, track qualification volume based on wholesale movement of product, allow for monthly sales volume activity qualification based on distributor purchase volume and encourage and reward autoship programs that deliver predictable volumes to distributors. A surprise: The 2016 Presidential election results may usher in an anti-regulatory climate. Sponsor of a bi-partisan anti-pyramid bill to codify recognition of personal use purchases and establish legitimacy standards acceptable to the direct selling industry, is Rep. Marcia Blackburn, member of the Trump transition team and potential Cabinet member. To its surprise, this may be the year of opportunity for the industry to seek refuge from over-regulation, with model legislation that has already been adopted as law in more than a dozen states.”

Jacques Cosnefroy, General Secretary of the France Direct Selling Association (FVD):

“In a world in constant transformation, where the cultural revolutions are exempted from principles of belongings of the majorities, where the faith in the other one has become a variable of adaptation, where the inherent values of our personal construction are no longer considered as sources of reference, where the fear of the next day is a component of the everyday life, where the transparency is not anymore an option, the direct selling industry creates for each and every one a solid bedrock for the future, which could be threatened by a lack of control of our communication. Communication has become an asset and a threat for our companies! An asset because it offers this incomparable universal dimension which connects the people, and a threat because if uncontrolled  it can convey unethical information that could severely damaged the image of the direct selling industry.”

Tamuna Gabilaia, Executive Director and Chief Operating Officer of The World Federation of Direct Selling Associations (WFDSA):

“2016 was a very exciting year for the industry. We saw sustained growth in all regions – global retail sales increased by 7.2% and the industry experienced 7.2% CAGR. We can see that people all over the world are increasingly interested in getting into business for themselves and we anticipate we will continue our growth pattern and will remain a vibrant industry bringing economic empowerment to people all around the globe. However, we still need to tell our story better. We need to align around messaging and a common narrative. There are widespread misperceptions and misunderstandings about direct selling. Explaining who we are and how our businesses work is an area we need to focus on. The WFDSA Messaging Guidebook developed under the WFDSA Advocacy Committee is a tool that will increase public understanding of direct selling and foster greater communication among member companies. Lastly, WFDSA World Congress XV “Rendezvous with the Future” which will be held in October 2017 will be an unforgettable event which will clearly demonstrate the key role our sector plays in the global economy.”

Brent Kugler, Partner at Scheef & Stone, LLP:

“The winds of change continue to grow stronger in the direct sales industry. Companies must be proactive in addressing changes that can now be seen as inevitable, if not mandatory, in light of recent FTC activity and comments from FTC Chairwoman Ramirez following FTC- Herbalife. The “wait and see what others do” approach is no longer a viable option in today’s regulatory climate. Companies must retool their compensation plans and reinvest in technology to track verifiable retail sales to non-distributor customers and calculate commissions and rank advancement based on those sales. Companies should also be wary of promoting “optional” high-priced enrollment bundles, as recent enforcement actions make clear that regulatory authorities are increasingly focused on the percentage of distributors who are unable to earn enough compensation to offset the cost of enrolling with a company.”

Alan Luce, Senior Managing Partner at Strategic Choice Partners:

“Rising to the challenge to provide world class access and service levels to end user customers and salesforce members will be the defining characteristic of successful direct selling companies in the future. Those companies that meet or exceed world class status in access and service will succeed. Those who do not raise their game will wither and fail as both customers and sales people choose to go elsewhere regardless of how good or unique their products and services may be.”

Nick Mallett, Director at Pan European Solutions:

“The Internet has reached the stage where established social media platforms are now less essential to new entrants to networking businesses. There will be increasing instances of ‘private’ networking portals, worldwide. These represent a competitive threat to established network marketing businesses. We see a serious risk from the spread of such platforms in the regulatory sense of their being somehow above the law, through operating in the ‘virtual world’. The viral spread of such businesses is such that they are subject to the laws of the many jurisdictions in which they operate. On the one hand, they may be able to carry on business in multiple jurisdictions despite being closed down in one or more where their operation contravenes local legislation; on the other, a regulatory challenge in one jurisdiction might just cause them to close down altogether. In the meantime, they may have given network marketing such a bad name – perhaps worldwide – that the various regulators introduce a more restrictive regime of control such as to restrict the previously legitimate activities of our established network business clients.  We must be vigilant on behalf of the legitimate industry.”

Katarina Molin, Executive Director of The European Direct Selling Association (Seldia):

“In 2017, we expect the positive growth for direct selling in the European region to continue, which shows that it continues to be a vibrant retail sector and enjoys high consumer trust. From a policy perspective, Seldia will continue its close dialogue with European policymakers on the EU consumer policy. It will be crucial to focus on the proper implementation and enforcement of existing EU legislation, an area that needs more attention in the future. Addressing issues such as non-tariff barriers as well as how to effectively put a stop to the practices of rogue traders must be prioritized. It is also time to step up our efforts to communicate better and more transparently on how the sector works, on what the channel is – and is not. We must also explain that it is not outdated channel of distribution, but on the contrary – very receptive to innovations and technological development. In terms of communication, it will be important to engage in a constructive discussion about segmentation of the people involved in direct selling, to keep a continued focus on ethics, and to collect independently verified data to share externally.”

Gillian Stapleton, Executive Director of the Australia Direct Selling Association (DSA):

“The Entrepreneurial Consumer is both an opportunity and threat. Great service has long defined direct-selling: establishing great rapport in-home, the personal delivery of products and follow up every season. Will that define the industry in the next 5 years? Direct-selling faces the biggest challenge in service it has ever experienced. Next day delivery, packaged in tissue paper, a hand -written note signed by the packer, establishes a good relationship for me with that company. An offer to exchange the goods or have three alternatives shipped at no cost to me and send back what I don’t want. That cements it. I am the Entrepreneurial Consumer and I could be your consultant. Will your company attract me?”

Bobbie Wasserman, Managing Director of Wave2 Alliances:  

“The FTC is now distinguishing between Distributors, personal consumption and customer purchases. Direct selling companies can harness this opportunity to engage and attract more customers – helping build each company’s credibility for its own brand and contribute to enhancing the industry’s credibility. Public relation campaigns focusing on executives’ leadership, premium products/services and entrepreneurial successes can provide a corporate narrative and business tools for Distributors. In the future, the industry can argue the semantics of purchase behavior via legal battles. However, now is the time to impact decisions being made in the ‘court of public opinion’ – those decisions are often made swiftly and without access to an appeal.”

The post In 100 Words: Looking Ahead to 2017 appeared first on The World of Direct Selling.

Guest Post by Jeff Babener
Fact-Checking the FTC’s New Legal Guidance

Sir, you are entitled to your own opinion. You are not entitled to your own facts.
Senator/Ambassador Daniel Moynihan

Shifting Sands

In her first post-FTC v. Herbalife settlement presentation, FTC Chairwoman Edith Ramirez argued that it was time to ratchet up regulation of the direct selling industry, and not a time to “put the brakes” on more regulation of the $36 billion industry and its 20 million strong sales force.

It was clear that the FTC and the direct selling industry are on the same wavelength as to a basic goal that the direct selling industry should prosper through effective and ethical practices. But there remains a respectful divergence on methodology. During her well-articulated speech to the October 2016 DSA Policy conference, she enunciated a wish list for new legal standard that would abandon a 40-year-old gold standard, the “Amway Safeguards Rule” and that would also upend and call into question decades of industry accepted business practices.

The Chairwoman argued for:

1. Abandonment of reliance on the Amway Safeguards Rule as a key test for legitimacy.

2. Effectively creating a new legal standard patterned after those requested by the FTC, in the FTC/Herbalife settlement, that, in reality may upend decades of industry accepted practices and rewrite 40 years of court legal standards.

a) The existing Court standard derives from:

(1) Koscot… Compensation to upline should be based on sales to the “ultimate user”.

(2) Amway… A program that enforces the Amway Safeguards of a retailing mandates to qualify for mlm commissions, a 70% rule that prohibits ordering unless product is sold or used and a reasonable buy back policy for inventory for terminating distributors, if effectively enforced and, in conjunction, with avoidance of inventory loading, is indicative of legitimacy. (Also, Amway did not challenge recognition of distributor personal use purchases as legitimate sales to the “ultimate user”.)

(3) BurnLounge… The primary motivation for distributor purchases should be the purchase of product in reasonable amounts for resale or use as opposed to mere qualification in the program for rewards. A pyramid analysis will be “fact driven”.

b) On the FTC wish list for a new paradigm for legitimacy is:

(1) Abandonment of the reliance on the “Amway standard”.

(2) Redefining Koscot to require compensation to upline to be based on sales to the “non-participant retail customer” rather than the “ultimate user”.

(3) Adopting a FTC/Herbalife settlement “punch list” of mandates in lieu of the factual analysis of “primary motivation”, called for in BurnLounge, including:

a. Only one third MLM compensation to upline should come from personal use by downline distributors, whether or not such purchases are reasonable in quantity for use by the distributor “ultimate user”.
b. Autoship to distributors should be prohibited.
c. Monthly activity volume requirements may not include any purchases by distributors.
d. Tracking of performance activity connected to wholesale purchasing should be banned.

Query, are the premises for justifying the new FTC enforcement position well founded?

Although reasonable minds may differ, history does not necessarily support the Chairwoman’s position. Does it matter? Probably. Why? When a new proposed enforcement policy may so profoundly impact the business and legal landscape, it is worth visiting the issue. Although the “black and white” terms may have been quite acceptable to Herbalife in its own factual circumstances, those stringent mandates are at odds with how the mainstream direct selling industry has operated for many decades and may prove quite disruptive.

At a minimum, the threat of FTC prosecution, pursuant to the new suggested paradigm, has caused major uncertainty in the direct selling community… with attendant options of “fight”, “capitulate” or “find common ground”.

Abandoning Amway

In abandoning support for the Amway Safeguards Standard, Chairwoman Ramirez stated as a premise:

“I want to note that, although this is less common today, in the past some MLMs have sought to rely on policies similar to those referenced in the Commission’s 1979 Amway decision – specifically, the so-called “buy-back,” “70 percent,” and “10 customer” rules – as a sufficient basis for assuming that their product is purchased by real customers to satisfy genuine demand. This reliance is misplaced. The Commission found those policies were effective given the specific facts in Amway, but neither the Commission nor the courts have ever endorsed those policies for the MLM industry at large.”

FTC: Industry reliance on the Amway Safeguards standard is misplaced in that it is not such an important legal precedent to the courts.

Well, this is not quite accurate. Actually, Amway has been an integral part of a “gold standard legal analysis” for 40 years in most leading cases right up to, and including, the most recent case, U.S. Court of Appeals for the Ninth Circuit ruling, FTC v. BurnLounge, Inc., 753 F.3d 878 (9th Cir. 2014).

BurnLounge is typical of reliance on the Amway standard by courts in leading decisions. It is part of a fabric of decisions, such as Koscot, that contribute to the analysis, with the understanding that application of the Amway analysis was fact driven and, important, but not determinative, of the final conclusion.

For instance, the Omnitrition court noted that, in the presence of inventory loading, adherence to the Amway Safeguards did not guarantee “safety”. Similarly, where the evidence was that distributor purchases were primarily motivated by desire to qualify in the plan, no safety existed (BurnLounge). Or where there was no encouragement to mandate retail sales or promote retail sales, safety disappeared (Amway). And if a company failed to enforce the Amway Safeguards standard or fell short of its implementation, no safety existed.

But, nevertheless, courts embraced the Amway Safeguards standard and relied on it, along with the original Koscot mandate that compensation must be tied to sales to the “ultimate consumer” as a base starting point in pyramid cases. And whether or not the FTC future prosecutions move away from pyramid bases to mere allegations of “unfair practices that are likely to cause injury to the public”, it is difficult to imagine courts not returning to fifty years of pyramid case analysis when faced with prosecution of a direct selling company.

In actuality, the BurnLounge court cites Amway multiple times. Here, in the BurnLounge decision, the Court indicates that the Amway precedent is alive and well in current court analysis:

“In contrast, in Amway the FTC found that a MLM business was not an illegal pyramid scheme. In re Amway, 93 F.T.C. at 716-17. Though Amway created incentives for recruitment by requiring participants to purchase inventory from their recruiters, it had rules it effectively enforced that discouraged recruiters from “pushing unrealistically large amounts of inventory onto” recruits. Id. At 716. BurnLounge argues that “the only difference between Amway and BurnLounge is that BurnLounge did not require inventory purchases.” This argument is unpersuasive because BurnLounge required Moguls to purchase a product package to get the chance to earn cash rewards, provided cash rewards for the sale of packages by a Mogul’s recruits, and had no rules promoting retail sales over recruitment.”

And similar analysis and respectful reference to the Amway is to be found, over four decades of legal rulings, cited sometimes in passing, and also frequently in depth, in more than two dozen reported cases.

Creating a New Legitimacy Paradigm

FTC: The Settlement terms in FTC/Herbalife represent a more appropriate approach for the analysis of legitimacy:

Among those terms:

Only one third MLM compensation to upline should come from personal use by downline distributors, whether or not such purchases are reasonable in quantity for use by the distributor “ultimate user”.

In her presentation, notwithstanding almost 50 years of Koscot reference to “ultimate user”, the Chairwoman argues that “ultimate user” must be defined as a “real customer”, and that a “real customer” only “fits the bill” if that customer is a non-participant retail customer. This description represents a “sea change” in what is an “ultimate user”, defies codified recognition of “personal use” in more than a dozen states and goes begging for support in a long lineage of case law.

And the one case cited by the Chairwoman to demote legitimacy of personal use, Omnitrition, was actually a case that highlighted the major abuse of Omnitrition International, in failing the Amway standard, by requiring distributors to engage in “inventory loading”, buying “exorbitant amounts of products” and “thousands of dollars of products” in order to qualify for commissions in the program. Although a reference, in passing, is made to the effect that personal use alone may not satisfy sales to the “ultimate user”, no language in Omnitrition suggests or justifies devaluing “personal use” by two-thirds. Again, the gravamen of abuse in the case was promotion of inventory loading to qualify for commissions, and not “personal use”.

Other than the passing reference in Omnitrition, no court case has ever challenged the “giving of credit” for “personal use in reasonable amounts” as voiding the transaction as a sale to an ultimate user, let alone, limited such credit as drastically as the FTC suggests should be considered as the legal standard. It is true that courts have condemned inventory loading and have examined for factual evidence that purchases were for “qualification” rather than reasonable use. But they have not rendered personal use purchases “second class citizens” in the world of direct selling. In fact, as noted, more than a dozen states have codified the recognition of personal use purchases as legitimate end destination ultimate user purchases, which are due full credit.

The FTC is effectively proposing to reverse the presumption that one buys product to be used, until shown otherwise, into a presumption that if a distributor buys a product, the presumption is that the purchase is for nefarious qualification purposes of recruitment such that the purchase does not deserve full credit in the sales process.

The FTC is seeking to achieve by “guidance” what it could not get a court to accept in BurnLounge. In the BurnLounge appeal, the FTC argued against validation of personal use purchases. However, the FTC position was rejected by the U.S. Court of Appeals for the Ninth Circuit in BurnLounge as, “The FTC counters that “internal sales to other Moguls cannot be sales to ultimate users consistent with Koscot.” Neither of these arguments are supported by the case law.” (page 18 of opinion)

And this “scarlet letter” on personal use, is contrary to the FTC’s own position in its 2004 Advisory Opinion:

Internal Consumption

Much has been made of the personal, or internal, consumption issue in recent years. In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme, The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture.

It is important to distinguish an illegal pyramid scheme from a legitimate buyers club. A buyers club confers the right to purchase goods and services at a discount. If a buyers club is organized as a multi-level reward system, the purchase of goods and services by one’s downline could defray the cost of one’s own purchases (i.e., the greater the downline purchases, the greater the volume discounts that the club receives from its suppliers, the greater the discount that can be apportioned to participants through the multi-level system). The purchase of goods and services within such a system can, therefore, be distinguished from a pyramid scheme on two grounds. First, purchases by the club’s members can actually reduce costs for everyone (the goal of the club in the first place). Second, the purchase of goods and services is not merely incidental to the right to participate in a money-making venture, but rather the very reason participants join the program. Therefore, the plan does not simply transfer money from winners to losers, leaving the majority of participants with financial losses.

And even the FTC’s primary expert economist in many of its pyramid prosecutions, including BurnLounge, Dr. Peter Vander Nat, has shrugged off the need to “penalize” or automatically stigmatize a personal purchase sale. Below is an excerpt from Dr. Vander Nat’s deposition in the BurnLounge case:

Vander Nat BurnLounge deposition on issue of internal consumption (November 12, 2008):

218-219

Q. Under the heading internal consumption, the second sentence:  “In fact the amount of internal consumption in any multilevel compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme.”  Do you agree with that sentence?   

 A. I think so. Yes. I think that that is consistent with what I said this morning on this point.     

 Q. What if the sentence read a little differently? What if the sentence read the amount of internal consumption in any multilevel compensation business is not a factor in the analysis of the FTC’s determination of whether or not a plan is a pyramid? Would you still agree with the sentence?     

 A. I think I would. I said this morning, when I think back on this testimony, that I expect there to be internal consumption in the organization and the fact that it’s there is itself not determinative one way or another. I think I said that

 220

Q. And that is the sales that you consider in your analysis. And you exclude from that sales within the distribution network.     

 A. I said I exclude from it those purchases that people are required to make in order to enter the business opportunity. That’s exactly what I said about it.      

 Q. And isn’t that at least some of what internal consumption is?

 A. No. I don’t think that that’s what’s being referred to here. I mean, normally when you’re talking about internal consumption, if you just use the word generally, it means people wanting to use the product for their own use just because they like the product. I mean, that’s normally what the phrase refers to. And I simply made this other qualifier about it.  Whatever you are required to purchase of consumable goods in order to enter the business opportunity, I count that as part of your business investment because you’re required to buy it as part of the investment

 228

 Q. Do you have any opinion as to a percentage of sales within a distribution network of a company that would not make it more likely that there be a finding of pyramid?

 A. No.  As I’ve said, internal consumption doesn’t count one way or another with me. I’ve given all the factors that I use. Internal consumption is itself not one of the factors.

And notwithstanding his declarations in many FTC pyramid prosecutions that “retail sales” are the dividing line, Dr. Vander Nat cuts to the chase in his BurnLounge deposition that, in fact, the acid test is whether or not distributors are making payments as a gateway to the business opportunity, i.e. purchases incidental to the business opportunity. In this regard, he is on the same wavelength as both the case law, 2004 FTC Advisory opinion and the position of the direct selling industry.

Page 130 of the Vander Nat BurnLounge deposition:

I believe in the Mogul program people are buying the product for the sake of a business opportunity. That’s why they’re buying it.  So the VIP package has a certain business value which is distinct from the exclusive package as a business value which is again distinguished from the basic package as a business value. I am basing the analysis on this basic premise in the Mogul program people are buying into a business opportunity. They’re paying what in essence is a business investment for them.  The fact that it has some consumable items in it, that may be beneficial to them, but they’re buying it for the sake of the business opportunity.Therefore the issue of whether they’re harmed is for me they went into a business in the hopes of making money but in fact they have a business loss.  So for me the business loss is the harm.

The Other New Legitimacy Rules on the FTC Horizon

How do those other new mandates, that upend decades of industry practice, fit into the legal landscape:

* Autoship to distributors should be prohibited.
* Monthly activity volume requirements may not include any purchases by distributors.
* Tracking of performance activity connected to wholesale purchasing should be banned.

Actually, in 50 years of case authority on pyramid schemes, the courts have condemned inventory loading, earnings misrepresentations, lack of incentives on retailing, absence of return policies, programs that inadequately enforce the Amway Rules or pay out rewards on sales to those who are not what Koscot referenced as “ultimate users”.

But in the presence of adequate safeguards under Koscot, Amway or BurnLounge, no court has insisted on the type of restrictions called for by the FTC. If the FTC has the muscle to impose such marketing prohibitions, it will likely be due to “extra judicial” factors rather than reliance on the existing legal standards of 50 years of case authority.

The FTC will also need to buck an opposite trend in more than a dozen states and a proposed congressional action, H.R.5230, a bi-partisan anti-pyramid bill to codify recognition of personal use purchases and establish legitimacy standards acceptable to the direct selling industry. The bill is sponsored by Marcia Blackburn, member of the Presidential-Elect Transition Team and other bi-partisan sponsors in a post 2016 election environment that is decidedly “anti-regulatory”, where one incoming cabinet member is a family owner of Amway, where a President-Elect was formerly the branded spokesperson for multiple direct selling companies and where one prominent congressional committee chair was a previously 10-year employee of a leading direct selling company.

And so, the question: Ratchet up the regulation or ratchet down the regulation? Only time will tell. Better yet… this is a good time for the FTC and direct selling industry to find common ground and workable rules that will allow the industry to prosper in an effective and ethical manner.

…..

Please click here to read FTC Chairwoman’s speech at the US Direct Selling Association’s Business & Policy Conference.

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