Reading the AdvoCare FTC Ruling Tea Leaves
As was announced on October 2, AdvoCare and its former chief executive officer agreed to pay $150 million and be banned from the multi-level marketing business to resolve Federal Trade Commission charges that the company operated an illegal pyramid scheme that deceived consumers into believing they could earn significant income as “distributors” of its health and wellness products.
Two top promoters also settled charges that they misled consumers about their income potential, agreeing to a multi-level marketing ban and a judgment of $4 million that will be suspended when they surrender substantial assets.
What is the significance of the FTC’s ruling mean to our channel going forward?
Direct Selling Companies Have Been Put on Notice
As executives, you have a responsibility to all of your stakeholders, owners, employees distributors, and customers to revisit your compensation plan to make sure it is encouraging the right behaviors and not causing harm to the consumer.
As executives, you have a responsibility to all of your stakeholders, owners, employees distributors, and customers to revisit your compensation plan to make sure it is encouraging the right behaviors and not causing harm to the consumer.
This means looking at the purchase requirements for paying out bonuses, maintaining certain ranks or commissions, along with any sponsoring fees, even hidden fees. For example, your representative signs up a person for $500 product pack, but you they are not getting paid until they get three customers. This is just a way of justifying paying someone a recruiting fee.
For years, the FTC has made their dislike of volume requirements known. Former FTC Commissioner Edith Ramirez in her keynote remarks at the DSA Business & Policy Conference in September of 2016 said the following:
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.
If your company is skirting any number of these compensation plan requirements, be aware because you have just been put on notice. This behavior will not fly with the FTC going forward.
Yes, you can take the risk and fly under the radar for the next five years, but is it worth losing your company over?
The Ball Is in Our Channel’s Court
If you are a multi-national company, and a majority of your revenue is coming from greater Asia (which is nearly all multi-national companies) it might be worth the time to start having discussions of having two compensation plans: one domestic and one international for those countries in greater Asia—Philippines, Taiwan, Hong Kong—who are all independently regulated.
The sins of the past are coming back to bite everyone.
Given the FTC’s actions against AdvoCare, we wouldn’t be surprised if a few multi-national companies follow AdvoCare and Perfectly Posh’s lead by dropping the multi-level model and the volume and purchasing requirements that go along with it and announce they are going to a multi-tier affiliate or single level plan in the United States. They may feel this is a safer hedge to holding on to their billion-dollar businesses outside the United States. For companies whose domestic business represents 75 percent or more of their overall revenue won’t have the same luxury.
Take Action Now
Direct selling companies have only themselves to blame since they have traditionally organized their compensation plans to reward these top earners to coast on the work their downline does. It’s time to start rewarding activity that directly brings in new customers and representatives. This strategy not only will energize your ground-level representatives, it should motivate those veteran team members to re-engage in business building.
We must find new tactics, set new expectations and rephrase our recruiting message because times have changed. The “You, too, can have the house, the boat, and retire a millionaire in five years!” hard sell our industry has been known for has done us more harm than good. The sins of the past are coming back to bite everyone.
Are there more companies being looked under the FTC microscope? Only time will tell.
