A (MLM) Skeptic: MLM Dictionary: Autoship

Sunday, January 5, 2014

MLM Dictionary: Autoship

Previously a commenter asked me if I can put up a glossary page where some of the terms I often use are defined. I haven't thought about it for a while, as at the time adding to a page over and over sounds a bit... boring. Then I realized... why not define the term as a blog post, and link to relevant articles if I already discussed it?

Meet the new segment: MLM Dictionary

Today's term:

Autoship (n)

Autoship refers to the periodic "subscription" of products shipped from company to you and your account is automatically debited. The amount is usually just sufficient to meet the minimum sales quota to stay qualified for certain amount of sales commission or rank level.

DSA code of ethics require DSA members to honor cancellation of autoship as well as accept returns of merchandise with a clearly defined return policy (usually it's 90% of price paid within 6 months).

Usage: New affiliates are highly encouraged to enroll in "fast start", which includes autoship of 1 unit of product XYZ every month, thus qualifying you for rank of "supervisor" immediately.

Analysis: Autoship is a somewhat controversial practice that has attracted attention of critics.

Proponents of autoship, usually from inside network marketing, claim that autoship is no different from a subscription service, long used in magazines and other periodicals, and when properly used not only protects oneself from forgetting to order new stock ("Oh no, I only ordered 9 this month when I needed 10 to stay qualified!"), but also ensures a steady customer order volume.

Critics of autoship, usually from outside network marketing, point out that autoship, when delivered to the affiliate instead of to "ultimate consumers", does not prove existence of retail sale, which is the only real difference between network marketing and pyramid scheme. Basically, affiliates are selling to themselves to keep up appearances.

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MLM Skeptic says... both sides have a point, the problem is... is there actual RETAIL going on?

If autoship is used on actual ultimate consumers, i.e. if you sign up as a "preferred customer", then the practice is without controversy. For example... You enjoy 15% off our regular retail price, and you have the convenience of having the product delivered to your home every month! Cancel at any time!

The problem is when autoship is used on the affiliates THEMSELVES, thus forcing us to ask the question... Is there really any sales going on? How is the affiliate going to comply with the "Ten Customer Rule", part of Amway Safeguard rules that separated MLM from pyramid scheme?

One of the answers offered as "but the affiliate can consume the product him/herself!" (i.e. self-consumption) Ah, but you see, this is non-compliant on two possible fronts...

1) It does not satisfy the Ten Customer Rule, as above, as self-consumption is only sales to ONE customer

2) It does not satisfy the Omnitrition case, where it's clearly stated that sales to someone WITHIN the compensation plan CANNOT be counted as "retail sales" to satisfy the Koscot Test.

An affiliate is within the compensation plan (gets compensated for sales), while a preferred customer is outside the comp plan.

Best Case: customers use autoship to keep themselves supplied with the stuff. (So why would affiliate need autoship?)

Worst Case: affiliates use autoship, and recruit even more affiliates using autoship, thus resulting in a pyramid scheme, with little to no actual retail to actual consumers going on.

The truth is somewhere between the two, and will vary heavily from company to company. Unfortunately, you cannot discern the truth from company financials or presentations. You can only discover where along this spectrum (legal to illegal) the company is by shadowing a rep for a week or more, through his reorder period, and see whether s/he actually makes retail sales, and does the company actually TRACK retail sales.

MLM skeptic notes that most major MLM companies do NOT track retail sales, but instead, pay the affiliates on what they ORDERED (and autoshipped), not what they sold.