Friday, December 12, 2014

Bad Argument: Distributors can't lose money if they enjoy the product (WTF?!)

One of the contentious issues between MLM proponents and critics is the definition of a "customer" vs. a "distributor".

Logically, the differences are crystal clear:

Customer spends money, buys stuff (from distributors).

Distributor earns money, sells stuff (to customers).

However, in the MLM world, things are never so clear. And one of the arguments proponents often use is "if the distributor enjoys the product for internal consumption, they could not be considered having suffered financial loss".

Or as someone argued on reddit /r/vemma...
Because even those "poor souls" who join the business but don't earn commissions still aren't losing money, just like when you buy anything else in life that you ultimately consume or use you don't think of it as losing money. 
This is bogus logic. Can you imagine a bar owner drank all his own stock of liquor, and need to close the bar, and then tell himself, "I didn't really lose money because I got drunk"?

There's another reason though... consuming the stock prevents distributor from getting a refund.

MLM pioneer and proponent Richard Bliss Brooke wrote on his blog (I bolded two sentences):
So, although the failure rate here is all over the map, the question to ask again is what are the consequences of failure? Did the participant lose money? Perhaps. But the safety nets are generous here. Every Direct Selling Association member company is required to repurchase any product or marketing materials that are unopened and current stock. Contrary to public perception, it is hard to actually lose money at this level.
You need to still have the product if you want a refund. If you consume/use the products for yourself you can't get a refund. Because you're now a customer, not a distributor. (And distributors have less rights than a customer)

So not only did the distributor wasted time and effort on this venture, if s/he used up the products s/he can't even get a refund, yet they will be ridiculed for "you obviously not worked hard enough" or "you didn't really lose money if you liked the product" by their "peers".

However, there's a deeper issue here... which was the issue we discussed at the beginning... what's a distributor, and what's a customer?

In Herbalife, according to Herbalife's own presentation for 2012 data (as rebuttal to Bill Ackman's accusations), majority of their distributor did NOT intend to make money:

So are they customers, or distributors? Even Herbalife itself was confused that they had to officially change the name of those distributors who don't resell to "members".

Yet the issue remains. Customer spend money. Distributors earn money. So when a distributor spent money is he still a distributor? Thus is the question of "internal consumption". After all, if you consume the stock (you were supposed to resell), that's internal consumption.

The company doesn't care whether distributor resells the product or not because distributor already purchased the stock from the company. See Herbalife's Marketing Plan (bold emphasis added by me):
As you order products, you accumulate credit for the
amount of Volume Points
that are applicable to the products
ordered. These accumulated Volume Points become your
sales production and are used for purposes of qualifications
and benefits. 
--cited from 

In other words, Herbalife is basing your compensation based on what you BOUGHT ("... as you order products...")   and what other people bought off you. And if you didn't sell anything, then you are the customer.


You joined MLM to EARN money, not to spend money (at least without reasonable expectations of return). If you drank (or otherwise consumed) your stock, you're literally pissing it all away as you could have obtained a refund. Anyone advocating "you could not have lost $$$ if you enjoyed the product" is in serious self-denial or downright delusional.


  1. Active distributors will talk about how they like the MLM product and that they believe it is good value. Funny how that opinion changes when they are no longer chasing the dream of MLM residual income and walking the beaches of the world. People like IBOFB believe that MLM is made up of many people who quit being distributors yet continue to buy products. I would say that the attrition rates and other stats suggest that most people quit buying products once they stop building their MLM business.

    1. They have to engage in a bit of self-deception because they've been incentivized to do so. They benefit from selling the stuff, and they have to like it to sell it (as if they mean it).

      It's people who's still in and struggling in MLM that's likely buying most of the products, not the people who already quit. The strugglers got autoship, and was convinced by their upline, the recruiter-type, that if they recruit, they can be just like their upline. If they quit for real, they are replaced by noobs who got the same speech. That's the "churn" that Taylor and Fitzpatrick talk about.

    2. Indeed... since MLM sales forces are not made up of mercenaries but ordinary yokels who wouldn't dare break the bonds of trust with their sales leads (friends and family), it is paramount to convince the yokels that the products they are selling are really super-amazing, so when they tout the product it is at least sincere. I get into this in my epic MLM rant:

  2. In my experience of Network Marketing, as you are introduced to mlm you have the option to become an active distributor( business owner) or a customer. It is clearly explained to you, and so is the business, you are under no obligation to buy more or keep an autoship if you dont want to, it is only people's unrealistic expectations that keep them hoping to succeed when they know that they have not put in the required work. No one should be able to convince you to spend money you do not have, on products you do not want, on a business you know that you do not work at, that's why in most cases you have to be over 18 to join. There is also a 1 in a million chance of winning the Lottery, yet people still buy the tickets with their last penny, you actually have a better chance at making money in Network Marketing than winning the Lottery!

    1. Interesting perspective, but flawed as you're comparing apples to oranges.

      Buying a lottery ticket takes a minute at a store, not hours, days, weeks or months trying to sell stuff and/or attend MLM group meetings and whatnot. Not to mention chance of winning lottery is random, whereas supposedly success in MLM is dependent on one's effort.

      Thus, the two are not comparable at all.

  3. 90% of people who pass their test to sell real estate never sell one house