Tuesday, January 15, 2013

More Analysis of Herbalife's OFFICIAL Rebuttal of Ackman Slam

Português do Brasil: Representação gráfica do ...
Português do Brasil: Representação gráfica do marketing multinível (Photo credit: Wikipedia)

In response to Ackman's December 2012 accusation that Herbalife is really a pyramid scheme, Herbalife fired back a full 100+ page rebuttal on January 10th, 2013.

I've previously commented on a summary by someone else via Seeking Alpha. I've now located the original 100+ page presentation via BusinessInsider, and here are some additional reactions.

This "consumer survey" done by Lieberman Associates was a little vague, but you need to read between the lines:

In other words, the survey is not actual consumers of Herbalife products, but rather, random people surfing the web. They are surveyed for their age, gender, income, region, and ethnicity. Those who don't supply enough details are dumped. Then random number of people are selected so that the quota to match the US census was found until they reached 2000 total, then those people's answers are tabulated.

Of the 2000 people surveyed, 72% has heard of Herbalife (positive or negative, we have no idea)

Of the 2000 people surveyed, 5% (100) have actually bought Herbalife product in last 90 days (could be anywhere from a single shake to distributor).

Of that 100, 67% (67) will definitely buy again.

That's 1933 that would not definitely buy.

How many "active distributors" are there? According to Herbalife, 480000.  (Page 41, in the footnotes. Is that in the US, or worldwide? Probably US, as it's US households they compared to)

According to Herbalife's 2011 annual report (PDF file), they have 2.7 Million Distributors world-wide. However, I cannot find a number for US distributors, or how many of these 2.7 million distributors are considered "active".

So what exactly does this mean? Good question. We can't figure out how many TOTAL distributors are there in the US (vs. 480000 "active" distributors in the US), nor can we find a number for total "active distributors" in the World.

What we *do* know is Herbalife claims 3.9 Billion sales (globally)

That's less than $1500 SALES per distributor, if you count 2.7 million distributors.

But how many in the US? 

31% of all US orders are shipped directly to customers (not distributors). Which would indicate 69% of orders are shipped to distributors.

1.4 million US orders are shipped to customers in 2012. That would suggest 3.12 million orders shipped to distributors.

Average order is 260 points, assuming $1 = 1 point, that's $260. So total US sales is, uh... 1.17 billion. Which seems to fit the numbers, as US is the most "mature of markets".

1.17 billion / 480000 "active distributors" comes out to be... less than 2500 per distributor.


According to Herbalife, 73% of distributors joined for the discount.

Which means 27% joined to make money. Right? However, take this into account:

So what is the definition of "sales leaders" from Herbalife? Good question. It's not explained.

So where did this "less than 63%" thing came from? No idea. It was just thrown out there with NO explanation whatsoever.

Yes, Ackman did assume ALL distributors joined to make money. In Ackman's mind, you only become a distributor to make money. If you love the product, just buy it from a distributor, no need to become one yourself.

But Herbalife's rebuttal doesn't really explain anything. Their rebuttal is "we don't count it that way". But what makes *their* way more right than Ackman's, other than that "survey" of FORMER distributors that claimed former distributors DID NOT join to make money? And we are assuming that Lieberman's questions (survey  of 408 former distributors commissioned by Herbalife) were not "leading" or phrased with a bias in any way.

Which goes back to the philosophical question... If a company only sells about 20+% of their products via their sales force to outside, and the rest are consumed by its sales force, is it really a MLM?
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