Quatloos! • View topic - Herbalife Convicted For Pyramid Selling In Belgium
The most amusing part of this whole sordid saga is Clements rant about it:Lenny is obviously confused at to how a customer should be defined. A customer / end user buys a product for personal use and not because it is required to participate in the pyramid pay scheme.
MARKETWAVE ALERT #202
January 26th, 2012
MarketWave, Inc. Len Clements
Belgium on Verge of Banning M.L.M.?
Herbalife Case Reveals Confusion over "Customer"
2012 Favorite Company Vote Underway
Belgium Court Rules Herbalife an Illegal Pyramid Scheme
Back in 2004 a not-for-profit consumer advocacy organization called Test-Aankoop (Test-Purchase) filed a complaint with Belgium's Commercial Court charging that Herbalife violated aspects of their Market Practices Act. The court has finally ruled on the matter, saying Herbalife was unable to show a significant number of retail customers beyond their distributor base, thus "a consumer or a business stands to make money which is more likely the result of introducing new consumers or businesses into the scheme than from the sale or use of products."
Herbalife was also fined 5,000 euro ($6,550) for "each breach" that occurs two months after the date of the ruling (after mid-February).
Herbalife is challenging the ruling. The company currently has about 2.5 million distributors doing business in 79 countries.
The court's decision can be read here:
Herbalife - Belgian Court Decision
Herbalife claims that in spite of Belgium only accounting for 0.65% of total revenue, they are confident they can show the decision is based on "factual errors" and "misinterpretations of the law", and are committed to the Belgium market. Herbalife's response to the charges can be found here:
Herbalife statement regarding Belgian Commercial Court Ruling - MarketWatch
If the court's ruling in this case sticks it will create a devastating legal precedent in Belgium that will all but outlaw M.L.M. in that country (making it the third such country - the bathwater soaked baby was also thrown out in China and Nepal).
Of course, a few of the higher profile anti-MLM critics are exploiting this decision, claiming this is what they've been trying to convince U.S. authorities of all along. That is, M.L.M. companies are all pyramid schemes because most of the product is purchased and consumed by the reps themselves, not by non-distributor retail customers. There are two things wrong with that. First, Belgium law, as it pertains to pyramid schemes, is not only much different than U.S. law, or any other country's laws for that matter, it is unreasonable and draconian. Here's a sample, taken directly from the court's decision:
Market Practices Act: Article 91, 14
"The following misleading business practices are under all circumstances considered to be dishonest: setting up, managing, promoting a pyramid scheme where the consumers have, upon payment, a chance to receive income from, either recruiting new consumers in the system or from the sale or the use of products."
A chance to receive income from the sale of the product! That makes it a pyramid scheme? Another section of the Act (Article 99) says the same thing. So if a distributor can't even make money by selling the product, it begs the question, why is any M.L.M. company even thinking about doing business in Belgium? But even if this is merely a misinterpretation of the law, and sales to end user customers are legitimizing, the Belgium courts have also declared distributors are not customers. Let's root for Herbalife to set the court straight.
There's good evidence that, in fact, the court has been mislead by the plaintiffs (who I suspect are themselves being mislead by certain anti-M.L.M. critics who make a living misleading plaintiffs, government agencies and courts about our industry). For example, Test-Aankoop ironically uses Amway's "70% Rule" as a measure of legitimacy, but then describes it as a requirement to sell 70% of one's inventory to non-distributor "end users". This is far removed from what Amway's "70% Rule" actually means. It simply restricts a rep from buying more inventory until at least 70% of all previous orders have been sold or consumed - to or by anyone. It's just a rule to prevent front loading and stockpiling of products, as most countries, including the U.S., completely understand.
So no, this action is not even remotely indicative of how the laws may be applied in the United States, or any other part of the world. In fact, most countries, and our own FTC, rightfully and fully recognize that distributors can be, and often are, customers. Let's do the thinking that the Belgium court obviously hasn't done. If someone is a regular customer of an M.L.M. product, because they actually like the product, wouldn't it make sense that they might want to sign up as a distributor to get the product at a lower price, and maybe make a few bucks by referring others to a product they're already inclined to recommend? Let's think some more. If you were looking to join an M.L.M. program wouldn't it make sense that you'd narrow down the several hundred choices to the few who have products you are actually interested in using? Perhaps even sampled and benefited from? Does it make any sense at all that you'd choose to become a distributor for a product that you haven't even tried, let alone tested and didn't like? I'm not suggesting some distributors don't make such nonsensical decisions. Some do. But the large majority don't. They choose to enroll as reps for, and get on autoship to buy, products they actually like and want! How is that not a customer?
Also, Test-Aankoop, and the court, key in on the fact that in Herbalife, like virtually all M.L.M. companies, a rep can make more money by enrolling other reps and building a downline sales organization than from their own product sales. But, doesn't this also describe virtually all companies! Doesn't Century21 make more money by recruiting more real estate agents? Doesn't Coca-Cola make more money by getting their product into more stores? When Ray Croc decided he could make more money by getting a bunch of
other people to sell his hamburgers and taking a small cut of their sales than he could by selling his own hamburgers, his McDonalds Corporation become one of the most admired success stories in American history. But if an Herbalife distributor applies the identical strategy - I can make more money by getting others to sell Herbalife products and taking a small cut of their sales than I could by retailing my own Herbalife products - they become a "predatory" operation promoting an illegal scheme.
Well, at least in Belgium. At least for now.
His comparison to franchises like McDlonald's is glaringly ignorant. Those that purchase a franchise have a restaurant that sells only to customers. They do not endlessly recruit other franchisees into the mix. Perhaps Lenny would like to give us the customer to franchisee ratio for McDonald's. I would bet there is more than a fraction of a customer or a handful of customers per franchisee.
Kudos to Belgium for chasing these MLM varmits out!