Getting Skeptical About Woo Juice Part 2-MLM and the business of deception.
Tahitian Noni International is a large Multi Level Marketing(MLM) company based out of Provo, Utah. I’m not going to claim that MLM companies are a scam in and of themselves- though there are several practices common to almost all MLM companies that make it virtually impossible to build a successful business as an independent MLM contractor.1 There are some that are better than others. Certainly anecdotally I can attest- based on my monthly credit card bill- that there is at least one company in Canada that sells enough retail product to my wife to put a quiverfull through college. I don’t begrudge the MLM structure, if set up correctly, it can give some motivated people a decent supplement to their income. The problem is that many Multi-Level Marketing companies have a structure that dooms the vast majority of their consultants to almost certain failure- regardless of how they market the “opportunity” as being otherwise.2
Contrary to what some MLM advocates will tell you- there are serious differences between the structure of their business model and other business models. I have read more than once over the last few days- leading up to this post on TNI- that “every business is a MLM business”.3 This is absurd. There are certain attributes that define an MLM company, and many of them are entirely unique to the MLM business model. Before I go on to discuss Noni, and TNI specifically, I would like to first explain the differences between Multi-Level Marketing and traditionally based business models. This is important when discussing the impressive claims made by TNI and their independent contractors- and will help people interested in TNI and other MLM businesses to weigh the facts against the hype.
- MLM companies have a relatively small infrastructure of corporate employees. There are hundreds or thousands (or even hundreds of thousands) of independent contractors who are expected to sell the end product.
- Perhaps the single most definitive characteristic is that MLM companies depend on their independent contractors to expand their distribution network. I’m not aware of many non-MLM models that compensate an independent contractor for recruiting people to do the exact same job.
- MLM companies create a pay structure that rewards both end-user sales as well as the end-user sales of the contractors who have been recruited by the independent contractor.
- MLM’s almost always requires the contractor to purchase the product with their own money and rarely to never compensate the contractor for surplus product.
- Many MLM’s require the prospective contractor to attend or complete a training program that is paid for by the contractor, is non refundable, and required regardless of previous education.
- There is no guarantee of success or income. Contractors are compensated by commission only, and the company at no time assumes any risk in either recruiting, training, or compensating employees.
Here is a list, from a well respected site on MLM, of the five criteria that make an MLM unique (the first four criteria are shared by every business that is colloquially called a “Pyramid Scheme” ):
1. Recruiting of participants is unlimited in an endless chain of empowered and motivated recruiters recruiting recruiters – ad infinitum.
2. Advancement in a hierarchy of multiple levels of “distributors” is achieved by recruitment, rather than by appointment.
3.”Pay to play” requirements are satisfied by ongoing “incentivized purchases**.”
4. Company payout per sale for the person actually selling the product is less than the total of all upline participants , creating inadequate incentive to retail and excessive incentive to recruit – and an extreme concentration of income at the top.
5. The company pays commissions and/or bonuses to more than five levels of “distributors.”
** purchase requirements may be disguised investments in a product-based pyramid scheme, or a clever system of laundering pyramid investments in the form of product purchases. Few make sufficient commissions to cover the cost of these expenses, to say nothing of significant operating expenses necessary to conduct a successful recruitment campaign.
Each of these criterion-save criteria #1- in and of themselves, are not poor business practice. There is nothing by nature inherently wrong with MLM businesses, other than the fact that they assume little to no risk in recruiting or maintaining their human capital. That is an enviable position for most corporations- the risk is almost entirely borne by contractors and not by the corporation proper. This important fact leads to the number one thing anybody involved in an MLM structure should know: It makes no difference how successful the parent company is. You could be working for a multi-billion dollar MLM- the largest MLM in the world even- and you will still most likely fail. You will pack up your business having lost more than you made- or not made enough to survive- with almost 100% certainty. Am I exaggerating? Let me say it again boldly with a link to a very plain explanation of your odds of success:
It makes no difference how successful the parent company is. You could be working for a multi-billion dollar MLM- the largest MLM in the world even- and you will still most likely fail. You will pack up your business having lost more than you made- or not made enough to survive- with almost 100% certainty.
Extensive research shows that the odds of making money in Multi-Level Marketing are worse than winning money gambling in Las Vegas.4 99% of recruits fail. That figure is actually cautiously optimistic, and people who work with MLM contractors- people with a vested interest in making those odds seem better- admit similar statistics.5
These statistics certainly point to the conclusion that the overall success of the parent company- and the anecdotal successes of the 1% of contractors who are financially rewarded for their efforts- are neither indicative of the quality of the product offered or the likelihood of personal success as a contractor. Virtually every MLM company can boast tidy profits. Every MLM can point to people who have made a boatload of money as independent contractors. Neither of these statistics mean anything.
It should be noted that any company that can boast billions of dollars in gross sales ought to have a better than 50% success rate for independent distributors- otherwise the odds that gross sales lead to a better income opportunity are moot.
It should also bear reminding that the bulk of the money that MLMs claim as income is borne by the investment of thousands of failed distributors and not from the mass market success of their product.6 If it is true that thousands of downline distributors drop out every year, then certainly the money they invested in product and marketing tools is counted as income by the parent company. I don’t think anyone should be impressed with 2 billion dollars in gross sales if the bulk of the product is consumed or stockpiled by the distributor- and this seems to be overwhelmingly the case with MLM products.
More to the point, what is most important to the success of a contractor, and what is the best guarantee of potential success, is the statistics of Point Of Sale (POS) transactions- and this is what is so worrisome for people interested in MLM opportunities. My background in commissioned sales and understanding of economics tells me that their will be a correlation between POS transactions and the retention rate of distributors in a commissioned workplace. It stands to reason that a product that is easy to sell will have a better than average amount of successful distributors, while a product that is difficult to sell will have a high turnover rate among distributors. This is true regardless of the gross sales of the parent company- since they count their sales to distributors as “gross sales” when the product has yet to actually be sold.
Any person considering a MLM business opportunity ought to consider the claims of gross sales of the company against the actual number of people they know to be currently using the product who are not distributors themselves.
It stands to reason that your income potential is ultimately tied to the end-user demand for the product. If the only people who are consuming the product are themselves distributors, there is zero demand for the product, and you will find that creating stable downlines is impossible- especially if monthly minimum orders and expeses exceed the normal consumption habits of a single family- a situation all too common in MLM contracts.7 In order to be successful as an MLM distributor the end product must be highly liquid (It must be quite easy to sell at or near the cost of purchase- preferably at the suggested premium). Even if you are successful at creating downlines, you will constantly be facing an uphill battle for downline stability if your team is unable to market the hard product at a net gain.
You might honestly believe that you can ” be the 1%”, but what are the odds that a good portion of your downline will, too?
Most if not all MLM products are not positioned competitively in the open market. This stands to reason- as a potential infinite upline of commissioned distributors means that the distribution costs are potentially infinite. As such, many Multi-Level Marketing products are sold at a large premium compared to their mass market competition.8
Many MLM companies, including TNI, claim that their products are superior in quality to their mass market alternatives. They claim to have “patented technology” or “scientific evaluations” that prove that their product outperforms all competitors at a given function. In the case of TNI, they specifically claim that they hold “52 scientifically validated patents”9– which is to say that they hold patents for processes that do what they say. This does not indicate that they do better than other processes- only that they are effective. A scientifically vindicated patent merely means that, for example, if the patent is for increasing the shelf-life of Noni juice- then the technology increases the shelf-life of Noni juice. Not that it does so better than other methods- merely that it does what it says. Similarly, the scientific evaluations usually do not make any mention of a comparison to other products- but merely speak to the specific effectiveness of their product. TNI claims to “back their claims with science”, which in a roundabout way they do- though the results are ambiguous, not very impressive, and in some cases founded on unscientific protocols.10 In a bubble, the findings seem impressive- when viewed beside other studies, they seem positively boring. See my post on Tahitian Noni for examples.
This is not to say that the products marketed by Multi-Level Marketing companies are useless. Many are beneficial, do some of what they say they do, and are quality products. When I can purchase a virtually identical product at a fraction of the price- quality is not the issue. Value is. I see no reason to believe that most MLM products are a good value next to their mass market alternatives- and no reason to believe that they ought to be.
Value statements ought to be based on hard value to the end user. Claims like “Has a two year shelf life” mean nothing if products are easily sold and consumed quickly. “Has twice as much ingredient X” means nothing if the product is four times as expensive.11 “180 studies into the efficacy of Tahitian Noni” mean nothing if other products have the same or similar ingredients. Value is quantifiable- if anyone bothers to quantify it.
Morinda (TNI) either is a Multi-Level Marketing company, or it is not. If it is- and research shows it is- then any claims about gross sales, company income, and distributor success are moot. As with all other MLMs, better than 99% of all participants fail to realize any income. Could you imagine working for a company that gave you not just a 1% chance of being successful, but a 1% chance of actually not losing money?
Evidence from research show that tax preparers, in almost 100% harmony, have never seen someone claim to profit from MLM during a tax year.12 Morinda gives no indication that they are any different in this respect. Hopefully this helps to dispel the idea that TNI offers income potential to new recruits.
I will leave it to distributors of Morinda products to dispel any misconceptions I have- but it appears almost impossible given the business structure of TNI to profit in any significant way given the meager sales figures and commission as a distributor with no downline. If this is the case, then it becomes an impossible business model for the majority of participants. If a downline is necessary to make a livelihood, then the perpetual recruitment of downline participants creates more distributors fighting for market share. Sales decrease on a per representative basis. Downlines become even more important. The distributor to consumer ratio increases. The company profits enormously from the investment of those who were destined to failure from the beginning. This continues ad infinitum. In other words, the company model makes it irresistibly beneficial to the parent company and the early recruiters- and literally theft to those who enter late. This is the cycle that makes any claims about the profitability of a company less than impressive- but literally depressing.
The profits Morinda claims every year have less to do with Noni and more to do with broken financial dreams. Making a tidy profit has nothing to do with a good product- it has to do with selling the pipe dream of easy money to thousands of rubes every year. So can anyone honestly call a company like this “reputable”?
My detractors will almost certainly point to the product itself- and its purported benefits- as the most positive thing about Morinda(TNI). Certainly, they would say, a product as healthy and beneficial as Noni Juice outweighs the failure of a few unmotivated distributors. See my in-depth review of M. citriflora (aka Noni) as a health food for my response. If you want a distillation of my findings, here you go:
Tahitian Noni is an overpriced health supplement that is no better for you than other fruits that are available at a fraction of the cost. The scientific studies used to support it are either unconvincing, underwhelming, unextraordinary, or unfounded.
The claim that Tahitian Noni is a valuable product would be akin to me selling you 100% pure cranberry juice for $150/litre. I’m benefiting my wallet more than your health.13
I’m sure that others will bring up the fact that Morinda is a great company when compared to other MLMs, or are better than the industry standard. After all, they might say, how bad can a company be if it has a B+ rating (though is not registered) with the Better Business Bureau(BBB)?14 Doesn’t this give a company some legitimacy? There are certain things that must be remembered when looking at the BBB rankings. First, BBB complaints are primarily filed by end-user customers, not employees and contractors. There are specific limitations to the scope of the BBB.
That said, I welcome those people interested in investigating the claim that Morinda is a better than average company to look at the following two tables. The first compares TNI to other distributors of health and beauty products in Utah by complaints lodged over a three year period. You might note that TNI is the only company out of the nine companies listed that has any complaints to the BBB.
What is that you say? That isn’t good enough? What if I took that statistic and plugged it into the statistics for Multi-Level Marketing firms in Utah? Based on this comparison, Morinda sits in the bottom 11 out of 59 companies. Hardly a glowing endorsement when you are well into the bottom 25% of a group of notoriously faulty businesses.
Since Tahitian Noni International (Morinda) profits do not seem to indicate the quality of the product they sell, or the potential for someone to be successful as a contractor, their profits say little if anything about the company generally- other than the owners are wealthy on the backs of thousands of hopeful Americans. There seems to be no reason to think that Morinda is a better choice for someone looking to invest in MLM. They have a worse than average reputation as both a Health and Beauty company and as a Multi-Level Marketing firm. The claims they make about their product do not live up to claims made by representatives, testimonials, and contractors. What benefit is offered by their product can be offered by grocery store products at a fraction of the price.15
I find it hard to understand how anyone would endorse either TNI as a company or Tahitian Noni as a product. Given these facts, it is clear that a certain level of ignorance or self-deception is necessary in order to say anything wholly positive about Morinda or their claims and products.
1.Study of Ten Major MLMs and Amway/Quixtar Show Huge Consumer Losses and Pyramid Recruitment
3.Google “Every business is an mlm” or “every business mlm” or “all businesses are mlm”
4.Shocking MLM Statistics. Ibid.
11. Or more expensive- See Getting Skeptical About Woo Juice Part 3: M. citriflora (Noni)-Better For Your Body Than Your Wallet
13. This claim is discussed in Part 3 of my series. (TNI claims that iridoids are the “Primary Bioactive”, and I can find no claim made of iridoids that separates them from similar “bioactives”, other than bioavailability after processing. Specifically, antioxidants meet every single claim made of iridoids, are better researched, and are available in more foods at a far lower price.
14. Better Business Bureau –Rating, comparisons valid as of Sept. 14th, 2011. Complaints can be compared by industry in the same State (Utah). Morinda is registered as a Health and Beauty Distributor (but flagged as an MLM)-Comparison of MLMs is accomplished by plugging complaints and business size into the comparison of Utah-based MLMs on the BBB website.
15. For example, 100% Cranberry Juice (unsweetened) is available in the “Whole Foods” section of my local grocer for $4.99/L- if Noni was comparably priced based on benefit analysis, it would cost $3.75 per bottle of Tahitian Noni Original 750ml.