Amway: The Most Intelligent Scam Ever?

                  
       (If you can't see the player above, please download the audio version of this article here )

Few days back Amway India Chairman and CEO William Pinckney was arrested along with two directors and booked under the Prize Chits and Money Circulation Schemes (Banning) Act., while this didn't surprise many but what followed after is quite interesting.

India's corporate Affairs minister Sachin Pilot gave a statement that the government is looking to remove the legal ambiguities to differentiate between fraudulent Ponzi schemes and genuine businesses run by "reputed and law-abiding" entities (referring to Amway).

And Kerala government ordered a probe into the circumstances that led to the arrests.

One reason why the government is so vocal in supporting Amway is because of the investments it is making in India, the foreign money it is bringing to the desperate economy.
As a side note, India is in serious Current Account Deficit (Expected to be around 5% of GDP for 2013) and most of it is balanced by using the foreign investments. So, once the cheap money entering this country stops, things will worsen more. Hence the government want to keep its image clean in the eyes of the foreign investors.

As they have put in their own website, Amway invested around Rs 200 crores ($35 million) and one tenth of it is in the form of FDI (foreign direct investment).
And they have made Rs 2300 crores ($420 million) in sales turnover in 2012 alone.

Amway, like HUL, Avon, Tupperware sells their products directly to consumers. They are members of regulatory body Indian Direct Selling Association. And Amway is the biggest direct selling company in the world.

So everything is great, what's the problem ?
why do we hear no complaints about Avon or Tupperware which also sells their products directly to the consumers like Amway?
Why is it always Amway which is news for all the bad reasons ?
With so many complaints and arrests all over the world, how is this company still sticking around and making millions year after year in more than 100 countries ?
Are Amway Products so great that consumers are behind them , and made Amway a $10 billion company ?

There's only one simple answer for all the above questions :
Amway is so meticulously planned SCAM that it is impossible to prove legally that it is a SCAM!!

But anyone with little bit of common sense can strip their business model and say with no doubt that it is the mother of all intelligent scams. So, let's do it.

Before writing this article, I have attended a session from Amway distributors who claim themselves as intelligent IIM's and IIT's !! (The Indian versions of MIT's and Princeton's)

Amway guys would never tell anyone they pitch that they are Amway distributors.
Why ?
The name Amway is so terribly tarnished over the last 50 years that they can't use it upfront. No body would even listen to them, if they tell that they are Amway guys.

The Amway guy talked for more than 30mins but never used the word AMWAY even once till he reached the end of the presentation.

While I'm not going to reproduce the entire transcript of the presentation, will mention the major lies/sucker punches which concerns us,

Mr IIM started by saying how he was drawing huge salary before he quit his job to pursue his passion, interest : to start his own business, which is now making business with most of the fortune 500 companies !!!

He gave a well rehearsed lecture about recession and how companies are laying off employees, and we should have our own business to tackle it.

LIE No.1: When a consumer purchases a product from retail outlet, he pays the middle men like wholesalers , retailers, their staff salaries, real estate cost, maintenance cost etc. but our business(Amway) removes the middle men , hence customer will get the products at the wholesale price!!

 As they have put in their website, Amway has more than 3 million distributors or middle men, more than any other company. Can you compare this with P&G which made more than $85 billion dollars in sales last year ?

So, when a consumer buys an Amway product or a product marketed by Amway, he pays huge middle men commission, paying insanely more than for the better product available in the retail outlet. According to their own statements, when a product of $100 is sold, more than $40 dollar will be given to the IBO(Independent Business owners or distributors). Can you see the difference ?

LIE No.2: Our products are costly because of their exceptional quality. For example one vitamin tablet of Amway is equal to 4 vitamin tablets of other best companies or One drop of Amway liquid washer is equal to 10 drops of P&G liquid dish washer!!

While I wont say that their products are crap, but it would be an outright lie to say that their products are costly because of their unmatchable quality.

They are over priced because the way Amway works. When someone buys an Amway product from a distributor, part of the money spent will go as commission to all those distributors in his uplink (above him in the chain).
According to Amway, more than 40% of the product cost is pure middle men commission.

So, if this is the case if one buys from a distributor , what if you directly buy online from their website ?
In this case you are not paying any middle men commission, so you should get the products cheaper right ?
WRONG...
If you get the product cheaper directly in their online store who will buy from their distributors ?
So, distributors stop buying their products making huge loss for the products they have already bought.

so what ? who cares about distributors ? A company should concentrate on customer but not on distributors right ?
Wrong again. This is why I said earlier that Amway is an intelligent scam.

If there are no distributors Amway will shut down in months!! talk about $10 billion dollar company creating world class products !!

Here's why...

As a consumer what will u shop online ?
Cell phones, iPod's , cameras, clothes, shoes, drinks, groceries, books what else ?
ok, now checkout Amway Global or Amway India website, do you find anything that you want to buy ? energy drinks ? vitamin tablets ?

If you have, that's great,  now check their prices.

You should be insanely mad, out of your mind, lunatic idiot , screwed psychopathic, bizarrely paranoid person to buy them at their fatuously inflated prices. Well most won't be and will simply come out of their site.

In fact they have added few products with price tag in their website recently, before that there was no option to see their catalogue, only thing was we had to enter reference number of the distributor and click on buy!

They say, they make business with most of the fortune 500 companies, where are their products in the Amway website ? Isn't selling directly from their website to the consumer called direct selling ?

Then how does a distributor sells these products to consumers ?
Here is the catch. Hardly any distributor sells the Amway products to a new genuine consumer.
A distributor buys products for himself and/or will sell products to another distributor under him aka new sucker.

So, unlike P&G or HUL, Amway hardly makes any money(Roughly around 5%) by selling their product to the genuine consumers. 

LIE No.3: We are perfectly legal and not running a Pyramid Scheme.

This is what you'll hear from Amway CEO to bottom level IBO. And this lie is what still keeping them in the business, as it's not possible to prove legally that they are running a Pyramid Scheme.

They say, they are running a perfectly legal MLM (Multi Level Marketing) structure, where one can recruit to sell the products.

Hmm wait, is this really what's going on ?

When you come across an Amway guy, what does he try to convince you ?
Will he ever try to convince you to buy their awesomely high quality products ?

Ok, lets imagine a distributor is very ethical and just try to sell products, he'll pitch people for hours and if he is really good in it, he'll convince lets say one among 20 of them to buy his overpriced products.
He must  pitch say about 35 hours to find one buyer, and he earns 2% commission on it!!!

One must be out of his mind to do it right ?

Yes, this is the reason why you'll not find any Amway distributor trying to sell products, they are just looking for more suckers under them. As they get more IBO's under them, more they'll buy for themselves and more suckers they'll recruit. If one doesn't find anyone under him and keep on buying for himself, he'll keep on loosing money.

Looking at the pyramid more than 90% of the IBO's lose money, which will be promptly shared by the people at the top. Higher you are in the pyramid, more you'll make.

If this is not an illegal pyramid scheme, damn what the hell is a pyramid scheme then?

As they hardy have any genuine consumer, more than 90% of the people involved in this business must lose money for Amway to make profit. If they can't find any sucker, they can't make any money. No new money enters the system. Thankfully for them, as P.T. Barnum once said, “there’s a sucker born every minute”.

Amway announced record sales of $10.9 billion for the year 2012. You must know by now, how much did its distributors lost last year.

If everyone knows this fact, then what's the problem in prosecuting them ?
Because Amway OFFICIALLY doesn't ask their IBO's to do it. Intelligent.

LIE No.4: You are required to work only 6 to 8 hours a week in your spare time, and man you will make millions in 6 months.

 This is just one among many deceptive statements their IBO's make. Let's see some statistics.

According to their own statistics, more than 60% of the IBO's are inactive.
What does it mean? Out of 100, 60 realise after loosing some money that it's a crap and time to move on. If they are making lot of money why would they ever quit?

This is what they say, when you buy the products for the first time, you'll get them for discount (oh you have already started to earn ), you get some people under you lets say 20, they all will get people under them, everyone buys the products, and you make huge money!!!
whoa it's so easy.

Let's believe it for a moment, see what happens,
You'll start to hunt for people, You'll first go to your friends and relatives and say, hey guys I have a wonderful business idea, it's called Amway, we all can make lot of money!!
You can imagine the reaction from them the moment they hear the word Amway !!!

Lets say some wont be knowing it, and finally after making lot of phone calls and meeting so many friends whom you wouldn't not have met for years, lets say you'll able to convince 3 to join you.

Now how to find more ? your upline will preach you not to use the word Amway when pitching others and go to markets, shopping malls, bus stations, railway stations pitch everyone you get to talk to.
Is this what you really want to do in your life?

ok, lets imagine you started to do it,

9 out of 10 persons you pitch will say, not interested, lets say you pitched 50 persons.
you'll give big presentation to those 5 guys, say one gets convinced and join you. It must have taken you at least a month to find one new guy.

Now you slog really heard and find 10 guys in 6 months !!!
Now, 60% of them lose interest and quit in few months.
you'll be left with 4 people under you. And will they be as enthusiastic and talented as you to find more people under him ?
lets say 2 of them are really good and start to find people under them.

Bottom line is you found 2 people under you after slogging for 6 months. 6 to 8 hours of spare time per week for ???
It's a joke.

And how much did you earn ? if those 4 have bought lets say $200 products each, you'll make maximum $5.

All this time if you are buying stuffs for yourself including their CD's , books, tapes and attending their functions, then you are in bigger shit.

Lie No.5: You are not getting more people because you don't have the skills to pitch them, you need to get educated, attend our functions, meetings, buy CD's , books, you'll see wonders in few days.

 When you join Amway , your upline will force you to attend paid functions, meetings, to buy their books, CD's or tapes of Diamonds. In these functions/CD's Diamonds will tell about their lavish life style, how many cars they have, how big is their mansion, how much they earn almost doing nothing, how you can do it by not listening to negative news about Amway and all. A complete brainwash.

While Amway doesn't make money by these tools, people at the top will.

Imagine some IBO succeeded in convincing you to join the scam under him. And you are pretty intelligent and don't want to buy product for yourself. Now that person who recruited you is not making any money from you. If you leave in between without recruiting anyone, it's a waste of effort on his part.

Hmm they are smarter than you. Here's what they'll do,

As soon as you join, they'll tell you to attend these meetings and buy their CD's and tapes. They'll tell that these are not compulsory but are damn necessary to succeed in Amway. They will convince you to buy these tools , so before you leave, they'll make sure you'll lose some.

Only truth they tell is , they made billions even in recession time.
That's true. During recession, layoff's time, it is easy to find gullible people desperate and nervous about their future. No surprises here.

 Here's one such diamond, brainwashing the audience. Observe, as everyone in the audience is a new Amway distributor, they never ask him any questions and listen to all the bullshit he has to say.

 But ultimately, the truth is,

Only 1% of the IBO's will be able to at least recover the money they have spent.
Now you can imagine the odds of you becoming a diamond.

Do you want to involve yourselves with a business which has 99% chances of you loosing your money and 100% chance of loosing your friends and family ?

Finally,

IDSA, which jumped into the scene as soon as Amway CEO got arrested and put pressure on government to come up with policy changes to give Amway business model a clean chit, has to answer one simple question: Doesn't it know the pyramid scheme Amway is running and how much is it getting from Amway which incidentally is it's biggest member?

Corporate Affairs minister who refers to Amway as "reputed and law-abiding" must be -

• Ignorant of the sheer number of cases going on against Amway all over the world.
• Ignorant of the fact that Amway agreed to pay $150 million in 2011 to settle fraud cases against it in US.
• Ignorant of the fact that Amway paid the largest criminal fine in the history of Canada for tax evasion.
• Ignorant of the fact that Amway is banned in China from direct selling.
• Ignorant of the fact that India received $30 billion last year as FDI and counting mere $3.5million from Amway.
• Ignorant of the fact that of all Amway distributors involved in India, more than 50% are college students who are mind washed to spend their time and energy in loosing their family income ?

Banning Amway distributors from buying products for themselves will not affect India's reputation in the eyes of foreign investors. Every one knows how reputed and law-abiding Amway is.

On a final note,
Amway constantly attacked bloggers and its critics who wrote against it. Sidney Schwartz was one such critic, Amway filed lawsuits against him, threatened, finally made him to shutdown his website. Here are the links to the copy of his site - Amway: The Untold Story and Amway: The Continuing Story.

P.S : If somebody pitches you and tells you that he has a great business Idea and it's Not Amway, it's 100% Quixtar, an online version of Amway. Don't fall for it.

Thanks for reading and thanks Manohar for the audio version.