Thursday, May 29, 2014

Pyramid Scheme: Nerium Delirium

First off, I hope a certain friend doesn't read this.  To that certain friend: if you do read this, I hope this doesn't offend you, but I totally get if it does and expect it will. This post will most likely decrease your overall happiness. It's cool though, no one reads these posts anyways... 

A while back I wrote about multi level marketing (MLM) companies and pyramid schemes.  I specifically wrote that post because a friend was trying to get me to sign up for an MLM he just joined.  I told him I wasn't interested because I suspected it was a pyramid scheme, but would nonetheless look into it just in case there was a legit opportunity.  He encouraged me to do so and asked that I report my findings.  

So I looked into it, then sent him this email:


"Here's the email I promised.



"Since I have friends ask or approach me about new MLM opportunities regularly, I made a post on my blog.  It applies in every way to Nerium and I even used Nerium's website and product reviews on Amazon as examples.

"http://hankfails.blogspot.com/2013/07/mlms-and-pyramid-schemes.html

"In no way to I think you and your wife are dumb for signing up for Nerium - you were persuaded by someone whose job is to be persuasive.  Been there.  You might make a lot of money from it, but I really, really doubt it. If it's not too late, get all the money you can back.

"Good luck!

Sunk Costs and Being Special



Maybe I was too blunt, because he didn't seem too happy with that; I guess that happens when you drop $500 into something, then get accused of being suckered.  Sunk costs mess with your brain, I get it.

We all want to believe we're special, that we don't make the same mistakes others make.  The whole point of the Hank Fails blog is to help me recognize that I'm often an idiot; with that knowledge, I'm more prepared to quit when I should (I have some draft posts on that topic which I'd love to link to here, but they're not ready; stay tuned I guess...).  Confirmation bias may be the most costly heuristic we humans have...

After he fired back a lengthy reply (pasted at the bottom of the post instead of here because it's nearly 2000 words long!) explaining how Nerium is "different". 


I simply replied "Haha, a very thorough email, I must say!  You have obviously done your research - good luck!" and bided my time... until now!  


A Ruse


"It's been ten months," I thought this morning. "I wonder how that thing's going with that guy."

Unsure of how to inconspicuously satisfy my curiosity, I sent him this email: 


"My little brother is looking into becoming a Nerium distributor/salesman.  I told him I know you've been with them for a while so I told him I'd better ask you about it before saying anything for or against.

"Have you had any success with it?  And do you think he should get in now or is it too far along for him to be really successful?  He also wanted to know if he'd be more successful spending time "building his down line or actually selling individual bottles"?

"I'd personally be interested in how successful people in your down line are, since that might be more telling for Jake.

"Hope all is well, and sorry if these questions are too personal!  Thanks!"

This email, of course, is false.  I don't think my brother's ever heard of Nerium, and I would always advice against MLM in this world with so many paths to success that don't involve damaging your friends' finances.  I wanted to follow up for two main reasons: (1) the satisfaction of being right in the first place is always nice and (2) if this guy's bank is blowing up and I got the whole story wrong the first time, I want in on that gravy train! 


Confirmation (perhaps I'm a little biased? feel free to tell me in the comments)


He replied fairly quickly.  Let's break it down bit by bit and assess if my friend is part of a pyramid scheme (my comments are highlighted inline):

We haven't actually been able to pursue it as much as we hoped for a few reasons. We had a non compete agreement with my wife's last job which stopped us from doing it for quite awhile. 
Wait, why would that stop you from working on this great opportunity if the non-compete agreement was just for your wife? I smell an excuse, not a valid reason. 

We have picked up a few customers but haven't gotten very far due to the job situation and school constraints. These are more valid reasons... 

We have some close friends that are doing amazing with it. 
Very non-specific about their success levels.  A friend "doing amazing with it" would have gone full time and bought a house or sports car, in which case you would have mentioned it OR, at the very least, you would see their success and work harder yourself. I know you're not a slacker, which makes me think you're not seeing yourself or your friends with the success you'd hoped for.

It's definitely not too far along to join. The company is breaking records and exploding.[citation needed]

There are many great reasons to start now that are even more compelling than a year ago.[citation needed]

As far as building downline vs. selling individual bottles goes... Your bottles are your employees. They do the work for you. You don't gain much by just selling a single bottle. It's about getting people to become a customer or a partner. The bottles just help you to do that. The main thing to do is just get started by getting 3 of each. 
Wait a sec, you told me my post (see #5) was wrong and that Nerium "focus[es] on... selling the product" [see 2000 word email copy below], but here you throw that out the window and clearly point out that the product is merely a way to get "a customer or a partner"... wait, what's a customer who you're not selling individual bottles to? I'm confused. Throw in this line from your last email: "It's actually illegal for people to be selling the product on Amazon or anywhere else online" and I'm even more confused.  And again, Nerium's focus on getting partners and not selling product is textbook pyramid scheme.  I addressed this in my last post, too.  

Does Jake have a friend who has told him about it or did he seek it out on his own? He can always sign up with us if he doesn't have a friend or someone. 

I love that last line: a casual attempt to get another person at the base of his pyramid.



The Truth and a Lesson


Here's the truth: people can and will continue to make money off of this MLM, but there are guaranteed losers because every pyramid has a base bearing the weight and holding the top in place.  That's why it's called a "scheme".  

A fair market exchange is where someone pays for something they want and they get it.  A fair MLM wouldn't make people invest to join; it would sign them up as distributors under a 1099 and they would act as true sales people do: pushing product. I'd better stop before I just repeat my previous post on the topic.

Below is the giant email I was given.  I've highlighted a few of my favorite, ridiculous lines which should be read one right after the other. I'd love to break it down line by line like that last email, but it's such a waste of time confronting each claim when you can do it on your own if you really have nothing to do right now:

Hank,

I read your post and I think a lot of your points can apply to many of the MLM companies out there. I did a lot of research before getting involved with Nerium and I am 100% convinced it is totally legitimate and a good idea. Although there are some similarities it is really different than many MLMs for a lot of reasons. Here are some responses to your comments as well as the honest reasons I believe it is a great opportunity worth considering:

Sorry it's a little long. I hope you read it.

1. People can buy individual bottles from the company but it costs more than if they sign up to receive the product every month and it also doesn't really benefit the customer because if they want lasting results they will need to keep using the product. They definitely push the brand partner or preferred customer options because that is how you will actually benefit from the product. Buying one bottle or individual bottles doesn't really do anything for you in the long run and it costs more.

2. Once you make the initial investment to get inventory as a brand partner to share with people you never invest anything else (unless you want to.) The company restocks your inventory for free with every customer or brand partner who signs up with you. My friend who introduced us to it, also an economics major now working for Amazon, made back the money he initially invested plus extra within the first 2 months.

3. A lot of pyramid companies that are schemes don't work because they are selling an "opportunity" and not really a product. These inevitably burn up quickly. On the other extreme some MLMs have thousands of products which creates different problems but also quality goes down and customers get sucked in to meeting quotas and possibly manipulating people below them into buying stuff they really don't need or want. My wife works in customer service for another MLM based out of Utah and even thought the company is outstanding they do struggle with this type of manipulation happening.

Nerium started with a single product that has 10+ years of biotechnology research behind it and third party clinical testing that proves it works better than anything else that exists. (Most anti-aging skin products see 2-5% improvement in fine lines and wrinkles. Nerium's lab tests averaged 30% improvement. (They did just announce 2 new products they will add this month)

4. Barrier to entry is HUGE for MLMs. IF they don't have one they will surely be copied and lose any competitive advantage. (Example is the many different antioxidant nutrition juice drink companies or the ones that sell utilities like cheaper cell phone service)... They WILL BE COPIED. Nerium has proven science to back up their product as well as exclusive patent rights to the technology. Putting that aside they have a massive barrier to entry. It would take another company 10 years to grow enough oleander plants to start developing the extract and then they would have to manufacture it, create distribution channels and get past the patent that Nerium already has as well as their market domination.

5. Nerium could have used one of many different marketing approaches for selling the product. They considered infomercials, retail, online and others but decided to use network marketing because it is the fastest way to grow a company which they proved by breaking every industry record growing by over 100 million in the first year. They focus on both selling the product as well as giving people the opportunity to be a brand partner (distributor).

6. It's actually illegal for people to be selling the product on Amazon or anywhere else online and eventually they will be shut down. There are mixed reviews for several reasons. It takes different amounts of time for different people to see results and if they buy it online they can't sign up as a preferred customer and they don't always have enough product to see the results. Plus, they don't know how to use it properly. No matter what people will have different opinions and results but that is the same with any product. Nerium is different because it is scientifically proven to work 15 to 30 times better than anything else that exists. Over 90% of customers maintain their subscription to the product once they have started using it. (All of the scientific studies were conducted by third party testing and the the results are backed up by thousands of real customers and their before and after pictures.

7. Compensation plans can also be a source of problems with MLMs. Many people "at the bottom", like you mentioned, do end up being unhappy because the get disconnected from the people at the top of the organization and they don't get the help they need. This is often because the people at the top get paid something like 20% commission for their first level down, then 10% then 5% then 2%, 2%, 2%, 2%, and then eventually 0%. So they have no incentive to help people farther below them because they don't get paid or benefited in any way for doing so. Nerium's comp plan is better than any other I have ever looked at. The lady who helped train us initially used to write compensation plans for similar companies and swears she has never seen one that is nearly as good as Nerium's. One reason: People at the top are connected to everyone below them in several ways including getting paid 5% all the way down. Besides that the setup of the structure itself generates legs of three which limits how wide the organization gets and focuses on the depth, which creates smaller teams of people who stay closely connected.

8. Timing is also a major issue with people getting involved in MLMs. If you do it at the wrong time it's tough to get any traction and success.Nerium is about 16 months old and grew from 1 million to over 100 million in the first year. The company will go global probably within a few months from now but it is really just beginning. Less than 2% of people have ever heard of it and it's growing faster than any other company has.

9. My friends parents (Dad is a lawyer and Mom went to Harvard business school) worked for Nu Skin in the 90's and made millions within a few years and still get a large check every year for the work they did. They have 25 years of experience working for, founding, selling and creating MLM companies and they jumped on right away with Nerium because it has outperformed everything they have ever seen or heard of. The timing is perfect to get involved.

10. The business plan Nerium has is outstanding. MLMs can be super complicated. Nerium's business plan is simple and incredibly effective. One, because they have a revolutionary product that sells itself. (customers try it for free and then decide if they want it). Two, preferred customers who get their product autoshipped to them ever month inevitably share it with friends because they have dramatic results and once they have 3 friends who become customers they get theirs for free continuously as long as the 3 friends stay signed up. (Over 90% do)... Major incentive to share the product. Brand partners, who are distributing the product also get theirs for free the same way but they get their inventory constantly replenished every time a customer or new brand partner signs up with them. They never have to invest in more inventory.

11. Nerium has been around for only under two years but they have massive back end support and incredible management and training because they spent two years building the business platform, backend support and finding the right people to run the company before they launched so it would run like a company that's been around for 10 years. We aren't planning on making tons and tons of money right away but just working on building the business a few hours a week, investing our time in something that will keep paying off.

12. It's not a get rich quick scheme. Anyone who thinks so is a fool and yes there are a lot them. It's the same as building any business. You talk to people and share a product and it sells. I sold Cutco for two summers and sold a little over $50,000 worth of the #1 brand of knives in the US to people (Starting with the friends and family). It was a great business, the number one product of it's kind and great way to make substantial money, especially as a student. But I had to do all the work myself finding my own customers and selling to friends and family and their referrals. (Which really wasn't that hard since the product is so good.) However, I'm excited about Nerium because once you get the product in people's hands it spreads organically and you can quickly get outside your inner circle. Word of mouth is hands down the best way to market a good product.

13. Doesn't require skills? Sure, anyone with zero skills can sign up, pay the money and get the product but if they don't work and develop skills they will go nowhere with it. To be successful it definitely takes skills, whether you already have them or you learn them. BUT, they are definitely skills you can learn as you go. So yes, anyone can do it. The ones who fail and complain that the system cheated them are the ones who don't work and put the time in to develop the skills. (I saw this hundreds of times over and over working as a manager for Vector Marketing selling Cutco) Less than 2% of new hires (mostly college kids with no experience or specific skills) ever sold more than $1,000 worth of the product because they gave up too soon and wouldn't give it the effort and time it took to learn the skills.

It is easy to dismiss an opportunity with a direct sales company by quickly lumping it into the category of typical MLMs that don't have a good enough product, won't last or make any money and exploit people at the bottom to make money for people at the top. Nerium's product is easy to share but I would say that is the number one challenge with sharing the business side with people... They are too scared of the idea of an MLM that might actually work. It's surely not for everyone but when people actually check it out and realize how good of an opportunity it is they can see the value in it. I am convinced that Nerium has a real, revolutionary breakthrough product and a real opportunity that benefits not just people's faces but also their finances and their future.

I'll keep you updated : )

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