More Thanh Words

"My name is Thanh and I'm a Blogger". Now that I have admitted to that, I can say that I'm a stereotypical "geeky" Engineer who enjoys sci-fi books and movies and into all things technological. I also love music and have a passion for FOOD. I'm a social person and like to talk to people. I hate people who are fake or overly aggressive. If you're also into some serious discussion, with a pinch of sarcasm and a dash of real emotion, then please read on.

Sunday, March 11, 2007

Amway - My Opinion

Firstly, I need to make it clear that this is by no way a criticism or attack on my friends or anyone who has joined Amway. That is you choice and that's fine with me. This post is clearly my own opinion on the scheme.

So a couple of days ago, my friend asked me to go to his place for an Amway session. I have always been a sceptic regarding Amway but since it was only supposed to go for an hour at most, I went along since there was supposedly dinner afterwards (you can coax me to do a lot of things with a free meal). So I arrived on time and took my seat. The one hour session ended up going for about 3 hours. I was very sceptical from the start, but decided to keep an open mind and listened carefully to everything that was said. I asked questions that I genuinely wanted answers to. By the end of the night, I'm now positive that Amway is an evil scheme where you can only make money by convincing more people that its a good thing.

During the presentation, the constant message that kept being bombarded at me was that if I wanted "financial freedom", Amway is my way to that. Amway is also great for everyone, since its just like doing your regular shopping but at discounted prices. The so called "middleman" is cut off and you get the direct discount due to this. Herein lies the first problem. I don't believe that huge multi-national companies such as Coles and Safeway who turn over hundreds of billion a year cannot negotiate better prices than Amway, which are selling much lower numbers. Coles and Safeway don't need to go through any middlemen, they're such large buyers that I'm sure they can negotiate deals directly with manufacturers. With Amway, they themselves are sourcing mostly third party products anyway, so what makes them any different to the supermarkets. Amway also has to pay each of the Independent Business Operators (IBO) a percent of the profits to keep them recruiting more people. This means that the sale price has to be marked up by Amway to account for these commission to the IBOs. Amway also need to make a profit so need to mark up the price even further.

Lets take a simple example to illustrate this price mark up. Say a bottle of dishwashing liquid costs $5 for Amway to buy from the manufacture. If they were to sell that bottle for $10, they would make 50% profit. However, since they might have to pay many levels of commission to their IBOs, they have to cover themselves for this so that they don't end up making a loss on the profit. So they mark up the product grossly, to say $50. This way, no matter how many levels of commission there are (at a maximum 21% commission), as long as people are buying the overly priced product (that they then have to pay a commission for), they will still be making money.

The second message that I kept getting throughtout the night was that Amway is not a pyramid scheme. Why is there the need to make this so clear. People will know for themselves whether it is or isn't a pyramid scheme. Because pyramid schemes are illegal, Amway is nowadays a "pipeline", where we (its all very team orientated so it was always WE, US, IBOs etc giving this sense of team) would be all working together to make savings and more money. However, how can you truly be a team when some people are gaining more from the same effort whilst others gaining less. I was told that everyone in my "pipeline" UNDER me would contribute to savings and money I could make. However, I kept asking who are these people UNDER me in my pipeline. They were supposedly just people who signed up after me. But how does that work exactly, I couldn't get a straight answer. I was told that if the person who signed me up, signed another person up, they would be UNDER me in the pipeline. Then what is the motivation to do anything. I can just be lazy and depend on my other IBOs to sign people up and I would reap the benefits. But how many levels away from my original signee does that work. So say the person who is two levels up from me, person A who signed person B, who signed me, would I get the benefits of further people that person A signs. I don't know. The above assumption is the best case scenario. I looked up the Australian and American Amway sights and couldn't get any clear answers as to who are UNDER me in the pipeline. I read the handbook from front to back, including all the technical contracts and still couldn't find anything. Finally, on the European Amway site, they do say that people are only in your pipeline if you directly sign them, the classic pyramid scheme that everyone knows.

Lets just assume that everyone who signs after me who is someway connected to my signees also goes towards my commission. If it truly was a team, why shouldn't everyone be getting the same benefits. I can never match it with the people above me. Now matter how hard I worked and signed up people, those above would always be getting more benefits. And as a maths major, I can tell you that you cannot maintain a skewed distribution pyramidal scheme for a long time. If I signed more and more people, I would rise up, but so would those above me. They would keep going up. To maintain this upward trend, you would need an exponential increase in the lower levels, but then those originally in the lower levels would start to move up, meaning that even more lower level people are needed. This trend cannot continue as you physically run out of people. So unless you were one of the early adopters of Amway, it is extremely hard for you to move up in the scheme.

So what is the reason to join Amway. Well it supposedly costs you nothing and the potential is limitless. You can work in your own time and hence it can subsidise your normal salary rather than replace it. Well, lets address the first point of costing nothing. Firstly there is the small join up fee, $100-$160 dollars depending on the "kit" you want. The kits are basically just some pamphlets and information. Then there are running costs for Amway, just like any other business. Calling people to attend requires money for phone calls. Travelling to people's houses requires petrol, usage of your car. But the highest cost will be in your time. If each session takes 2-3 hours of actual time, you also need to do your presentation homework, travel to and from places and you're looking at a lot of your "spare" time being used up. Depending on how many you can sign up at each session (possibly none), you efforts may or may not result in much earnings. The second point that there is limitless potential I don't agree with either. You get higher and higher up by putting in more and more time and asking more and more people to join. However, due to the nature of this scheme, a lot of people will quickly realise they are not benefitting from it and drop out. This means you will need to recruit even more people, and there are only so many hours you have "spare", unless you quit your job and do it full time.

The final problem that I see with this whole scheme is in the products themselves. The common example that was used all night was "Imagine that you spent $400 dollars on groceries each week, well if you shopped through Amway, you would say 25% on the actual product prices already, plus gain 100 points so get a further 3% reduction". Well there lies the problem, no one would buy $400 worth of their products each month. Amway only has a very limited amount of grocery items in terms of food items. There was lots of cleaning agents and other things such as jewelery, electronic goods etc, but how much of that specific brand and type can you buy. Their washing powders, dishwashing liquids etc are all supposed to last a year from each bottle, so why would you buy a bottle each week. The products cannot sustain the level of buying that is required for the higher discounts. Also, all the customers are buying their own products and yet expecting to make a profit on it. It's like me buying a CD from someone at a "discounted" price from which I want to also make a profit on from that seller. How does that work, its just a closed loop with no income coming from externally so how can you every earn money from it. Someone has to make a loss, and that someone are the people at the base of the pyramid who aren't making any money but are paying for overpriced products. If Amway offered every item in a supermarket and people really could do all their shopping there, it theoretically could work. But then if it was like a regular supermarket, the prices would need to be competitive to regular supermarkets for people to buy. But how can the prices be competitive when they would be buying from the same suppliers as the supermarket at the same prices but yet needed to pay commission to their IBOs. See the problem with the whole situation. For 10% of people at the top to make money, 90% of the people at the bottom would need to lose money since there are not external incomes or maths as we know it needs to be totally rethought. And I trust in 3000 years of mathematical logic rather than what the Amway person is telling me.

So I think I have made it clear that I am not going to join Amway. The whole info session was a series of vague statements all sold on the simple fact of greed. I kept asking for more information and for the numbers to all be backed up with statistics and a break down of the figures, but all I got was that I would be told later, but never did see the breakdowns. I'm a maths major from uni and even I couldn't understand how the mathematics could possibly work, despite the claims that many people were making it rich through Amway. But this can be said for any industry. I'm sure there are plumbers out there who are millionaires, but what is the percentage of millionaire plumbers compared to just your normal average wage plumber.

I can do a quick exercise to give perspective of what amount of products need to be sold for you to make a decent earning. If I remember correctly, the lowest of the "presitge levels", diamond or something, required a pipeline at 21%, 15% and 12%. To achieve a pipeline of 21%, you need a total of 7500 points. Each $4 is worth one point. So overall that line would need sales of $30,000 a month. The other two lines would require another $20,000 say. I can't remember the exact values but its somewhere there. So in a month, you would need to achieve sales of $50,000 in your pipeline. It doesn't have to come directly from you, but from all people in your line. Lets be very generous and say each household spends $100 a month, that's still 500 households that need to consistently spend that much money a month. Those aren't small numbers, and thats assuming people buy $100 worth a month and then keep doing that for a whole year. That's the best case scenario. The worse case scenario is that 90% of people drop out of Amway after a year and most people will probably only buy a few hundred dollars worth of products in their first purchase and then buy hardly anything after that but instead try to convince their friends to buy products in the hopes of making money. This scheme is therefore only self sustaining for those at the very top who always have changing people under them purchasing, but not for those at the bottom where changing people will not contribute to their earnings.

So, if you have bothered to read to this stage, you are either someone like me who is interested in reading about interesting discussional topics or you are looking to join Amway. I will NOT discourage you to join, as that is your choice and it may work for you. I will just say that I don't think it is a viable sustaining method to make money. It is probably a way to lose some friends along the way if that is your wish.

Edit: Oops, should really proof read my posts. Leaving out the NOT makes a huge difference. I will NOT discourage you to join. :-)

5 Comments:

Anonymous Anonymous said...

To bad you had a bad experience at the meeting. Amway/Quixtar (I'm in the US) is an awesome company. They have excellent customer service and manufacture premium products.

Unfortunately, everyone's first experience and info about Amway comes from different lines of sponsorship that can all be VERY different.

Yes, Amway's compensation system is the same for everyone. But how someone builds their business or how they talk to others about it has everything to do with the training they receive from their support organization (it's a separate entity from Amway).

The analogy would be like Safeway and Coles are separate companies that do similar things, yet run their operations and train staff differently. However, they may have similar suppliers (like the Coca-Cola distributor) who provides the same products to both stores.

Well, my support organization WorldWide Group uses Amway/Quixtar as a supplier. But we'll build and run our business differently than another support org (like Britt, Yeagar, etc.)

If you treat Amway like a business and treat people right, it's an awesome thing. If you get goofy with it... well... you get bloggers like you!

3/13/2007 3:03 AM  
Anonymous Anonymous said...

Thanh,

As you said to me last night, you have a right to an opinion and you can say what you BELIEVE.
However, knowing you for so long and knowing that are intelligent, I'm just a bit surprised you would write about this thing that you are not 100% clear about or been exposed to it like I have.

The point you made about not being able to take over the guy above you doesn't mean you can't earn more than him/her. That was what I've been trying to tell you. If the person who sponsored decides to pack it in and do nothing, you can keep building the business below you yourself and you will gain more out of it than he/she will.

That statistic where you said 99% of people not getting their money astonsed me. Also the fact that you say it is not sustainable means you haven't seen living proof like I have for the past few weeks of people who have reached the level where they can not worry about money for the rest of their lives. I've seen people who retired young and old and they have stayed that way for years. Amway has been around for over 50 years. You can't sustain a company like this and EXPAND if the people who join don't get the benefits they expected. It has been building on for years and years, not everyone can be fools especially if those type of people are doctors, lawyers or even janitors.

The comment from the person above is valid. Amway is like other companies you already put your money into for their products and services. The products/services are similiar in quality/price, but what does Safeway offer you for your loyalty? Fly buy points for a new toaster?

Even if you just joined for the purposes of consuming, you AUTOMATICALLY get the benefits. As an IBO, you can go into Harvey Norman and get discount on their products AND earn back your rebate. Also I can ring up Optus and tell them I am an IBO, and I also get benefits from them. Why not? When I'm already using their services.

It is true, not every story is a success story, but for the amount of money you need to put in is absoultely peanuts. I mean how much would you need to invest in a property, shares, etc. I much rather pay my $170 (FULLY REFUNDABLE) than place my life savings on something that is also not certain and not been able to get it back if I fail. Life is about giving things a try and seeing it for yourself. I was like you just a month ago, completely sceptic and nearly laughing at the idea of joining. Now I've seen the inside of it deeply and I can see the potential in it. I don't promise myself that I will succeed but at least I can say it is not risky and the worst that can happen is that I just continue being a consumer of the products/services that I otherwise pay for in Safeway or other retail shops. NO REGRETS!!

And what's more is, the work you put in does not interfere with what you are doing on a daily basis. You can still work 40 hours a week, have a night with friends. This buisness grows as fast as you want it. And the money that you can generate from it goes on top of your normal salary. So the way I see it is, it's something myself and my wife are doing on a social scale. I don't understand how you could say it could hurt friendships. The people who talked us and in and the people we talked into are closer than ever or at least the same. Like you and I, you have expressed your clear decision not to join and we are still talking even if we like to express our differences. I just can't imagine how it could hurt relationships unless either party is a real jerk.

PLUS, we still go to our jobs everyday, but we are been proactive in other ventures (and it has made us closer), just like how you are with what you are doing at home now. We support you in your venture and would like to join too if we have the capital, but unfortunately we can only put in $170.

Thank You for letting me put my input in. See you the near future unless you teleport back.

3/13/2007 10:54 AM  
Blogger thanh7580 said...

Anonymous 1, I'm glad you are happy with Amway. Like I wrote, I'm sure Amway works for some people, I just think it doesn't work for the majority thats all.

I'm sure the Amway message will be very different depending on the presenter. But to me, it doesn't matter how well the presentation is, in the end, it all boils down to the Amway scheme being a pyramid scheme where people don't get rewarded evenly. Even that doesn't matter if you're truly in it to buy the products just as a consumer and not as a way of making money. But to me, all the products are overpriced and not what you can keep buying monthly.

Anonymous 2, firstly you are welcome to express your opinion.

Now let me address some of your points as well. The first one about making more money than the guy above you, well I don't see how that can happen. Lets take the example of the person who signed you up. Every new person you sign up will also contribute the same amount to them. So no matter how much you build the "pipeline", they will get the benefit without having to do anything. Yes, you can start a new "pipeline", but there must be restrictions to that, or your signer must also get a cut. Otherwise, why wouldn't everyone that has just joined immediately start a new pipeline and reap all the rewards for themselves only. That is the problem I have with this scheme, where can I get it in black and white how this commission system works rather than from word of mouth. If you can point me to a legal written document outlining the Amway commission scheme and I find what I thought is untrue, I will be glad to take back what I said about not being able to make more money than people above you.

That 99% statistic I just used for dramatic effect. However, Amway are very secretive about releasing figures on how their commission money is divided to their IBOs. The only information I could find was that an independent company did their own research into Amway and found there was an 80% drop out rate amongst Amway IBOs within the first year. What is that saying, that most people just give up? Obviously there will be some who do make money, and equally obviously, Amway will flaunt those people at as many seminars as possbile to encourgae others to join. Those who are still in Amway, even if they are making a loss, will not bad mouth it because how can they then try to sign up new people if they are saying its bad. Once they leave Amway, if they say it was bad, people will just say they are bitter than it didn't work for them.

If you do truly join Amway for buying the products, that's probably ok. You will eventually recoup your $170, but that really depends on how much you buy and how much the savings are. However, most people that join Amway are not in it to buy products, they're in it to make money, and there lies the problem in my opinion. You will invest time, effort and financial resources to try and get more people to join. Amway is selling an ideal that is not built on anything solid, because the products cannot sustain constants sales for extended periods of time.

Amway doesn't interfere with what you doing at the start since its easy to sign up your friends and family over short presentations. But when you run out of those people and still want to make money, it takes a lot more effort to convince strangers thats its a good thing. Friends will trust you already whereas strangers will not. You have to earn their trust and show them that's its not something bad by many visits.

As for the breaking up of friendships part, if the Amway IBO is very persistent and keeps pushing their friends to join, some people will lose friends over that. Two work mates told me how they never talked to some friends who kept trying to sell Amway to them.

Hopefully Amway works well for you Anonymous 2. I'm supporting you all the way, but will not join personally. I will even buy some things from Amway through you if I think they are cheap.

3/13/2007 6:44 PM  
Blogger LL said...

Hi,
I just happened to read your blog on this Amway topic and it ignited my interest as I have a friend who is trying to get me to be interested to join. All done subtly of course. I found this site interesting, written by an ex-member.
http://www.cocs.com/jhoagland/

3/30/2007 12:29 AM  
Blogger thanh7580 said...

Hi LL, you can go to the information sessions and listen for yourself before making up your own mind. I never discourage people from finding out more information as then you can form a more thorough opinion for yourself. From my perspective, I just didn't like the scheme. My friend was not subtle about it at all and was honest, which is good. Otherwise I would feel that they were trying to hide something from me and then I don't know if they really are friends.

I had a quick look at that site, its definintely very thorough. My post is just my own opinions and whatever data I could find off the web from about 1.5 hours of surfing around.

3/30/2007 6:07 PM  

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