Why are USANA products expensive?

There are 4 possible answers to this question:
1. USANA has superior products
2. Their direct selling form of marketing takes advantage of relationships founded on trust to convince customers to pay a higher price
3. Each sale results in several levels being paid, so the cost of selling is higher
4. Many people buy the products with the intention to join the business, and this adds value to the product

The only reason that says anything good about USANA is 1. 2 makes USANA an example of deceptive marketing. 3 is good for the distributors who have a big downline, but does nothing for consumers. And 4 makes USANA clear cut pyramid scheme, according to the FTC. Product sales become a de facto fee for joining the business. The "fee" earns the recruiter a commission just for recruiting. That is known as pyramiding.

So are USANA products really superior? How much are their products actually worth? If you search USANA on ebay, you can find products for a fraction of the price. (As mentioned in my Pyramid Scheme article) So you can certainly find USANA products for a cheaper price. It makes sense that people buy the products because they have to when they're in the business(also explained in the pyramid article), and those distributors try to make back at least some of the money spent by selling on ebay. This cannot be considered retail sales, because the price the distributor bought the products is higher than what they are selling them for. The large volume of people doing this has driven the price down to about 2/3 of what it had been. This would indicate reason #4.

So what are USANA's claims to superiority? Inclusion in the PDR doesn't hold water. The apple test doesn't tell us much about Usana's effect on the human body. Preservatives make food last longer, should we all be guzzling those? The claims on their labels have been described as pseudo-science. I even tried taking Usana products for a while and got symptoms of vitamin overdose and exploding head syndrome, something I had never experienced before. From personal experience, I can tell you that most of Usana's contents go straight through you. If you've ever taken them, you know what I'm talking about.

So are we paying extra for all that stuff that's left over? Doesn't seem like a good deal really. I'd rather buy a cheaper supplement that actually had the right amounts of stuff in it.

USANA vandalizes their own wikipedia article

This one has been pointed out by someone at the Anti-USANA facebook group. As can be seen with wikiscanner, the USANA IP address has been used to remove content from wikipedia describing acusations (not even actually accusing) USANA of being a pyramid scheme, among other things.

Wikiscanner search for USANA's IP

Wikipedia article history showing USANA removing "pyramid scheme allegations"

In this case, USANA was actually careless enough to use their own internet connection to edit Wikipedia. Who knows how many edits they may have made through proxies, alternate accounts, etc., not to mention edits made by reps from their home computers. Also note, USANA seems to have outsourced the discussion-suppressing spam on their Yahoo finance board.

Update(12/12/2008): The link to wikiscanner seems to be broken. However, the records of Usana's vandalism still exists in the wikipedia article history:

http://en.wikipedia.org/w/index.php?title=Usana&diff=147293679&oldid=147291762

USANA is in the PDR... So what?

USANA often likes to parade it's inclusion in the Physician's Desk Reference as a claim to superiority over other products, a justification of it's inexcusably high prices. The Physician's Desk Reference (PDR) is a reference book used by physicians and has a section on supplements.

As it turns out, being included in the PDR doesn't really mean anything. The company that makes PDR doesn't do any analysis whatsoever of the information included. Any manufacturer of supplements can simply buy their way in.

Here's a quote from the Thomson Reuters Healthcare TOS. That's the company that makes the PDR.

TRHC does not warrant or guarantee any of the products described, prices supplied, or medical device information contained, and does not perform any independent analysis in connection with any of the product descriptions. TRHC does not assume, and expressly disclaims, any obligation to obtain and include any information other than that provided to it by its third party sources. It should be understood that by making this material available TRHC is not advocating the use of any product described in this site, nor is TRHC responsible for misuse of a product due to typographical error. Additional information on any product may be obtained from the manufacturer.

As you can see, TRHC simply takes whatever information is given by the manufacturer and publishes it. They do not endorse the product or make any claims about it's superiority over other (not included) products. So any USANA rep using a product's inclusion in the PDR to support claims of superiority over other products is clearly a violation of false advertising.

Myron Wentz selling off his stake in USANA

Insider Cow: USNA

Gull holdings is owned by USANA's founder, Myron Wentz. Through Gull, he owned part of USANA, but as you can see in the above link he is selling it off quick. He doesn't seem to have much faith in USANA's future. Recently he tried to buy it off and make it go private. Seems that if he can't run his company out of public view, he'd rather bail out on it entirely.

Is USANA unsustainable?

One of the key factors in determining whether a business is an illegal pyramid scheme is that it is "unsustainable." This means that when enough people know about the scheme, it collapses. Market saturation is said to reach a critical point and the business no longer functions.

In a typical pyramid scheme, new members pay a fee to enter into the pyramid. This is what fuels the payment to those above them. This system collapses when the number of people trying to recruit grows to a point where there simply aren't enough prospects to go around. At this point, the source of payment has disappeared and the pyramid stops functioning and collapses, leaving all the investors who were at a loss, well, at a loss.

But USANA is different. In USANA, members do not only pay a one time fee to enter, they are charged for auto-ship, about 100-200 dollars per 28 days. This means there is always a source of currency, as long as USANA members have another source of income and are paying that into the system. USANA would appear to be a dynamic sustainable pyramid scheme, and this is much worse. Instead of collapsing at the critical point of market saturation, USANA's growth will slow down greatly. It will become nearly impossible for anyone who joins to get promoted. But they will still be required to pay the same amount they always have every month. They are paying in the hopes of being promoted to a position where they can make up their losses, but it has become increasingly difficult with each level. The USANA recruit of today has more competitors and less prospects than yesterday.

The people who join around the time that this critical point occurs will have no chance of getting their money back. They may keep paying and paying for months or even years, being led on and on by USANA members of higher rank who had it easier, telling them to just stick it out. (I was told several times at USANA meetings that the only thing you had to do to be successful was to stay in the business longer than those who quit) But these people will be paying for nothing. In the end, they will have to give up, either by choice or by running out of money.

So this is how USANA can extend its sustainability. But it is ultimately not sustainable. Eventually, those hopeless members will give up. It is theoretically possible to sustain USANA if they have another source of income which they feed into USANA, but this will not benefit them because they will have no way of making it back. And that would be much worse than a classic unsustainable pyramid scheme, where the loss occurs only once instead of recurring monthly.

Why retail won't sustain USANA

First, USANA makes only a minority of its revenue through retail. If you go to a USANA meeting, the successful members won't tell you to retail at all. They emphasize recruiting above all else.

Second, let's think about this. Let's say the number of people buying USANA products through retail is X. The number of distributors is Y. The average distributor has X/Y customers.(Number of customers divided evenly) But Y is increasing exponentially, while X is not. As Y gets bigger, the number of customers per distributor gets smaller. There will come a time when the amount of money coming from customers will simply not be enough to support the entire system.

Please note, this last paragraph assumes that the customers already support the body of distributors. In fact, this is not the case. We are already far beyond the point where distributors cannot be support just by the number of customers buying retail. That's why they get paid to recruit.

Usana Corporate viewed my blog

Here's an image from my stat counter featuring USANA's IP address:

It's about time USANA has taken notice. If you like any of the content on this blog, better save it now. They seem to have a real knack for suppressing their critics.

USNA Yahoo Finance group: Usana's monopoly on discussion

For anyone out there who thinks that Usana has nothing to hide, please explain this for me. The yahoo finance message board for Usana are constantly flooded with copy-and-pasted pro-Usana propaganda several times throughout the day. The members who post this content do not participate in conversation. They are serving a singular purpose: making sure nobody says anything bad about Usana, and if they do, it gets buried deep under all this spam.

Any and all posts that are critical of Usana, even those that simply quote Usana in order to display a contradiction, get deleted. Yahoo doesn't review posts before deleting them, their only criteria is that enough people flag it, so anyone who has enough hiring power has a monopoly over all discussion.

So someone please tell me, what reason could a legit company possibly have for suppressing freedom of speech?

Hardly a surprise with their cultish attitudes and deceptive techniques.

Pyramid Scheme

If you don't feel like reading all of this, just read the quote from Usana and the last sentence from the FTC.

Read this paragraph from a page on Usana's website.

The income you receive from USANA will be in direct proportion to your ability to retail USANA's products to your customers, as well as your ability to build an organization of Associates who, like you, retail to their customers and build an organization of Associates.

Now read the definiton of pyramid scheme from about.com.

Typically, new recruits pay a sum of money to join the "program" and become a distributor of a product or service, and are told that they'll make money based on the number of new recruits they in turn bring in. The basic idea is that the higher up on the pyramid you are, the more money you'll make.

You have to buy products to get into Usana, which is the same as paying to get in, because there is no way to guarantee that people are buying products for their own good. If people are told they can make money by buying these products, they will.

Notice where I've added emphasis, in Usana you're paid to recruit, same as in a pyramid scheme. But Usana retails a product, right? Read on.

Now the FTC's

Pyramid schemes now come in so many forms that they may be difficult to recognize immediately. However, they all share one overriding characteristic. They promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public. Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure. There are two tell-tale signs that a product is simply being used to disguise a pyramid scheme: inventory loading and a lack of retail sales. Inventory loading occurs when a company's incentive program forces recruits to buy more products than they could ever sell, often at inflated prices. If this occurs throughout the company's distribution system, the people at the top of the pyramid reap substantial profits, even though little or no product moves to market. The people at the bottom make excessive payments for inventory that simply accumulates in their basements.

Again, Usana's payment for recruiting matches up with the definition of pyramid scheme. And now we've covered pyramid schemes that have a product. The product is a disguise. The way to verify this is that the prices are inflated, and new recruits are forced to buy them. You have to buy 100 pts worth of Usana product every 4 weeks or else you don't get any commision. Usana products are inflated, just check ebay, you will find the same exact products from Usana at a much lower price.

Okay, but MLM's can look a lot like pyramid schemes right? We haven't shown for sure that Usana isn't a legit MLM. Well read the next quote from FTC.

Some people confuse pyramid and Ponzi schemes with legitimate multilevel marketing.... MLM's may pay commissions to a long string of distributors, but these commission are paid for real retail sales, not for new recruits.

Usana claims it's not a pyramid scheme, but they openly admit they pay distributors in proportion to their ability to build an organization. They pay you to recruit, which according to that last sentence from the FTC, is the quality that distringuishes MLM from pyramid schemes.

The Truth About USANA Health Sciences, Inc.

So far, everything on my blog is from my own personal observations and research, having gone to several Usana meetings and talking to several reps. From my own experience, I am absolutely sure a pyramid is occurring at Usana. But I'm not the only one. There are other people out there with more information, who have been researching Usana longer. I hardly want to open the can of worms that is the Barry Minkow report, because of all the controversy surrounding that, and how long ago it took place. But I recently received a comment from someone with a lot of figures, and evidence that Utah Attorney General Mark Shurtleff was paid to endorse Usana publicly. His site can be found here:

http://www.geocities.com/terminatedramp/

Usana has gone as far as to persuade yahoo to delete his old account. I think discussion and debate is very important when something like Usana is spreading their own persuasive if not downright deceptive influence without challenge. Freedom of speech in my opinion is a basic human right. Instead of getting your critics banned from their respective hosts, Usana, I implore you to improve yourself so that the criticism would then ring false. You can't suppress this freedom of speech for long. Word will get out. So save yourself the embarrassment and get some proper regulations, please.

Usana deceptive technique

In the first training I went to for Usana, I was taught to deceive my friends. We were told to write down a list of everyone we could think of. Then we were told that all these people were potential customers. We would call them, and from there the lies begin.

We were taught several "key points." I wrote them down like I was supposed to.

1. Invite either on the phone or internet. It's harder to invite in person.
   
2. Be excited. Show your passion. Changing lives and helping the world is exciting.
   
3. Do not explain the business. Being new, you might make mistakes. And sometimes people don't listen to us, when they would listen to someone else. Instead, invite them.
   
4. Don't make yourself look like you are doing it by yourself. Edify someone else (your director)
   
5. Talk to your friends about what they want. Destination not the vehicle.
   
6. Always schedule an appointment. Especially with the director.
   
7. Most importantly, set the appointment in stone. Tell your friend that your credibility is on the line.
   

Here is what's deceptive about these things:

1. This one is part of something they were telling us. "Give yourself an escape." This is so that your friend doesn't have a chance to back you into a corner. If you're online, you can always say you have to go, same with the phone. Your friend can't follow you and keep pressing you for answers. They even told us that if we're calling our friend on the phone, we should always say that we have something to do soon so they won't keep talking to us. All of this is good for Usana. See # 3.
   
2. So we have to "be" excited. Which means that even if we weren't swept up in the exciting mob mentality of shouting and cheering during the presentation, we were supposed to feign it. Just neglect to mention that you yourself haven't seen the benefits of Usana first hand yet. And there's no way to guarantee that you will, because you probably got recruited from someone who hasn't reached that point either. A self-propagating deference of satisfaction that may or may not even gratify the person above you, let alone you, let alone your friend.
   
3. This is the most suspect instruction of all. To our dear friends, we are told not to explain the business? Hmm is there something so bad about this business that even our closest friends might not want to join it with us if we told them? We're told to say that "I'm still in training" if they ask too much, especially about the pay. In this case, the less your friend knows about Usana, the better. At least until they're surrounded by a mob of undoubting supporters to put their mind at ease.
   
   They gave us 2 reasons why we shouldn't do this. First, we might explain the business wrong. That doesn't seem likely, given how little we know at this time about it we couldn't say much. And we're certainly steered away from saying "I don't know," to any question. Do you really think your close friend would hold it against you if you made a mistake explaining something? Second, the presenter gave an example of a friend who listens to someone else but not to him. A lot of people identified with this. Friends who take the word of someone they're less acquainted with higher than their own friend? Doesn't seem like a true friend to me.
   
4. This is not deceptive. You do have people above you who can help you.
   
5. Yes, you talk to your friends about their goals to move the subject away from Usana's unsettling business model. Show them the big prize to get them into the state of mind most suggestible.
   
   Usana members often refer to Usana as a vehicle. The idea is that you're unsatisfied with live, you want to go somewhere.
   
6. Yes we all know how flaky some people can be if you just ask about hanging out. Although nothing is written down in a datebook, and directors are supposedly not that busy (They pride themselves on just that: having more time for themselves after joining Usana) we are told to call it an "appointment." Avoid the terms that are used within Usana: presentation, meeting, tabletalk. Just in case, make the appointment an hour early. We are always supposed to pick them up, too. That way they have no way of escaping once they get there.
   
7. Usana wouldn't diminish your credibility if your friend didn't show up. They might try to tell you how to be more convincing so that your friend doesn't flake or something. But I don't believe anyone has been kicked out for having flaky friends. It seems pretty contrary to the "together" attitude they have at meetings. As always, you're welcome to correct me if I'm wrong though.
   

Usana Scam, the bottom line

Whether or not Usana can be called a scam or legitimate all comes down to this point. Are profits derived more from sale of product to consumer? Or from sale of "opportunity" to potential Usana members?

If it is the former, Usana is like any accepted business. It doesn't matter that it is built on MLM, which would not then be an inherently evil system. Usana is making it's money by selling to people who want products for their health. Usana just prefers the marketing advantages that MLM offers.

However, if it is the latter, Usana is absolutely an unsustainable pyramid scam. In my previous post, you can see exactly why that is.

Usana is set up in such a way that it is impossible to determine this quantitatively. Usana reps join, and continue their membership by buying products. There is no "fee" for joining in so many words. In fact you buy a pack of products, and the business center in your name comes with it.

But speaking qualitatively from my experience with Usana reps, and at Usana meetings and trainings, recruitment is far more emphasized than selling. It would be very surprising to me if their primary source of profits was not recruitment of new members. Although they join by buying the product, this would seem to be a loophole that allows them to be counted as customers.

Ok, let's go back to the beginning of what I was saying. In the first scenario I mentioned, Usana is a legit business selling products to consumers, with recruitment being a secondary source of income. The business is sustained by it's customers. This means stability. We don't have a system of customers becoming reps, thus saturating the market and increasing the demand for customers while decreasing the supply. But there is still something unsettling. I mentioned earlier that this would mean Usana is using the unique advantages of MLM. What are these advantages?

Let me make it clear that my focus is not to trash talk MLM in general. This entire blog is about Usana. Personally I don't really like MLM, although it could, in theory be set up in such a way that it is legit. My problem is MLM's advantage: trust.

You see, MLM's typically take advantage of one thing that friends and family have, that typical marketing (TV, magazine, billboard) doesn't. And that is trust. The tendency here is that this unique advantage allows for a much higher profit margin. In other words, friends and family can convince you to pay much more than you might otherwise pay for the same product, if you saw it on TV for example. A friend could tell you "This is amazing! It costs more than other brands, but it is definitely worth it!" And you believe your friend. After all, your friend has no reason to lie to you. Unless of course they're in an MLM, and they're making a profit off of you by ... let's not say lying, but rather "modifying their attitude." This was something I was told to do at the first training I went to, among other deceptive techniques. I was told to be positive at all times, whether or not I was really sure of what I was saying. Never mind the fact I hadn't yet been paid a cent from Usana, I had to pretend it was the greatest thing I could be doing, certainly superior to any job with a wage. Yes, this was more about selling the opportunity than the product.

Back to that, although I was never trained how to sell the product. If I were selling it, I would have to tell my friends that they should buy it. I would have to tell them that it was better than competing products. But how could I, when I have little knowledge of the nutritional industry? Usana claims superiority from several sources, but I would have to do a lot of research first to make sure these claims mean what they sound like, or I would definitely be deceiving my friends. And then it's me and Usana who make a profit at their expense. So maybe I bring them in so it's not so much at their expense anymore. Oh wait, now we're getting back to case #2. Darn! It's so hard to avoid that in MLM's isn't it?

Usana Scam: Pyramid Scheme

Now Usana reps have a nice list of cookie-cutter responses to "pyramid scheme" acusations. They will first say "A pyramid scheme is defined as an unsustainable company with no products or services." Then they will cite their vast array of Usana products. Well the sale of actual products is secondary to the other form of commision: Recruiting. They do not emphasize actual sale-for-the-sake-of-sale at their meetings, nor do reps frequently discuss it to potential recruits. Emphasis is entirely on recruiting, and buying the products is something you have to do to join, so it simply becomes a tool of recruiting. Their second defense is to draw up a diagram of their compensation system.

Usana compensation plan

Looks enough like a pyramid for me. Regardless, they will tell you that there is a key difference. They will emphasize the fact that there is a left and right side. What this supposedly does is to prevent someone on top from gaining the most money without doing any work. So what they are saying is that this prevents one person from taking advantage of entire other levels of people, because you wouldn't be able to simply get one person to do all the work for you. You would need to make sure both sides are growing, or else you don't get paid.

What this does, in fact, is it serves to convolute the payment system. The compensation plan is so bizzarely convoluted with points and downlines and bonuses that I was told by a Usana rep that it was impossible to calculate. She said this when I was trying to get answers from her in order to create an example of how much money it was possible or reasonable to make. Well of course it is possible, Usana has to calculate it in order to send out their paychecks. But it is so convoluted that an average person will have a difficult time trying to understand it all. And I believe Usana uses this to veil their truly pyramidal nature.

So there are two sides. This doesn't prevent anything. It actually only makes it harder for new recruits. Well it does prevent someone from getting paid if they just bring in one successful person. But if they bring in two, they get everything. So you can see why this hurts newer members most of all. Because they do not have enough members below them to balance the sides. Simply by having more members below you, this issue becomes irrelevant. If you have a larger number, it is easier to even it out. 100 members on one side and 99 on the other gives you 99% of your potential earnings while 2 on one side and 1 on the other would only give you 50%! So it is quite clear that this helps higher members to take advantage of lower members. And because a majority of members are lower members, it gives more money back to the company than they would normally have to pay out.

Now enough talking about why Usana memers are wrong to say that Usana isn't a pyramid scheme. Let's look at a simple example of why it is a pyramid. At Usana meetings, and among Usana reps, there is a much higher emphasis on recruiting. Which they call building a team, because they hate to admit they are recruiting. That's what they say bad companies would do. They claim not to be a pyramid because they sell a product, however this is very much down-played at the meetings. It's all about recruiting! They will tell you that that is how to reach a higher rank and how to make real money. They only really mention the retailing of products when these doubts are raised.

So where does all this recruiting get you? To recruit is to sell an idea. You sell this idea to someone who trusts you, that they will become a part of this business and be able to make money. Well there is also an emphasis at Usana on duplication, so that means that if you are making money by recruiting, people who you recruit (your downlines) should learn from you, and therefore make money by recruiting. So now we have a situation where you've made money by bringing in a few friends. And your friends have yet to make the money back that they've spent to join Usana. So what do they do? They follow your example, as Usana says they should, and they recruit their friends.

So let's say all of you are buying pro-pack in order to join Usana (you have to buy a "pack" of supplements to join.. and keep buying them to stay in) Pro-pack I believe costs $1400. So you were down by $1400 when you joined, but now you've made it all back and maybe a little extra by recruiting your friends. So now they are all down by $1400. I don't know exactly how many friends you would have to recruit to make back the investment, because of the bizzare compensation plan, but for the sake of simplicity and optimism, let's say 2, which I know to be less than the actual number. So now you have 2 friends who are down $1400 and you are now at 0. The outstanding investment is now totalled at minus $2800. So your friends, as I said, follow your example. They each recruit 2. Now there are 4 friends-of-friends who are out $1400, totalling $5600, while you are starting to see a profit. At each level, the unpaid investment keeps on growing. And when you give up at Usana, you don't get your investment back. So this shows that a larger number must always fail than those who succeed. Because one person's returned investment requires more than one person's new investment. And this is why pyramids fail. Except for those who are on top, who really are crooks. Even if you are a crook and if you want to be the person on top in Usana, I would tend to think it's already too late.

Still not convinced it is a pyramid scheme? Take a look at this excerpt from the Federal Trade Commision's website:

If a plan offers to pay commissions for recruiting new distributors, watch out! Most states outlaw this practice, which is known as "pyramiding." State laws against pyramiding say that a multilevel marketing plan should only pay commissions for retail sales of goods or services, not for recruiting new distributors.

Why is pyramiding prohibited? Because plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited. And when a plan collapses, most people -- except perhaps those at the very top of the pyramid -- lose their money.

...

consider these seven tips when you make your decision:

1. Avoid any plan that includes commissions for recruiting additional distributors. It may be an illegal pyramid.
2. Beware of plans that ask new distributors to purchase expensive inventory. These plans can collapse quickly -- and also may be thinly-disguised pyramids.
3. Be cautious of plans that claim you will make money through continued growth of your "downline" -- the commissions on sales made by new distributors you recruit -- rather than through sales of products you make yourself.
4. Beware of plans that claim to sell miracle products or promise enormous earnings. Just because a promoter of a plan makes a claim doesn't mean it's true! Ask the promoter of the plan to substantiate claims with hard evidence.
5. Beware of shills -- "decoy" references paid by a plan's promoter to describe their fictional success in earning money through the plan.
6. Don't pay or sign any contracts in an "opportunity meeting" or any other high-pressure situation. Insist on taking your time to think over a decision to join. Talk it over with your spouse, a knowledgeable friend, an accountant or lawyer.
7. Do your homework! Check with your local Better Business Bureau and state Attorney General about any plan you're considering -- especially when the claims about the product or your potential earnings seem too good to be true.

Usana is a great candidate for 1, 2, 3 and 6. Also note how much emphasis is placed against MLM's that pay commission on recruiting. You've been warned!

Usana report

Over the course of 3 weeks, I went to Usana meetings here in Northern California. For those of you that don't know what Usana is, it is a Health Sciences compnay founded by Dr Myron Wents which markets it's product through Network Marketing or MLM (Multi-level Marketing)

What I found during these 3 weeks was a very disturbing cult-like pyramid scheme. At the meetings, members are systematically worked up into a frenzy of energy. If I were to bring up any doubts at a meeting, I would be told that I don't understand, or asked whether I were "serious," or told not to be so analytical. There were a lot of phrases that were repeated by several members over and over. The audience cheered in a reverent manner whenever higher members of the organization were brought up, and especially when the names of people in the Usana company itself, including it's founder.

From the beginning, I had a strange feeling about this. I didn't really know what it was. But now I have had enough time to thouroughly understand how Usana works. It is deceptive marketing at its worst combined with a lack of corporate responsibility and cultish undertones that I've already mentioned. I will post more of my findings in the future. Please discuss in the comments.