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.
5 comments:
I'm a little bit confused as to your argument.
From what I understand, there are no fees to join Usana either as a distributor or client - any money paid is for products.
The company sells vitamins and other related products, and like any other company, revenue is from product sales.
They use an MLM structure (same as Amway and many others) as their primary sales strategy, but their revenue is in fact from recurring sales.
Platinum, there actually is a fee which is either about $20 or about $50 (delux) to become a distributor at USANA. In addition, I find that product purchases are a requirement for all active distributors and therefore act economically in the same exact way as a de facto joining and service fee. These are counted as "sales volume" and increase the commission points of a buying distributor's upline. It pays to have active distributors below you.
I was not aware that there was a specific distributor joining fee.
However the concept of a minimum monthly product purchase requirement is the same as with any MLM company. It's no different if you were to purchase any franchise business (Subway, McDonalds etc.), the proprietor has to meet a base monthly sales requirement to maintain that franchise.
Again, all MLM's work in a similar manner - the more active distributors below you, the more you would make. I know Amway works in this manner, and they are a very successful model.
From what I've seen and generally read, Usana puts out a high quality supplement line which is likely why their distributors have no issues with monthly minimum purchases.
But I also understand anyone can simply purchase the products for personal use while not wanting to be part of the MLM structure.
I suppose what I'm really wondering is if your argument is against all MLM structured companies or if there is some specific issue you have with Usana?
OK UsanaReport, I have just read this posting of yours and you have more holes in your argument than swiss cheese. Your most grievious assumption (and that's what all your arguments are...just assumptions) says "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." That is the most ridiculous thing I have ever heard......I live in Vancouver, BC Canada and with a population of about 2 million people and the vast majority of people here have never even heard of Usana let along the milllions and millions of people on this planet who have never even heard of Usana before. You seem to forget that Usana is a global company, the are ONLY in 14 countries and with more countries joining every year......They are barely in Europe, they haven't even touched Africa or India and they are not even in China yet (with a population of at least a billion people). How in the world could you say that you would run out of people to recruit?? Even if you only focus on North America, there is still plenty of growth (and this is applicable for ALL network marketing companies) as every year there are always new batches of people just entering the work force who have either just graduated from high school or from university who are looking to make money (either from a regular job or in owning their own business). Plus, when you add to this mix the fact that we are in a recession right now, with record numbers of layoffs and company closures........you're getting hundreds of thousands of unemployed people who are fed up with the system and are looking to take matters into their own hands, so to speak....right now there are at least several hundred thousand people who due to job loss or layoffs and looking for another way to make money, and more than likely, from a home based business (MLM etc.) And a lot of these people have never ever been in the network marketing business before and are approcaching it without any preconceived baggage that veteran mlmers may or may not have. My point is that there is more than enough to go around for all the MLMs out there and that NOW is a wonderful time to sign up distributors so I really don't see how your argument holds water. MLM is a growing industry and will just continue to grow worldwide; We will NEVER run out of people to sign up.
The problem is when distributors are required to purchase products THEMSELVES. This requirement ties the product purchase to the opportunity. You are actually buying both the product AND the ability to participate in the business with one purchase. Demand for the opportunity is then counted as demand for the product. This actually creates artificial demand for the product, which also drives up prices and harms the consumer and makes the product even more difficult to retail.
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