Posts Tagged multi-level marketing
Multi-Level Marketing Scams: Problems with Quixtar (Part Two)
Posted by elizabeth in Home Based Business on April 30th, 2009
In the first part, I discussed problems and complaints I have in hind sight about the Mary Kay business opportunity. I am sure there are some “successful” Mary Kay business owners out there, but the majority of their revenue comes from the people they too suckered in, not selling cosmetic products.
About a year after I stopped wasting time and money on Mary Kay, and after I paid off my initial inventory debt, I was approached by someone with Quixtar. The first time I heard the pitch, it wasn’t very professional and I walked away. I had no problems seeing it for the MLM it was, and I wasn’t interested in doing that again!
A few months later, as I was itching again to be my own boss a more professional and glossy presentation swayed me. Now the program didn’t sound like an MLM, it was pitched more like a wholesale business opportunity. I paid my yearly fee, which was about $149 back then, and thought “Finally, a large catalog of wholesale products I can sell!”
Teeny-Tiny Profit Margins: When wholesale Isn’t wholesale
The first complaint I have is my own stupidity. I sat at this mass recruiting event, which gave me a false sense of legitimacy, and lapped up every word out of the presenter’s mouth. He had charts, and a power point presentation. He showed an example of how we can buy in bulk from the Quixtar catalog special vitamins and sell them or supply them to gyms, spas, and other retail outlets. Of course he said this was just an example, the Quixtar catalog has hundreds of products available for resale.
Wow, this is exactly the complaint I had about Mary Kay that I was now seeing melt away. This is what I wanted to do: If I was going to sell something, I wanted to sell in bulk. Additionally, the presentation showed other brand names I did recognize, and my yearly “business fee” allowed me access to wholesale lots of these products. Not once in this presentation was there the traditional MLM scheme of recruiting more people.
I should have asked to see an actual catalog. Once I was a Quixtar IBO (Independent Business Owner) I was sent one of the catalogs. Turns out, the ONLY products really wholesale priced were the vitamin supplements. Everything else was priced comparable to any bulk wholesale store like costco, Walmart, or BJ’s.
During the presentation, the profit margin sounded great on the vitamins. However, I really had no interest in selling vitamins, instead I was intending on selling the cosmetics. After all, I had experience there. The difference though on most of the products was only 5-10% from retail price, and that was before I paid for shipping fees! Plus, the brand names were nobodies. There was no real way for me to resell these products and recoup any kind of meaningful salary for my time and effort.
Quixtar Quickly Focused on MLM Downline Than Products
It didn’t take long too before once again I was called in to learn how to recruit people into my “cluster.” One difference with Quixtar was their multiple levels to my cluster; I could bring someone in to just buy products from my website or I could entice someone else to pay that yearly business fee and make a percentage on their product sales.
Here’s the bottom line: programs that only bring you meaningful profit based on a number of people below you also selling products do NOT work. I have learned the hard way that REAL wholesale suppliers sell inventory at least 25% below retail price. The wrong way, which is what many MLM scams are founded upon, are fake business models. Eventually, the people on the bottom get nothing but the paltry 5-10% savings on a select number of products. Yes, you are one of those people on the bottom!
Quixtar Scams by Making You Wait for Profit Payments and Changing the Profit Margins
It’s been so long that I honestly don’t remember the convoluted points system to get your “paychecks.” Each product was worth a certain number of points, arbitrarily set by Quixtar so they could protect their profits. Once you reached certain point thresholds, then you received a check. I ended up only buying products for personal use. This is one of the many excuses given for why there is really no risk as a family will save $149 in a year from replacing groceries with Quixtar products. Unfortunately, we were a family of two at the time, and I doubt I recouped my losses there.
The problem with this system is the points per product structure changed quarterly. As a business woman, there was no real way to plan business goals, even IF the profit margin was worth it. Supposing I did find a magic buyer willing to buy inventory from my website for their retail business, unlikely since real wholesalers have better prices. From quarter to quarter my earnings on those exact products would change. One quarter a case of energy drinks might be worth a certain level of points, and the next quarter only half points. Why couldn’t they just spell it out in dollars in cents? Because then most people would see the paltry profit margins on the products!
Overall, Quixtar is an overpriced bulk grocery membership club. For the yearly business fee, you get prices similar to what you pay at any wholesale grocery club, and you can also pay to have it delivered right to your door. Again, you are not going to make much money selling the products to business customers, it is not a true B2B program. The only way to bring in hefty checks each month is to recruit a bunch of people into your cluster, and there are only so many people you can talk into this kind of thing.
Multi-Level Marketing Scams: A Home Business Opportunity With No Profit
Posted by elizabeth in Home Based Business on April 30th, 2009
What a dream, I can work from home with flexible hours and still put my family first! This is the promise of home based business opportunities, but not the truth for multi-level marketing schemes (MLMs). I fell victim to not just one, but TWO, multi-level marketing scams. The first is one that has been around for decades, the well-known cosmetic company Mary Kay. The second was the renaming of the old snake Amway, called Quixtar. Here is what happened, what I learned, and warning signs for you when you evaluate an “opportunity.”
First, each of these experiences occurred about five years ago as I now run a successful writing e-business. I can’t promise the policies and problems I ran into are still a part of the plans that are peddled in mass recruiting events. Even so, what happened to me can still save you! There are many other MLMs out there with similar complaints and problems.
Problems With the Mary Kay Opportunity
Mary Kay makes great cosmetics, I still use them today. I also loved selling them. I am an outgoing person with natural public speaking ability– getting orders wasn’t hard. I learned everything I could about the products, including the active ingredients, and made my demonstrations fun for customers.
The biggest complaint I have looking back on my Mary Kay business is my “mentors” were NOT business women, they were saleswomen just like me! They didn’t understand how their “suggested” inventory levels of only certain products were dooming new business owners. Every sales woman is different, and it takes a few demonstrations before it is clear which products the business owner is best at selling. I wanted to stock only a few of the cleansing products but mostly the color cosmetics as people my age didn’t care about anti-aging.
Instead, I was bullied and discouraged from deviating from THEIR tried and true inventory model. Now if this inventory model was actually based on their experience, that’s fine. But it wasn’t. No, the inventory I was told to start off with is what the Mary Kay company makes the most return on because they know very few of us starting out are going to be successful.
Another major problem was the lack of focus on true business skills. My recruiter was more interested in helping me make cutesy little programs for my hostesses that had no ROI analysis behind them. It’s not her fault, no one in her “up line” taught her about running a business either. Why? Because with Mary Kay you are not running a business, you are a door-to-door saleswoman of cosmetics.
Why Isn’t Mary Kay a REAL Business Opportunity?
In REAL business, the focus is on profits, NOT recruiting. Again, after the disastrous inventory level advice, and costly hostess incentive programs, the next complaint I have is where they did focus. I was pressured again and again to bring other women to our monthly meetings. Every month my “Red Jacket,” a saleswoman with three other saleswomen beneath her, wanted to know who my current “prospect” is. We never sat down and made a business plan or goals for selling Mary Kay. Nope, I was coached and coached again on how to sell the “business opportunity.”
Sure, in running a real business the possibilities of franchising out your successful model is lucrative. But this isn’t franchising. In fact, individual franchise owners have control over how they run their business. With Mary Kay, the saleswomen do not. The parent company says:
“You can’t sell Mary Kay products in any retail outlet, like shopping malls or salons.”
“You can’t market them online outside of our website service (which you must pay for) and cannot personalize or modify.”
“You can’t combine Mary Kay products with any other service or product promotion like spa treatments.”
It’s easy to fall for their nonsensical justification, too. For example, when I questioned the retail outlet sales I received a perfectly practiced response from my Team Leader. It was just rhetoric the Mary Kay company taught her to say.
I was told that the Mary Kay brand is all about enriching women and giving them personal beauty consultation. If I am just selling the cosmetics to a salon or at a mall booth, how can I give that “personal touch?” Oh, at first that sounded like a really good business model. Later I learned this was all a crock. Even though I was Mary Kay Beauty Consultant, my monthly training sessions did not allow me to apply makeup on anyone or give specialized advice for skin care outside of the product pamphlet. I spent more energy appearing to personalize the cosmetics, while constantly mitigating my risk of legal trouble for not holding a cosmetology license.
So think about this, as an IBO (Individual Business Owner), who they deem to be a “wholesaler” of Mary Kay products, I can’t sell products to a local beauty salon for them to mark up or give to their customers? I can ONLY sell this makeup in a private home setting? Imagine if Subway told it’s franchisees they can only sell Subway sandwiches out of their own kitchen? Or that they weren’t allowed to cater events?
Complaints About Mary Kay That Are Common MLM Red Flags
Here is what I learned as an entrepreneur from my failure of selling Mary Kay:
Beware any push for set inventory levels. Real business suppliers may have minimum order amounts, but they are never going to tell you to wait on buying certain products until later. Real wholesale suppliers make money on the products, and want you to stock as much as you can.
Run away from “business mentors” who do not, or cannot, use business terminology. We never spoke about profit, devising promotions for a high ROI (return on investment), or strategies to find more clients. Instead, the language was about how much I could make, gift incentives, and prospects to become down line Mary Kay business owners.
Never sign up for a business opportunity you do not need a business license to operate. Legitimate business owners must have a license to operate in their state or county. Not all business types require payment for this license, but registration with the state for tax purposes is necessary. How could I be a business owner, as Mary Kay called me, if they made all the decisions? Why would they say “Provide personalized cosmetic and skincare service.” but in the same breath tell me to never touch the client or apply anything as I do not have a cosmetology license? Even if I had one, the company policy still stood because they didn’t want to be responsible for my actions as a cosmetologist.
Avoid selling any type of product or service that is heavily restricted. I would have had my own pink Cadillac in a heart beat if I could have sold Mary Kay the way it should be sold. I had contacts with nail salons who wanted to use and sell the nail care products, and a massage therapist friend interested in the line of skin softening lotions. I knew I could distribute at least $1,000 of wholesale Mary Kay each month. But I wasn’t allowed. I wasn’t even allowed to sign them up as Mary Kay business owners because they wouldn’t be allowed to distribute or sell the products with their other services!
I don’t know why the Mary Kay parent company doesn’t let their “business owners” grow productive businesses and just keeps them saleswomen. My guess is the parent company markets and sells Mary Kay cosmetics under other names and doesn’t want any competition on their market shares there. Sure, to be legal and honest these other products would be slightly different formulations, and I have no proof this is what happens. It the only logical reason I can think of for how they operate as a company. However, real suppliers for wholesale and retail sales of products do not operate like this.
All I know is the Mary Kay “business opportunity” is not really a business, nor a franchise. Instead, it’s just a dressed up Multi-Level Marketing scam, trading on people singing up and buying that initial inventory, but with no real interest in further sales of the products. This is evident in the lack of business development and overabundance on sales force training. It is clear in how they restrict product sales but push signing up new “business owners.” Any one wishing to be a true entrepreneur and not just a sales lackey should avoid Mary Kay, and similar MLMs.
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