We can discuss the differences between an MLM and Pyramid Scheme until the cows come home. However, the principle difference is a Pyramid Scheme is a straight scam where there’s generally no product. While an MLM company will at least be distributing a product, but the general structure is relatively the same.
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NU SKIN: THE BIGGEST MLM OF THEM ALL
Nu Skin isn’t a new competitor in the marketplace. In fact, they have been around for quite a while. They were founded in 1984 in the US. So, they definitely know what they’re doing at this point when it comes to structuring an MLM company and how to run it effectively.
Their general motto is that they will help you “achieve financial freedom, and live your best life” or some generic American Dream-esque tagline. Irrespective of their legal practices or ethics, their whole framework hangs on the premise of attracting people who are desperate for easy money and the dream life….
….If you’ve got a solid job which pays well, you’re not going to be leaving it for this “dream” being sold. Once again, you could debate the ethics on preying on individuals in this financial situation all day.
The problem stems from how the lifestyle is marketed. These days it isn’t uncommon to see people peddling products online showing their glamorous lifestyle and selling some course or product which promises you can do the same.
The simple way the model works is that you make money from the products you sell, as well as the number of people under you. So, the more people you attract to join the team, the more money you make. This leads to many glamorizing their lives in order to attract suckers….sorry….”distributors” to their teams.
ETHICAL ISSUES OF NU SKIN
Here’s an interesting quote from the Federal Trade Commission in the US:
“Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money”.
See the similarities?
The fact is, you DO make money from products you sell. However, there is nobody within the Nu Skin structure making significant amounts of money solely on the product. They are making money because they have many people signed up in the layers below them.
The way Nu Skin gets around this is by making their structure so complex that it is difficult to get any specific concrete evidence to argue that they are 100% a pyramid scheme. I personally land on the side that believes most MLM companies are just Pyramid Schemes who manage to dance around the law.
According to an actual Ex-Nu Skin Representative, the way Nu Skin gets around the Pyramid claims is by stating that their structure is only 6 levels deep, and therefore they cannot be considered as a Pyramid Scheme (evidence).
STATS AND FACTS
Nu Skin currently operate in 52 marketplaces worldwide and they have over 800,000 distributors worldwide.
All sounds very promising so far, right?
Sandie Tillotson is one of the co-founders of Nu Skin who started her business career by starting the Cambridge Diet, another “multi-level marketing company” who eventually went bankrupt. You can see a 1983 article about the demise of the Cambridge Diet here. But, I’ll give Sandie the benefit of the doubt, she might have changed her marketing strategies and ethics.
During the year ending December 31, 2012, approximately 89% of Nu Skin’s revenue came from its marketplaces outside the US, according to the New York Times.
In fact, Nu Skin has a shrinking market in their native United States. Active distributors AND active customers are diminishing.
On a month-on-month basis, only 14.19% of active US distributors actually earned a commission check, and the average commission paid out amounts to $2,112.05 PER YEAR. Yes, that isn’t a typo, the average commissions being handed out by Nu Skin is barely enough to pay your rent for a few months. So, let’s put that figure beside all the luxurious lifestyles being portrayed on Social Media…
LEGAL HISTORY OF NU SKIN
Nedra Roney is also a co-founder of Nu Skin, however, you won’t find her name listed on the website. Supposedly this is due to Roney being involved in prescription drug fraud in the 90s which Nu Skin would rather avoid being associated with. Further to this, if you search for Nedra on Google, you will find that in 2013, her husband was charged with sexual assault of an 18 year old (article).
DECEPTIVE INSTAGRAM ADVERTISING
I decided to write this whole blog post based upon my experiences of seeing their Instagram Advertising on a daily basis. As someone who used to work in the marketing industry, I find Instagram Marketing interesting. However, there was a girl I went to school with promoting this Nu Skin brand regularly, and some of the claims just didn’t make sense.
I’m not going to claim that all marketing tactics are 100% ethical and truthful. However, some of the claims she was making were just hugely skewed and wrong. This is what led me to do some research on Nu Skin, as I hadn’t really known much about them until I started to notice her chatting about them on her Instagram story.
I worked in marketing for around 7 years, and I currently work in the finance industry. The reason this specific ‘advert’/claim peaked my interest was because it was regarding Nu Skin’s performance on the stock market:
Let’s break down all the different aspects of this screenshot, as there is actually quite a lot going on.
NU SKIN – “LEADING WALL STREET”
The context behind the article she is referencing in the photo is that Nu Skin was the largest ‘gainer’ on a specific day (May 1st 2019). Their share price had gone up by 25%. So, they aren’t “leading wall street”, they just increased by a significant amount that day.
The reason they increased significantly that day is because that day was earnings reporting day. So, all companies on the stock exchange move erratically depending on whether or not their earnings met/exceeded/under-performed compared to expectations. In Nu Skin’s case, they over-delivered.
However, if we look at a graph showing the past year of Nu Skin’s performance, that impressive 25% gain doesn’t seem quite so impressive:
The area highlighted in yellow to the far right is the 1st of May 2019, where this 25% spike occurred. It closed that day at $64.32 per share. What the distributors won’t mention is that $85.46 was their peak share price in 2018, which means that at the top of this 25% spike, their share price is still down by over 32%.
Now, it is the 15th of May today, let’s take a look at the movement in their share price the past month:
So, their share price closed out at $52.42 per share yesterday. This shows that every day since that spike of 25%, the share price has gone downhill.
This is often the case for drastic changes on earnings reporting day. Many company share prices will erratically change, and then return to normal later in the month. So, this marketing method of discussing of how great their company is based on this 25% jump is complete bulls*** to be honest.
This is where my issue with Nu Skin lies. Your average individual who isn’t financially educated would look at that screenshot and think “wow, that’s impressive!”. They’re simply preying upon and manipulating individuals who lack the education to know any better.
UP THERE WITH APPLE!
The final part of the Instagram Story post is that Nu Skin is up there alongside Apple, because they happen to both be on this article’s list. I should also add that this screenshot is from an article written by Seeking Alpha, which isn’t an overly reputable source. However, I’ll ignore that.
Let’s compare Apple and Nu Skin and see how similar they are:
- Apple Market Capitalisation: $912.84bn (and this WAS above $1trn at the end of 2018)
- Nu Skin Market Capitalisation: $2.91bn
- Apple September Quarterly Earnings 2018: $62.9bn
- Nu Skin September Quarterly Earnings 2018: $0.675bn
As it is pretty clear to see, comparing these two companies is simply moronic. It is like comparing not even Apples and Oranges, that phrase would be too positive about Nu Skin’s comparisons. However, the marketing ploy here is that EVERYONE knows Apple is huge and successful. Marketing through association. Association through a questionable article source.
LET’S STICK TO STOCK MARKET ANALYSIS
Seeing as we are on the topic of the Stock Market, let’s have a look at some more comparable companies. It is silly to compare Nu Skin to Apple, as they’re in completely different markets, with totally different margins etc. So, I’ll give them the benefit of the doubt and compare Nu Skin to two skincare companies who are generally received as legitimate skincare companies: Estee Lauder & L’Oreal
|Company||Nu Skin (NUS)||L’Oreal (OR.PA)||Estee Lauder (EL)|
I didn’t want to do any deep financial comparison to Apple, as they’re not comparable companies. However, looking at other companies within the same industry, we can see Nu Skin still doesn’t shine. I won’t go into too much detail on the financial comparison. I may do a more in-depth analysis in a later post.
ARE THE PRODUCTS ANY GOOD?
It is perfectly reasonable for Nu Skin to actually have good products. I’m not questioning their actual products, just their marketing structure and ethics. However, I did do some research into this as well, as I’d seen a smattering of posts on Instagram claiming they’d won numerous awards.
ConsumerAffairs.com had an average rating for Nu Skin of 3.5 out of 5 stars. This isn’t horrific, but you’ve always got to take these websites with a pinch of salt, as it is very possible that a portion of the reviews aren’t genuine. Here are some of the more negative reviews:
My galvanic spa just quit working. It’s not worth… I got it for more than $400. I called customer service. They said I need to buy a new one. Wow… The life span is so short. I asked for possible repair but none.
This company is deceptive and immoral. I ordered one thing with a certain price and was charged another and was enrolled in an auto pay/shipment plan without my permission. Sad that a company has to lie to get business. Two different phone reps were rude and hung up on me. Additionally the product that was supposed to last 30 days lasted for two days. Shame on this company.
For Three billing periods, now Nu Skin has double charged our checking account causing several NSF charges. I contacted them when it first started and they assured me it would never happen again. Well, it did and it caused more NSF charges.
The issue generally doesn’t seem to be with their products. They do appear to have won some awards (albeit, not as many as they seem to claim). However, once again it is their ethics and bad business practices coming to the forefront.
HOW THE NU SKIN COMPENSATION SCHEME WORKS
There are certain requirements which must be fulfilled prior to being able to receive a commission check. One of these is managing to complete at least $100 in sales per month.
It should be noted that Nu Skin does not disclose the amount of retail sales made by distributors to actual regular customers. This seems like a questionable piece of information to omit for a direct selling company. This means that their sales figures are highly skewed by stock being sold to distributors.
It would be illegal for Nu Skin to disclose the structure of their distributors, as this would show a shape of a pyramid, and therefore imply that it is likely indeed a pyramid scheme. In fact, it is a part of Nu Skin guidelines to not show any illustrative structures and any illustrations should not extend beyond 2 levels deep.
It seems as though the main way for Nu Skin distributors to make money is simply by signing up more distributors below them, and then selling them products. Despite the figures not being disclosed, I’d bet money that very large portion of Nu Skin products end up being passed down the trail to distributors, as opposed to being sold to customers. In fact, I’d imagine most higher level distributors don’t even promote to customers at all, and simply sell stock to the distributors within their “team” below them.
CONCLUSION ON NU SKIN
In my opinion, Nu Skin is likely indeed a pyramid scheme. They have managed to jump through loopholes in order to avoid this label.
Everyone within the structure is making money by paying someone above them, in order to be eligible to sell stock to someone below them.
As a whole, they have historically used diseptive marketing tactics in order to convince those who may be desperate or unaware to join them. Their income claims are questionable at best, and those are the claims that are actually made public.
Over 85% of ACTIVE distributors do not earn a commission. This alone should be a reason to avoid this company.
Are there any other companies you would like me to do an analysis of? Leave a comment below, and I will start researching! Please Note: The viewpoint displayed within this article is simply my opinion, backed up by facts. I always recommend you do your own research prior to coming to any conclusions.
So, I’m back to add some more to this post, after quite a long time since initially writing it. My viewpoint hasn’t really changed much, but I have been able to gain some more viewpoints from other people.
There is a Reddit community called “AntiMLM” which discusses NuSkin in quite a bit of detail, so I wanted to touch on some of my findings from there.
One of the posts I found quite funny was by a guy who works in the factory which bottles a lot of NuSkin product (and other similar companies), and the sad reality is that him being paid $16/hour is significantly better than the vast majority of NuSkin affiliates. The fact is if you’re a NuSkin affiliate, you’re not an employee of the company. You don’t get official work hours, or time off, or benefits like a pension etc. Because of his position within the factory, he was able to give some insight into some of the products.
One product (which im not aware of the name of) is claimed to be made from dead sea salt. However, in a 5,000 gallon batch of the product, about 1 gram of sea salt ends up in the mix. I mean, I’ve heard of dramatic marketing, but this seems ridiculous!
NuSkin are mostly famous for their “LumiSpa”. I must admit, I’ve actually tried this, as I was intrigued to see if their products were actually good. It is possible the products aren’t terrible, just the practice behind selling them, right?
Well, I have to admit, it isn’t terrible. But have you seen the price!? It costs a small fortune. So, I did some research, and found the following products on Amazon which I found to be equal, or even superior to the LumiSpa!
I found this video with John Oliver quite funny/interesting, in which NuSkin gets a special mention. It is definitely worth a watch!
It seems to me as though the word Pyramid Scheme has been replaced by Multi-Level Marketing, and I’m still unsure as to how they get away with it. In the same way that I’m unsure how the Church of Scientology gets away with what they do. The only logical reasoning for it is legal power, and they must pay a fortune in legal bills.
I mean, in 2016, NuSkin had to settle for $47 MILLION in a lawsuit which claimed that they had a pyramid scheme acting in China. What makes you think their set-up in China is any different to anywhere else in the world? The simple fact is they’ve managed to become so ingrained within the community in the USA and beyond, that they’re a bit like a cockroach you can’t remove.
During the video with John Oliver, you can see a clip of a man from another MLM style company basically admitting the company is a ‘Pyramid’…but it just isn’t illegal. Which roughly translates into the fact that they’re just jumping through loopholes to get around the law.
In other words…these aren’t Pyramid SCHEMES….they’re just Pyramid Shaped….makes sense…right?