Advocare Market Plan Similar to Vemma

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When I finished my last article I thought it would be nice to move on to something different. Then I decided to read Stacie Bosley's declaration that is being used by the Federal Trade Commission (FTC). For those of you that do not recognize her name please read the declaration. You will soon realize that she is the professor that is being used by the FTC to bring down the multilevel marketing company (MLM) Vemma. If you do not know about Vemma please read my previous article Advocare vs Vemma, where I compare the two companies. I assure you if I had read the declaration first I would have evaluated the information and applied it to my analysis. So let me utilize some of the most important aspects of her statement and see how Advocare would hold up. Let me remind everyone of something. I have never been in the Advocare distributor business, or any other MLM. Even though I write primarily about Advocare, I do not have any biased reasons for writing. So here we go!

Dr. Bosley explains to the FTC about her most recent literature pertaining to Fortune Hi-Tech Marketing, a company shutdown by the FTC in 2013 for similar activity as Vemma and Advocare (Link). Vemma and Hi-Tech apparently required auto-ship in portions of their business model, and that is one of Dr. Bosley's concerns. But other than that, they are all using the same concept. It reminds me of a magic show because the MLM Company, that is the best magician, and makes the pyramid disappear, will last the longest. Well, until someone comes along and opens everyone's eyes. I think the good Dr. might be that person, maybe.

Unfortunately, I did not look at the auto-ship from a biased standpoint so I did not see what the good Dr. was seeing. She believes, because the company required auto-ship to obtain products, that it basically was a requirement to make money. When I evaluated the website I read the offer on how to obtain free products using auto-ship. That requires a new customer to sign up, free, and order 24 cans (1 case) every month for around $75, and do it via auto-ship. Now, if you really like the product and had every intention to order every month anyway, would it not be sensible to get a free case? They also have a maximum of free products you can qualify for (here). Vemma also encourages everyone to be on auto-ship to ensure the product is there for the customer. Wal-Mart auto-ships all the time, it ensures the product will be there when they need it. Of course they call it a point of sale system. Not that the two companies are similar. No, I have not forgotten that someone is going to make a commission from that sale, because that is how all the pyramids work, even the companies that have pyramids you can not see.

I am not really concerned about the deceptive advertising and misleading statements made by all of the Advocare representatives. All of the MLM companies do it. What I am concerned about is what Stacie is using to determine a pyramid scheme.

I will let you read the summary Stacie provided to the FTC and I quote;

" In sum, it is clear from my review of Vemma's promotional materials that Vemma is primarily promoting a business opportunity that can supposedly generate a substantial, even life changing income. The business opportunity is presented as a way to capitalize on social networks and word-of-mouth advertising to promote the product, but the emphasis is almost exclusively on promotion of the business opportunity and income potential rather than the product itself. It is also clear that Vemma emphasizes recruitment of downline affiliates as the primary method of obtaining substantial income, rather than retail sales of the product. The compensation plan strongly incentivized recruitment and provides few incentives for an affiliate to make sales to ultimate users " (#15 in the Declaration link)

So, basically Stacie found or was handed promotional material pertaining to Vemma's corporate representatives and high ranking affiliates. She uses this material to show that the business model focuses primarily on recruiting to make money, with the aid of deceptive incentives such as a new car. If you watch the video, he does promote the possibility of obtaining a new car bonus or college tuition bonus. Which, I believe is taken out of context. If you are in the Vemma business then you know, or should have known, prior to attending the meeting what he was talking about. BK was talking about the Vemma premier club bonus. He is not telling you that Vemma is going to buy you a car; they are going to show you how to earn the bonus that will ensure you extra money to pay your car payment each month. Is it misleading? Yes, but the rules explain what you have to do, and what it entails. So, if you were given false information by your affiliate and lost money, who do you go after?

Stacie and the FTC are using the Koscot test to determine the type of business structure used by Vemma. A pyramid scheme is characterized, according to the Koscot test, by the initial investment to the company in return for the right to sell a product, and the right to receive rewards, unrelated to sales, for the recruiting of others (#19 Declaration). Am I going crazy, or did that test just throw Advocare right into the pyramid scheme category? Relax, I did not say they were a pyramid scheme. But, do they not require and initial investment to sell the product? Does earning commissions not rely solely on recruiting? Other companies have failed the Koscot test, such as BurnLounge and were shutdown by the FTC. If you want to read the actual case you can click here. The court only found one portion of the business to be a pyramid scheme, and that is when someone bought into the Mogul package for fewer than seven bucks. Jesus, Advocare requires seventy-nine bucks. If you want to know more about the Mogul package, please read the case law. The court determined the following;

"Because purchasing a package was required for participants and Mogul's, and because Mogul's earned cash for selling packages "[Mogul's] by default received compensation for recruiting others into the program." The District court concluded that a majority of the BurnLounge business (consisting of Mogul programs and related elements) was a pyramid scheme."

As you can see the case law used against BurnLounge is now being used against Vemma and if I was an Advocare distributor I would be just a little concerned at this point. Some of you might be asking why? Well, let me explain why. BurnLounge had a basic program that you could be involved in by purchasing a package/s. The package allowed the retailer to sell music on their own website, and whatever else they had to offer to sell, in return for product. But if you paid another seven bucks you could start recruiting and make actual money from recruiting. Is that not the same thing we see with Advocare distributors? A Mogul still owned their own website and sold products. If you read this promotional material you will learn how the Advocare plan works right from a distributor. The court then turned to Webster vs. Omnitrition International where the court allowed the FTC to use the Koscot test again. The court also determined it was not enough to determine all MLM companies a pyramid scheme without looking at their business practices. They applied the two prong test which determined;

A. Participants paid money in return for the right to sell a product.

Well let me apply that particular part of the test to Advocare. Before you can sell the Advocare products you first have to become a distributor, and pay seventy-nine dollars, right? Well, if you are not sure, please watch this video right here. You will notice some of the sales pitch in that video talks about making enough commission to pay a car payment, and earn all expense paid trips to Africa, Costa Rica, Paris, and Greece to name a few. The end result is they fail the first test, which is not that big of a deal, I guess. So let's look at the second part of the test.

B. Participants paid money in return for the right to receive rewards for recruiting other participants into the program, which were unrelated to the sale of the product to ultimate users.

The court found that the FTC proved their case by showing that Mogul's had to recruit to be eligible for bonuses, Mogul's were motivated by the possibility to earn a cash bonus, and the evidence provided by the FTC supported their claim. So, the next question is, how will Advocare hold up to the second test. Again, Advocare requires an initial purchase of seventy-nine dollars to make them eligible to recruit, and earn commission from the distributors’ initial investment. The video clearly tell anyone wanting to earn a bonus of $500, to get three people in your first three pay periods to reach $3000 volume, and you will receive the bonus, therefore pushing recruiting over the product.

Is it enough to show that Advocare fails the two prong test? No, not really, according to the cases being used by the FTC. The court will look at the evidence provided to determine to what extent Advocare promotes recruiting over selling the product, or how well the FTC connects the evidence to the two prong requirement of the Koscot test. One of the problems I see with Stacie's analysis is that she picks catch phrases that are used by many MLM companies. She also acknowledges that Vemma does not require any package purchases to enjoy the product. But she does note that an affiliate package has to be obtained if you want to make money. Well, the same can be said about Advocare. She also utilizes comments made at big events or in videos such as this one. That is Boreyko's 2014 Half Time Report video used by the FTC. He clearly talks about selling the product, but encourages people that are serious to get on auto-ship to ensure that you have product on hand for your customers. It is all in the interpretation of what you see and hear. Bosley talks about the auto-ship as if it is a requirement, but admits that it is not. Correct me if I am wrong, but the Koscot test does not require auto-ship or auto-delivery to be found congruent with the FTC definition of a pyramid scheme, to actually be one.

She then goes on to discuss the get two and go program, and there is no doubt in my mind that many of the diagrams focus more on recruiting than selling. They also seem to incorporate the auto-delivery, although I am not so sure that is actually a requirement. Either way, it is very deceiving. But how would Advocares business diagrams withstand Dr. Bosleys analysis.

For example, if you watch Danny McDaniel’s video pertaining to the "Advocare rookie bonus program", he does not talk about selling the product. He talks about how you can use the bonus program as a means to recruit more people. With that he goes on to explain how the distributor can earn $1500 total extra income through commission. Remember, Advocare does not keep track of sales, just purchases. The whole idea is based on recruiting. Just watch the video and see how wide and deep the recruiting goes. Nothing in that video showing you how to sell the product or use the website to help increase sales. If that is not enough proof for you, watch part two "How do leadership bonuses work". The board itself should be self explanatory. Using a diamond he explains you can have as many wide and deep to infinity. I thought Advocares program had safeguards to prevent the recruiting of too many distributors? You would have to read my Vemma vs. Advocare article to understand.

Dr. Bosley makes the argument that if new recruits follow the prescribed formula promoted by Vemma, commission recognized would derive primarily from the recruiting and would not be significantly connected to the sale of the product to ultimate users. That leads me to believe that Advocare should be concerned. Advocare follows the same pattern as Vemma, and teaching distributors to use, and sell the product, will not circumvent that fact. The majority of Advocare promotional material focuses primarily on recruiting, and the commissions are obtain from recruiting, not sales. The good doctor said she can prove her claim by comparing earnings from recruiting and earnings from retail sales. She refers back to #28 of her declaration where she talks about ways to obtain compensation. She begins with sources of immediate income such as new customer bonus, frenzy bonus, and double frenzy bonus. Basically she determined that any bonus is contingent on recruiting and the first purchase of that new recruit. Hmm, where did I hear that before? The new affiliate can receive the frenzy bonus if she/he can recruit three people in the same week and each have a minimum purchase of 120QV. If the new recruits sign up for an affiliate package, and sign up for auto-delivery with 120 points per month the affiliate that signed them up can receive the double frenzy bonus. You get the idea.

As I was saying, Bosley compared sales commissions with recruiting commissions to determine a correlation. She looked at the difference between the income obtained from selling personal inventory and income obtained through recruiting. She determined that an affiliate would have to sell $7000 worth of product to obtain the $700 one could obtain via recruiting. Let me remind everyone that selling will get an affiliate 10% discount, but I do not believe this product has a 40% markup like Advocare. Well, if a Advocare distributor purchased the $79 package, and just sold the product, how would that look. Let me use Danny Mcdaniels words found here. Danny tells you that you have to use the product to sell the product. Well, that is hard to do when they only give you two products. In this video you will see she only received one pack of spark and one pack of slam in her kit. But, if you want to sell you have to be the product, and the new trend is the 24 day challenge. That cost almost $200? If you pause the video at 41 seconds you will notice that number 2 tells the distributor to use the product. Well, based on Danny's words, I interpret that to mean she is to consume it herself. That is not to say she could not use some of what she received at her mixer parties. But, at this point she has a choice, recruit or sell. If a distributor decides to sell, they find a customer, at which point she/he can earn 20% from each sale, but no commission, unless she signs them up as a wholesale customer. Let’s not forget that Advocare products have a 40% markup. If you do not believe me listen to Danny here.

Stacie took a look at what an affiliate could earn selling with the 10% discount, so let me do the same using Advocare Spark. Spark will cost the distributor $41.56 for the big canister with 20% discount, plus $79 for the cost of becoming a distributor. The Distributor can increase their discount by increasing the amount purchased. Notice I did not say by selling, although they can sell some of it. That means she/he can make around $10.50, assuming she can get someone to buy it at that ridiculous price ($52). That does not deduct for personal use and free handouts, but I will erase those to make it easy. If a distributor was able to sell that product to approximately 58 people, he/she would be able to sell their way into advisor, with retail volume around 3,000. Commission would depend on how the distributors sold the product and discount percentage. But we are assuming a set 20% rate with no sign ups. The distributor in this scenario would not earn any commission from Advocare, because she just sold the product. But she would have earned around $600 -$79 for the cost of the distributor package. Could be less depending on how much she used and gave away. Remember you have to be on the product to sell it. Plus you have to travel to friends and family which requires fuel, or sell it on your website. They do not teach you much about that.

Stacie was comparing the $700 earned trough recruiting to retail sales. Well let me use the $500 rookie bonus from Advocare. Danny explains that you could be looking at a $1500 commission. That is more than double the commission Vemma is offering. He uses the advisor status, but I would like to use the 20% distributor. Problems is, a distributor cannot qualify for the rookie bonus unless they buy into the $2100 distributor package, or have $3,000 in retail volume. Danny does not encourage people to sell their way to advisor. If you want to hear him say it himself, just listen to his "How to get to Advisor" video. Just start at 2:17 and you will hear it right from the horses’ mouth. So, what would be easier, selling your way to advisor, or recruiting your way to advisor? If you recruit three people, you can earn commission from both your sales and theirs. If you get 3 people to buy the Advisor package, you would be looking at larger commissions. If you sell you get none. Dr. Bosley also indicated in her testimony that training videos discouraged selling. Really, well so does some of Advocares. Just go back and watch Danny's video again. 

Dr. Bosley continues to use other evidence such as this video of Ruth Elliot and a phone call between David Treat an undercover affiliate. I think you could probably do that to just about any MLM. Anyway, both lead the good doctor to the conclusion that sales were discouraged. Well, I probably could do those all day long using Advocare distributors such as this one. He talks about recruiting 2-3 people a day. I already showed you Danny Mcdaniels saying he does not advise selling your way to advisor. So I will move to the next point before it gets too redundant.

Dr. Bosley then evaluated changes made to Vemma's new 2015 affiliate’s terms and conditions. She said that the changes significantly reduced the capability to sell the product to "ultimate users" by placing limitations on where the product could be sold. Where did I read that before, oh yea, in Advocares policies, procedures, and compensation plan. See, Advocare does not allow selling on personal websites, Amazon, or even a corner store. I guess the good doctor is thinking what I was thinking. If the business is about selling, then why block certain avenues. She also talks about the time spent in video teaching people how to retail the product. I have not watched one video on the Mcdaniels website that teaches people how to sell on their personal Advocare website, or how to market the product as a retail product to improve business. They talk about recruiting to increase retail sales. That is it, besides telling you to get on the product, be the product, and come up with a great story. She also talks about the pricing issue. Vemma has their product marked up, and Advocare has their product marked up, 40%.
I could keep going, but the bottom line is this. Dr. Stacie Bosley has determined that Vemma, like Advocare, grants rewards or commissions that are not related to retail sales to actual users. She indicated that Vemma clearly qualifies for the first part of the Koscot test. But, she looks to the Amway case to determine whether or not safeguards were instilled to prevent product overload, or inventory loading. The FTC determined that Amway was not a pyramid scheme because safeguards were in place. So what did Amway do? They instilled rules that ensured "1. That anyone recruited could get a refund 2. every participant was required to sell at wholesale or retail 70% of the products purchased to receive a bonus that month receive the bonus in that month each participants was required to show proof of retail sales to 10 different customers.  The safe guards are to be stated, enforced, and effective". Vemma does have most of the aforementioned except stating the requirement of proof of sales to 10 customers. Well, how would Advocares policies hold up against that? 
Well, Advocare tends to say one thing, and mean another. Please let me explain. If you read 8,6 of their policies you will notice that they indicate distributors are not required to carry inventory other than the distributors kit. No, but they encourage everyone to go straight to advisor buying $3000 of product for $2100 then you have to sell 70% before you can claim any bonus. They do have some language that requires the keeping of receipts such as 8.10 of the policy. But Advocare indicates that they may or may not ask for the receipts, and not that they will. That statute does not prevent product overloading or ensure 70% of the product is sold. If you scroll down to section II 3.2 of the compensation plan you will see they once again require you to provide at least 5 sales receipts of 5 different customers on Advocares Retail Sales Compliance Form. Again, Advocare, from time to time, may contact people on the list. That does not ensure 70% is sold. "The safeguards must be stated, enforced, and effective", right?
The good Dr. Bosley goes on to make associations between Vemma's customers and affiliates indicating that each received the same discount. But also goes on to say that Vemma encourages the purchasing of products to maintain eligibility for rewards and use as samples in connection with recruiting. But this is getting long again, so let me sum up what I am thinking.
 Advocare definitely is the better magician. Although the only difference I could really see is the fact that Vemma does not offer a very good discount or incentive to their affiliates to motivate them to sell like Advocare does. Other than that, both require everyone to purchase a kit for the opportunity to sell, and earn commission. The prices of the products make it almost impossible to sell it to the majority of Americans. Neither one seems to safeguard product overloading, or truly enforce the policy. There really are no disciplinary measures stated for the breach of that particular policy, that I saw, not that it really matters. They do not appear to enforce it. That would mean they call, and validate 70% is sold all the time. Both companies use deceptive language and training tools. Both focus on recruiting wide and deep, just ask Danny Mcdaniels. Advocare promotes the rookie bonus which incentivized new recruits to get to advisor fast, recruit three people, and get those three people to total $3000. Nothing in their training really focuses on teaching people how to sell the product, and make money without recruiting. None or most of the videos on the Mcdaniels website focused on teaching people how to make money selling products on their Advocare website. Advocare fails both a. and b. of the Koscot test which was enough to close the doors of others, probably enough to close Vemma's, and if so, could be enough to close Advocare. All I have to say is that many people do not really understand what a pyramid scheme is, and what it means when people say only the ones at the top make money. Even Danny Mcdaniels talks about it as being a myth here. Danny thinks because he makes more than the guy that got him in, it is a myth. Take a good look at all those diagrams that I provided within this article. A pyramid scheme is when a company like Advocare, convinces a bunch of pawns to sell their product through massive recruiting. The end result is a bunch of small, medium, and large pyramids with Advocare at the top of them all. Not saying that Advocare is a pyramid scheme, but based on everything I have read, they are looking like one. But that will be up to the FTC. But if Vemma goes down, I would be concerned if I was in the business. 

As usual I encourage some feedback, and be respectful. Thank you for taking the time to read this article and I hope you take the time to read some of my other articles.

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