Bangalore Magazine
Ramjee Chandran
30 April 2002
Bangalore: According to the local office of Amway India, about six thousand five hundred Bangaloreans have already signed up to become Amway salespersons.
These 6,500 people have paid the USA-owned Amway Corp. Rs 4,200 each.
6,500 x Rs 4,200 = Rs 3 crores. ( Almost)
Cash up front.
And that's only in Bangalore.
A Bangalore company probably can't raise this kind of money in the stock market in these days of tight money conditions. But Amway did. Without advertising. Without the great dollops of press coverage that even the launch of a new whisky usually generates. It's all word of mouth, we are told. Word from the mouths of people living abroad who have been told by Amway to call their kith, kin and caboodle in India.
Word is also out to spam you on the internet. Spam is unsolicited promotional material - junk mail on the Net. Word is out to send you cheap postcards. Calling, writing, faxing or spamming people in India to tell them of the good news. The good news is that they have the means to 'help' you to change your life. To 'own your business'. To 'earn your freedom'. To 'not just get a life, but get a lifestyle'.
The subliminal message is: Stop being a loser. Whatever you've been doing with your life, it is worth less than what you can do as an Amway salesperson.
When I put this last proposition across to an Amway sales person, his response was this: "You've hit the nail on the head. You're right. That is the case."
He explained further: "You don't have to give up your publishing business (thank god!). Use your spare time profitably. What do you do when drive to work? Nothing! What do you do in the evenings? Watch TV? Pah!"
Right through this entire opening phase, something nagged me. There was no mention of what Amway did. What was the 'word' that this guy kept talking about. What was Amway selling?
I asked him. "The dream, my man," he replied his face aglow "the dream. Amway is not selling you anything. Amway is giving you a 'business opportunity' you cannot beat."
The 'business opportunity' to do what?" I asked, still confused.
"The opportunity to use world class products. The opportunity to get others to use world class products. The opportunity to change your life."
"What world class products?"
"Only the best."
"Name one product."
"Many products. 10,000 products. From shampoo to Chrysler cars!"
"I can buy Chrysler cars in Bangalore?"
"Not yet. But the day will come. Maybe not Chrysler cars but maybe Marutis."
"I can buy a Maruti through Amway?"
"Of course! When they tie up the deal."
"What deal?"
"The Distribution deal. If Maruti is smart, they will understand that in a few years, only multi-level marketing will survive. Even Bill Gates said it. The end of retail selling is here. Amway will overtake them. By the year 2000, no one will buy anything from shops."
"Which shops?"
"Any shop. Every shop."
"Nilgiris, Shoppers' Stop, Folio and Bata will all close down?"
"Yes, of course." He sounded a little exasperated. Then he became paternal. He employed the tone one uses to talk to a friend's child. "Are you aware of Amway?"
"Yes," I replied "I have read everything they gave another salesman like yourself. And I went to an Amway meeting."
"Then you have learned nothing, my friend, nothing! You must have spoken to the wrong person. The world is going to change. Haven't I already told you that retail selling is dead?"
I did not give up. "Where is this place where they stock 10,000 products. I'd like to see it for myself."
"Well, it's not 10,000 products yet. But it will get there."
"How many products do they have right now?"
"That's immaterial. You're just being pedestrian."
"Tell me how many products do they have?"
"Six."
"Six of what?"
"Detergents, a great Liquid Organic Cleaner which you can pour into your plants after cleaning the floors and Dish Drops which will make your glassware shine like anything!"
Before I could speak, he added: "They also have a lotion and a shampoo. But why am I telling you all this. The point is not the products but the opportunity. No matter what the products are, the opportunity will make you lots of money. And then you can retire. What is needed is not for us to quibble about details. We - you, me and everybody - must do all we can to make this succeed."
Then, totally pickled in his own sales pitch, he began to shout: "GET OFF THE POT! GET ON THE PHONE, MAN, AND SPREAD THE WORD!! USE YOUR MAGAZINES AND TELL LAKHS OF PEOPLE THE GOOD NEWS!!!"
So I got off the pot, picked up my phone and began to research the story.
How it works
Amway's operations rest on what is called Multi Level Marketing (or MLM). It has been called 'network marketing', 'pyramid selling' (a phrase that inspires vitriol among Amway types). It has also been compared to a chain letter or the buying of a lottery ticket.
How it works is both simple and complicated at the same time.
You try and sign up others as fellow Amway distributors. You get commissions on whatever they buy. You also get commissions on the purchases made by the people whom they in turn sign up as Amway distributors.
The more people you sign up, the more they will buy. The more they buy, the more money you will make.
How to become a millionaire
Now I will explain the 9-6-3 scheme because every Amway distributor talked about this.
Having signed up, you get 9 people to sign up. Next, each of the nine people gets 6 people to sign up. Then, each of those 6 people gets 3 people to sign up.
Here's the calculation:
You = 1.
You x 9 = 9 people.
9 x 6 = 54.
54 x 3 = 162.
Total = 226 Amway distributors in your group.
If you achieve this target, you no longer 'belong' to someone else's group. You become a 'direct'.
The next assumption is that each of these 226 people in your group will buy an average of Rs 1,500 worth of Amway products every month.
226 x Rs 1,500 = Rs 3,39,000 per month.
For every Rs 1,500 worth of product purchase you get 50 PV (Point Value). It works out to about 3.34% of the value of products bought. For every PV you get a commission. It's called 'bonus'.
There is a (telescopic) slab system to determine your bonus.
The lower the quantity of purchase, the lower the commission.
Till you reach the level of 200 PV (that's Rs 6,000 worth of goods), you get no bonus. With 200 PVs, your earnings (bonus for that month), will be Rs 180. When you (together with your group) buy Rs 15,000 worth of products, you will get 500 PV. Your bonus on this will still be 3% and your personal income will be Rs 450 per month less whatever is to be shared with the others in the group.
If you and your group members buy Rs 3.39 lakhs worth of Amway products every month, you will earn 11,300 PV. Your bonus on this will be 21% and you will earn Rs 71,190.00. After sharing your bonus with the others in your group, you will be left with Rs 40,500.
Amway Products vs. Other Products
1. G&H Body Lotion, 250 ml, Rs. 316.00
Nivea Lotion, 250 ml, Rs. 110.00
2. Satinique (shampoo & cond.) 250 ml, Rs. 314.00
Sunsilk (shampoo & conditioner) 250 ml, Rs. 85.00
3. Dishdrops (1 litre =4 litres), Rs. 420.00
Godrej Concentrate (1 litre=4 litres). Rs. 64.00
4. SeeSpray Concentrate, (1 litre=4 litres) Rs. 290.00
Colin Glass & Household Cleaner, 4 litres, Rs. 252.00
5. Amway Zoom Concentrate, 1 litre, Rs. 299.00
Robin Cuffs N Collars, 1 litre Rs. 128.75
6. LOC High Suds Organic Cleaner,
(1 litre=167 litres) Rs. 322.00
Teepol, 5.5 litres=167 litres, Rs. 352
(NOTE: I could not work out a way for people to spend
Rs. 1500 a month without wasting the product.)
At this level, the bottom 162 people in your group make no bonuses at all because their PV is less than 200, having bought only Rs 1,500 worth of product. However, you have nothing to worry about. You will make bonuses on their purchases because their PVs are counted in your tally.
Remember, you will earn this Rs 40,500 a month only:
1) IF you get to sign up 226 people;
2) IF you make sure that each and every one of the 226 people buy Rs 1,500 worth of products EVERY MONTH; and
3) IF every one of these 226 people has the ability and the desire to pay Amway prices (see box) because Amway makes the claim that their products are 'world class'.
When you get 226 people in your group, you become a 'direct'. Your commission drops to 4% on the purchases of the group.
Then what? Then you go sign up more and more people if you want to make more money.
If you want to become a millionaire, you will need to sign up several hundreds of people and have them all buy more Amway products.
If you are the poor sod at the bottom of the heap, you will be told 'if you work hard' you can sign up hundreds, why thousands, of people from anywhere in the world to become Amway distributors and that, by 'working hard', you can beat the odds and become a millionaire.
(When you become a millionaire - by 'working hard' in your spare time - you can buy the BMW they kept showing you in the promotional videos - the one that had the stereotype honey-blonde draped over the dude who was playing golf.)
You are also being told that if you aren't making nice dollops of money, it is because you aren't 'working hard'.
The definition of 'working hard' is to get as many people as you can to pay Amway Rs 4,200 to become distributors.
There's another way. That is to sell products door-to-door or person-to-person. You could do that too. There should be nothing to stop you from lining up outside apartment buildings with the dabba distributors of Bangalore (see photo) and sell Amway shampoo for Rs 315. You could also be posh and invite the ladies of your kitty party for tea and then sign them up or sell them shampoos or detergents.
The positive side to Amway
Let me say that the above is the positive side to Amway. That is, the chance to make money.
It is the chance to get oneself involved in a trade as a side business, specially if one is trying to recover from a failed (or failing business) or one has lost one's job. To the extent that a few people will surely make money, the system works.
Alas, that's not where the story ends.
Because for every one who makes money, there will necessarily many who do not.
Indeed, as I went along from Amway distributor to Amway distributor, I found myself vastly better informed than most of them, with the exception of one articulate couple. They spent over 2 hours with me, explaining the nitty gritty of the commission structure, despite reservations. I thank them for this. In direct contrast was my experience with the people at Amway's nice office on Airport Road. (See box below.)
Hiding from questions
I spent 2 hours in the Amway office on Airport Road. The administrative manager, Arijit Mitra turned out to be extremely personable and a gentleman.
However, he did say that he would not be able to answer any questions about the details of the scheme and indeed, he wanted to know why I wanted to write an in-depth story. His colleague, a lady that distributors speak to, first told me that she would come back in 10 minutes and then she vanished from plain sight.
After one and a half hours, there was no sign of her and Mitra kept me engaged. Then another lady came out and told me that she was 'very busy'. I told her I would wait indefinitely. Then Mitra reappeared from the bowels of the Amway office and looked apologetic. He said his colleague would not meet me because she did not want to meet me. He explained that she was not 'authorised to talk to the press'.
I tried to ask him to tell Vinitha not to hide inside the building and that my questions were very simple. But no dice. I never got to ask questions of the very person who was qualified to answer them. Then I asked Mitra to call her superior (Gowri Someone) in Delhi so I could talk to her. He did. He told me that she had told him the same thing.
Mitra asked me to go to Delhi and speak to someone called Steven Beddoe. He said there was no one in Bangalore who was authorised to talk to the press. I asked Mitra why Amway had people in Bangalore who were authorised to take money from Bangaloreans but no one who could be accountable for this.
Mitra had no answer.
The underside of Amway
My basic problem with Amway is that I believe that the success of some is dependent on the failures of others. That is:
1. Amway will make money; and
2. Some distributors will make money; but
3. Both will do so at the expense of the many who may not.
And those who don't will probably be middle income people for whom Rs 4,200 is a major piece of investment. (My accountant spends less on school fees for his two children for the whole year.)
As a quick aside, let me quote the 'zero sum theory'. For those who might not know it, this is a theory propounded by the famous economist, Lester Thurow. His book 'The Zero Sum Society' explains it in detail with a lot of econometric models. It will take me over a 100 pages to go into all that. Basically, Thurow said that for every person who has made a certain amount of profit, someone else has made an equivalent amount of loss.
This is like the horse races. Any Turf Club will make money. A small number of bettors will make money. (One of them will hit the jackpot.) The only way that the Turf Club can make someone rich is because thousands of hopefuls lose their bets and their money. It is the losers' money which is collected and passed on to the lucky ones. The lottery works in pretty much the same way.
I am not saying that Amway is like a horse race or a lottery. But the overall money movement and the odds of someone becoming rich are startlingly similar.
This is better explained with numbers.
Remember how many people you need to sign up? I'll remind you - 225.
If you must get 226 people (including you) to sign up, then consider this.
6,500 people (in Bangalore alone) have already signed up.
Each one of them hopes he or she will make a lot of money.
It is reasonable to expect that if one Amway distributor stands a chance of becoming a millionaire, then every Amway distributor should stand an equal chance of becoming a millionaire. Otherwise it is exactly like a horse race.
So, if all 6,500 people adhere to the 9-6-3 formula, then hold on to your hat when you read this.
6,500 x 9 = 58,500 Amway distributors
58,500 x 6 = 3,51,000 Amway distributors
3,51,000 x 3 = 10,53,000 Amway distributors.
That's Ten Lakhs Fifty Three Thousand (or 1.053 million) Amway distributors for the city of Bangalore.
An employee of Bata Shoe Company, (the masters of retail selling), told me they employ about 30,000 sales people in their 1,500 stores across the nation. 30,000 Bata sales people for the whole of India. 10,53,000 Amway sales people only for Bangalore.
The standard response to this is that all these Amway salespersons are not necessarily going to be in Bangalore. You can pick up the phone and call someone anywhere else in the world.
Therefore, you can call your cousin in Ooty and tell her the 'good news'. She pays Rs 4,200, then she will call her nephew in Raichur who will pay Rs 4,200 and he will call someone else who will pay Rs 4,200 and so on. All this is done in the hope that more sign-ups mean more people will buy Amway products.
So if not 10,53,000 Amway sales people, how many will actually operate in Bangalore? Let's hazard a guess. Half ... 5 lakh salespeople? 2 lakh sales people? 1 lakh sales people? Will there be any left at all?
Two days after my visit to the Amway office I received a call from the Amway HQ in Delhi, from Steven Beddoe, GM, Distributor Services. He told me that the numbers would never grow to what I have mentioned above. Because I persisted, Beddoe suggested that the possible number of Amway distributors in Bangalore would be about 1.67% of the middle class population.
Bangalore's population is about 5.2 million. Of this let's be conservative and say that 25% are middle-class. That is 1.3 million of which 1.67% (21,710) would be Amway distributors. Beddoe reacted again. He said he didn't think that the total number of Amway distributors would be that many. (He even said that the number was less for a certain South Asian country.)
I asked him if that number could be as low as 10,000. He said that was a possibility. (10,53,000 to 10,000 and we still don't have a number.)
Then the chances of people making money is slashed because Amway themselves are suggesting that each person will sign up less than 2 other people on an average. Therefore, if some of them manage to sign up 226 people, many others won't sign up people at all.
And if you divide this number - 10,000, into groups of 226, then the total number of 'directs' in Bangalore will be 44.
10,000 - 44 = 9,956 Amway distributors who do not stand the chance of becoming 'directs'. Who will be among the lucky 44?
You?
I asked Beddoe to help me with this puzzle and apart from giving me philosophical discourse, he couldn't address the matter of numbers. All he said was that Amway distributors should sign up more and more people.
Which brings me to me to my next thought.
Why Amway will make money even if you don't
Another interesting calculation: If 1.05 million people sign up, Amway will receive Rs 4,422 million (Rs 442.26 crores or US$ 110.55 million) in up-front cash from this 'cash rich' country.
They will have earned all this money without having sold a single one of their very expensive products.
What is a pyramid scheme?
China recently banned direct selling. The Chinese government defended its move on the basis that direct selling operations like Amway can easily turn into 'pyramid scheme' operations without thorough regulation.
In a typical pyramid scheme, people are obliged to buy over-priced products which they cannot return. The only way that the company makes money is by bringing more and more people into the network. The company makes money on their initial sign up fees.
Such companies would not care if products are not sold, since the pressure to move products rests with the 'distributors'. The distributors also are motivated to sign up more and more people because that's the only way they can move any products.
The danger of the pyramid scheme is that those who join later in the scheme are stuck at the bottom of the pyramid and have very little chances of making any money. But no one wants to believe that he is at the bottom of the pyramid. And the effort to sign up people far exceeds the motivation to sell products from door to door.
The Federal Trade Commission of the USA ruled that Amway was not a pyramid. The basis for its decision was that Amway encourages its distributors to sell products at a retail level. But The Advocate newspaper in the US reported that these rules are not enforced, followed, in fact, not even monitored.
Suggesting that Amway is a pyramid scheme evokes considerable ire among Amway people. All of them parrot the standard Amway comeback that every corporation is a pyramid. The guy at the top makes more money than the bloke at the bottom. But in a commercial operation, that is any company, nobody takes money from all the employees as Amway does from all its salespeople.
Then, by some chance, if all these people actually manage to spend Rs 1,500 a month on products, Amway will giggle into their bank manager's sleeves having earned another Rs 18,954 million (Rs 1,895.40 crores or US$ 473.85 million) on sales every year.
Surely, the numbers I have outlined above are absurd. No one supposes that Amway will turn this kind of money around. But the significant thing is that these calculations are based on Amway's numbers, not mine.
I seek to demonstrate from these numbers that no matter how many Amway sales people there are and how much they buy every month (even if they do not buy anything), Amway stands to make a lot of money from the initial sign up fees.
Because, for Rs 4,200, you get about Rs 2,000 worth of products. (It means they have sold Rs 2,000 worth of products for Rs 4,200) The rest, they say, goes towards giving you a 'business opportunity'.
In addition Beddoe informed me that each year, distributors will have to 'renew their contract. He wouldn't confirm the exact amount they will have to pay, but said it would be in the region of Rs 1,200. So, the existing 6,500 people will give their American masters a revenue of Rs 78 lakhs a year ... money for jam.
One Amway distributor told me that if he did not buy products worth at least Rs 1,500 every six months, he would be bounced out of the system. One Amway employee denied this. Another distributor said that the distributor I spoke to was 'a bullshitter'. (Frankly, I found it difficult to establish who should be believed.)
If this is true, Amway stands to make about Rs 2 crores a year from this minimum performance requirement.
Add to this the number of others (in the entire country) who may have signed up and your guesstimate on Amway's profits is as good as mine. They could recover more than their entire capital cost in a quick manner with a hefty profit to boot, without any heartburn about selling products. If they were keen on selling products, they would appoint a number of sales agents.
(Courtesy: Bangalore Magazine and www.angelfire.com)
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