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A New Wave of MLMs

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Last edited 3:29 p.m., Dec. 12, 2012

A health-products company and a cell phone service provider are gaining traction in the Springfield area due to modern twists on a familiar business model.

Troy, Mich.-based ViSalus Inc. is a multilevel marketing company known for its Body By Vi 90-day Challenge, which calls on customers to meet their weight loss or fitness goals aided by its $50 to $300 monthly product kits. It currently boasts more than 2,000 customers in Springfield and nearly 400 “promoters” living in the city. Across the state, the company serves nearly 31,000 customers and is represented by almost 6,000 promoters, or commission earners.

A brand new venture, Seattle-based Solavei, has been expanding its footprint since its September launch of a $50 monthly unlimited talk, text and data plan through T-Mobile. So far, Solavei has connected with more than 200 customers in Springfield and Nixa.

The companies are among the latest in a long line of multilevel marketing firms to create their business models around enticing agents and customers to build their own networks and grow with the company.

At ViSalus, promoters utilize a combination of word-of-mouth marketing and social media such as Facebook as well as its own website to spread the word about the benefits of its kits centered around the Body By Vi “shake mix that tastes like a cake mix.”

Company revenues nationwide are on a steep growth curve.

Founded in 2005 as a wellness products manufacturer and then revamped in 2009 to focus on Body By Vi products, its third-quarter 2012 sales were $169.9 million, up 132 percent from $73.2 million in the same quarter of 2011.

ViSalus co-founder and Chief Marketing Officer Blake Mallen said the incentives for customers and promoters have driven a projected 1.5 million people to take the challenge in 2012.

“In an attempt to really build a model that would resonate with today’s consumers when people were really watching their pennies, we reinvented our company around the Body By Vi 90-day challenge, which is essentially us challenging people to make their health a priority 90 days at a time by setting some health-oriented goal,” Mallen said, noting most people focus on weight loss.

Besides offering incentives to clients with the best transformation stories, ViSalus also gives incentives to those who bring on new customers, a hallmark strategy of multilevel marketing businesses. The Three for Free referral program rewards clients who sign up three people to the challenge with free product each month the trio remains with ViSalus.

Mallen said the vast majority of challenge participants don’t advance in the company. ViSalus claims more than 100,000 promoters in the U.S. and Canada, and Mallen said only 700 people earn $100,000 a year or more.

Kerri Sundy, a Joplin-based promoter with her husband Shaine, said the couple is among ViSalus’ six-figure earners. While they regularly serve less than 30 customers in the Joplin area, they manage a team of 2,000 promoters across the country. In two years, the Sundys have earned two BMWs through ViSalus’ Stars for Cars promoter incentive program.

“This is a relationship marketing business, and we had been watching some of our friends on Facebook in Florida losing weight and having some success,” said Kerri Sundy, a former account manager for a pharmaceutical company. “My background is in health care, and it just made sense to go into something that helped people get healthy.”

MLMs vs. pyramids
According to the Multilevel Marketing International Association, there are 75 million direct distributors, or sales agents, working for such MLM companies as Amway International, Mary Kay and Avon worldwide. The MLM association estimates 10,000 companies utilize direct sales, network marketing or multilevel marketing business models, and combined they generate $124 billion in annual sales.

Gary Holmes, an associate professor of marketing at Drury University’s Breech School of Business, said MLMs generally have a bad reputation among consumers because sellers often depend on friends and acquaintances to help grow their client base.

“Your friends become your customers. That creates a different relationship than you would ordinarily have,” Holmes said. “Now, they become prospects.”

He said weight-loss companies typically follow a tried-and-true strategy of showing dramatic changes in body size as a result of product use, and many MLMs offer representatives luxury cars or other notable sales incentives.

While both MLMs and illegal pyramid schemes have similarly structured hierarchies, there are distinct differences.

According to the National Consumer League’s Fraud Center, MLMs sell everyday products or services at reasonable prices – typically below price tags on retail shelves – and costs to join aren’t excessive. MLM participants earn as they sell and offer customer support for questions or concerns. Illegal pyramid schemes place a constant focus on member recruitment and often require high buy-ins to join and recurring membership fees. If selling a commodity, the products or services generally come with a higher price than comparable products in retail stores, and high-pressure selling environments are the norm, according to NCL’s Fraud.org.

“Pyramid schemes often collapse under their own weight,” Holmes said, pointing to the point when participants at the bottom levels stop seeing the benefit of being involved in the company.

More like Groupon than Avon
John Locher, a founding member of Seattle-based MLM startup Solavei, has been moving up the sales ladder since the recent company launch.

As of Dec. 4, the Tulsa, Okla., resident who frequents Springfield had reached Level III status in the second of five sales tiers with the company. By signing up friends through his social networks such as Facebook, Locher has accumulated 1,200 people in his extended network, earning him roughly $1,400 last month.

Locher, a financial planner by trade who now spends up to 30 hours per week on Solavei, said cellular service is something his friends depend on, so it seemed natural for him to try and promote the product.

While Locher acknowledged a multilevel structure, he said the company is more like Groupon than Avon because it utilizes modern social networks to spread its message.

“The way people communicate is becoming viral through social media,” Locher said. “What Solavei has done is said, ‘Why don’t we reward people for what they are already naturally doing?’”

The business model is catching on. In its first nine weeks, Solavei has signed more than 100,000 subscribers and paid more than $1 million in commissions, Locher said.

“People aren’t selling it as much as they’re sharing it,” he said.

Sundy helps people get signed up with ViSalus products through “challenge parties,” a modern cousin of Tupperware parties. By offering nutrition and support, Sundy said she is proud of the work she’s doing.

“We help people lose weight, get healthy, get free products and be a part of a culture and movement that’s really fun and supportive,” Sundy said.[[In-content Ad]]

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