"The Death of the Amway Salesman"
Quixtar dilutes 70% rule to meaninglessness

amway_salesman.jpg (15782 bytes)
The Death of the Amway Salesman

A site visitor informed me he had heard the Quixtar 70% rule was being changed so I checked out the "what's new" section on the Quixtar website to see what they could have possibly changed. 

As I pointed out in 2003, Quixtar's practice of selling directly to IBOs instead of purchasing directly from their upline, put Quixtar at odds with its own 70% rule.  In the old Amway times of buying product from your upline,  IBOs relied on at least 70% of their volume being resold downline.  With Quixtar's direct fulfillment method, the ability to meet the rule by moving product downline was removed and it required to that IBOs sell at least 70% of their product purchases to others. 

This rule change is not unexpected since this site started pointing out the wording of the rule and how the only way IBOs could now reasonably expect to fulfill the rule was now to get out and sell some product.   As expected people questioned the rule and it appears Quixtar is responding to make sure people who actually read the rules don't get the false impression that you actually have to sell products to earn money in the Quixtar pyramid!

Well Quixtar finally realized they were vulnerable and have made it so anybody can fulfill the rule now!  The new wording for rule 4.18 after 11/4/2005 is:

4.18. Seventy Percent Rule: An IBO must sell, at a commercially reasonable price, at least 70% of the total amount of products he or she purchased during a given month in order to receive the Performance Bonus or recognition due on all the products purchased; if the IBO fails to sell at least 70%, then such IBO may be paid that percentage of Performance Bonus measured by the amount of products that can be shown to have been actually sold, rather than the amount of products purchased, and recognized accordingly. For purposes of this Rule, products used for personal or family consumption or given out as samples are also considered as part of the sales volume.

The 9/9/2005 revision of the rule read:

4.18. Seventy Percent Rule: An IBO must sell at least 70% of the total amount of products pur-chased during a given month in order to receive the Performance Bonus or recognition due on all the products purchased; if the IBO fails to sell at least 70%, then such IBO may be paid that percentage of Performance Bonus measured by the amount of products actually sold, rather than the amount of products purchased, and recognized accordingly.

So, what are the differences?  The first thing that jumps out is one has to "sell at commercially reasonable price".  I guess maybe this is supposed to stop people from dumping product on E-bay for below distributor cost!  Anyway this point is inconsequential.

The second, and most important change now is that personal consumption purchases, and goods given away now count as part of the 70% rule.

My question then is, why even have a 70% rule?  Anybody can now qualify.  They might as well eliminate it altogether.  Since Quixtar has a buyback policy, the 70% rule cannot be because they want to prevent inventory loading.   I think they want to keep the rule, for purposes of the FTC, but water it down to meaninglessness so it cannot be used anymore somehow to enforce a minimum amount of sales so that participants will continue to get paid in the product pyramid scheme

Let's look at the history of the rule and how it has been used by the legal system to set precedent in the past.

Here is the FTC's 1979 description of the retail sales rules that staved off a finding that Amway was an illegal pyramid scheme. Note that the basis for the FTC's decision is that these rules were meaningfully enforced to encourage retail sales.

72. Amway, the Direct Distributor or the sponsoring distributor will buy back any unused marketable products from a distributor whose inventory is not moving or who wishes to leave the business. The buyback rule has been in existence since Amway started. Amway enforces the buyback rule.

73. To ensure that distributors do not attempt to secure the performance bonus solely on the basis of purchases, Amway requires that, to receive a performance bonus, distributors must resell at least 70% of the products they have purchased each month. The 70% rule has been in existence since the beginning of Amway. Amway enforces the 70% rule.

74. Amway's 'ten customer' rule provides that distributors may not receive a performance bonus unless they prove a sale to each of ten different retail customers during each month. The Direct Distributors have the primary responsibility for enforcing the ten customer rule in their own group. The ten customer rule was started by Amway about 1970. Prior to that, there was a 25 sales rule which required the distributor to make 25 retail sales a month without regard to the number of customers. The ten customer rule is enforced by Amway and the Direct Distributors.

75. The buyback rule, the 70% rule, and the ten customer rule encourage retail sales to consumers.

Distinguishing the Koscot pyramiding case, which was tried before Amway, the ALJ explained:

"But, by several rules, Amway requires that commissions are not paid unless the products are sold to consumers. Distributors must each sell to ten retail customers every month; the distributors must certify that 70% of the products purchased by them during the month have been resold; and inventory loading is further deterred by a rule requiring distributors to buy back the inventory of any of their sponsored distributors leaving the business."

* * *

"The Amway system is based on retail sales to consumers. (Findings 72-75, 144) Respondents have avoided the abuses of pyramid schemes by (1) not having a "headhunting" fee; (2) making product sales a precondition to receiving the performance bonus; (3) buying back excessive inventory; and (4) requiring that products be sold to consumers."

Here are some thoughts:

(1) Quixtar's explanations of the seventy percent rule is contrary to the plain language of ALJ's comments. It specifically says that seventy percent of the products must be sold. Nowhere does it suggest that this can be satisfied by your own purchases or those of your downline. As shown above, the FTC approved these rules with the express understanding that the purpose of the seventy percent rule was to prevent the scheme's participants from "securing performance bonuses solely on the basis of purchases." The Omnitrition and Equinox courts have gone on to explain that this rule does not allow purchases by your downline to count as "retail sales." Seventy percent of the products must make their way into the hands of retail customers. Period.

(2) The FTC rule is that the focus of the income opportunity must be "primarily" on the sale of the products to retail customers. "Primarily" has been interpreted by courts to mean "most" of the products ultimately have to be sold to non-IBOs for the scheme to be legal (i.e., more than 50%). Thus, the real rule that Quixtar IBOs must comply with in the U.S. is this one, from FTC v. Five Star Auto:

'Prohibited marketing scheme' means a pyramid sales scheme, Ponzi scheme, chain marketing scheme, or other marketing plan or program in which a person participates under a condition that he or she make a payment, directly or indirectly, to receive the right, license or opportunity to derive income as a participant primarily from: (1) the recruitment of additional recruits by the participant, program promoter or others; or (2) non-retail sales made to or by such recruits.

'Retail Sales' means sales of products, services, or Business Ventures by Defendants, their successors, assigns, agents, servants, employees, and those persons in active concert or participation with them to third-party end users. Retail Sales do not include sales made by participants in a prohibited marketing scheme or multi-level marketing program to other participants or recruits in that scheme or program or to such a participants' own accounts.

Take notice here. From Five Star Auto, the FTC opinion clearly does not accept Quixtar's. An IBO cannot satisfy the FTC retail sales rules by counting sales to his downline IBOs or for his own consumption as "retail sales."

Let's see if the FTC takes notice of Quixtar's systematic dismantling of retail sales as a condition to earn a bonus from Quixtar.

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