Summary

- Herbalife is a company that focuses on nutrition, weight management, and personal care
products with independent contractors selling in more than 90 countries
- Mark Hughes founded the company in 1980
- Herbalife was taken public in 1986 on the NASDAQ stock exchange. Since then, Herbalife has
become a multibillion dollar global company.
- (2000) The next year, Mark Hughes died unexpectedly at the age of 44. Christopher Pair, who
was Herbalife’s former Chief Operating Officer (COO), then became President and Chief
Executive Officer (CEO) of the company
- In 2002 the investment firm J.H. Whitney
& Co. purchased the company along with another investor and took it back to the private
sector. However, in 2004 Herbalife went public once again and was traded on the New York
stock exchange
- . Michael O. Johnson has been Herbalife’s CEO since 2003.
- Herbalife International is the third largest direct selling, multilevel marketing company in
the world
- Herbalife’s headquarters are located in Los Angeles, California, and they operate in many
countries throughout the world
- Herbalife is a publicly traded company that is both loved and hated by investors and
consumers.
***Product
- Herbalife sells weight management, targeted nutrition, energy and fitness, and personal
care products, all intended to support a healthy lifestyle.
- Its product line consists of weight management and nutrition products
- 3 core product:
Formula 1 Nutritional Shake Mix
is a protein and fiber shake with minerals, vitamins, and nutrients offered in a variety of
flavors. Formula 2 Multivitamin Complex is a multivitamin that contains over 20 vitamins,
minerals, and herbs essential to healthy living. Formula 3 Cell Activator promotes absorption of
minerals and vitamins while improving energy levels
- protein bars, snacks, soups, teas, and soy nuts all serving the purpose of helping
customers attain a good health
- Multilevel marketing
- Direct sellers earn income from their own sales of products as well as commissions from sales
made by those they have recruited
- Nearly 75 percent of Herbalife members are single-level distributors
- Is common and legal approach for direct selling products around the world.
a. Herbalife’s direct sellers
- Nearly 3 million independent contractor direct sellers of Herbalife products
- Contractors can sell the products at any price they want and can generally make most decisions
on how they want to position and sell their Herbalife inventory
- Most of its distributors do not have a physical store location but practice direct selling from
home.
- In 2014, Herbalife disallowed independent online selling it created a centralized e-commerce
section on its website which, when a customer places an order, randomly connects the customer
to a suitable distributor
- One aspect of Herbalife’s model that has raised concern is its approach to line commissions, or
the way sellers can make money off the sales of their recruits
b. Pyramid schemes
- is a fraudulent business model, with the vast majority of participants losing their investments
while the few at the top of the “pyramid” profit.
- Has 4 characteristics:
(1) people pay the company to participate;
(2) in return, they gain the right to sell a product or service;
(3) they also are compensated for recruiting others; and
(4) this compensation is unrelated to whether or not any of the product or service is actually sold.
- Participants have little or no incentive to sell products, but only to continually recruit others into
the scheme
- The participants at the top of the pyramid earn money when new members are recruited through
the newcomers paying membership fees and/or buying initial product inventory
- William Ackman – a billionaire investor had spent a year studying Herbalife to concluded it was
an elaborate pyramid scheme and expose Herbalife as fraudulent.
Criticism Against William Ackman: Ackman was also criticized for the methods he used in
attempt to bring down Herbalife. For example, Ackman's company pad civil rights organizations
$130.000 to collect names of people who were allegedly victims of Herbalife, but the Attomey
General found issues with some of those letters Ackman was suppose to receive from such
organizations as the letters were identical
- The controversy continues: Spent millions on lobbying and marketing
+Made internal changes
+Launched several websites featuring positive feedbacks from users and exhibiting Ackman in a
negative light
+ Stated they are cooperating fully with investigators