Sheryl Stephens

Discussion Board: Herbalife

1. Why has Herbalife’s multilevel compensation model been accused of being a
pyramid scheme?

Multilevel compensation model is a model where,

1. The products are directly sold to the customers and earning a discount or a
commission on the products.
2. Recruiting people for selling the products to the customers.

The products are sold by the contractor who takes a contract of direct selling of the
products. He takes the contract because, he might like the products and wants to
become an ambassador for the products by marketing the product, or he would want to
stay loyal to the brand or he might also want to use the products for his personal
consumption and enjoy the discounted benefits that are associated in becoming a direct
seller. A direct seller normally sells the products by meeting people and having a face-
to-face discussion of the products. This is called a single level marketing. The main

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reason for this single level marketing is to reap benefits of commission on his personal

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consumption.

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If the contractor goes one step forward and recruits the people and make them direct

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sellers then it is multi-level marketing. It means, all the people who are recruited under
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this contractor sell products and the sale benefit of all these direct sellers under the
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contractor goes to the contractor who recruits them and obviously to the sellers. It
means, a contractor who is dealing with a multi-level marketing earns by selling
products himself plus he gets the earning of all the people who are working
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under/recruited by the contractor. Say, a contractor who is doing a multi-level marketing

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has 6 people under him, who are recruited by him. Let's say the total sale earnings of
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the 6 direct sellers is $1500. Contractor has a personal sale of $500. So, the earnings of
the individual sellers is their individual sale. But for the contractor, it is $2000. That is the
total individual sales of the sellers plus his sale. This is considered legal.
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It is said to be illegal or a fraudulent scheme if, the main aim of the contractors is to
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recruit people by giving them false claims. It is also called as pyramid scheme. In this
scheme, certain amount of money is being taken from the people who desire to become
a contractor. This money goes directly to the top people of the pyramid. The main
emphasis in the pyramid scheme is not selling the products. Because, the products are
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either overpriced or of poor quality. So, the quickest way to earn is to recruit as many
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number of people. And get commissions by recruiting and bringing every single person
to the loop. It is called fraudulent because, the bottom part of the people are deprived,
and cheated with false claims and the top people of the pyramid enjoy the benefit of
sale and recruitment.
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Multi-level compensation scheme is accused to be a pyramid model because, both run

on similar lines of recruiting the people. In multi-level compensation, the people are
recruited for selling the products but in the pyramid, the people are recruited to earn
money for the top people of the pyramid.

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 Sheryl Stephens
Discussion Board: Herbalife
2. Describe the differences between a legitimate business model and a pyramid
scheme.

 A legitimate business model is making business ethically, that is by selling the

products. Whereas a pyramid scheme is making business unethically by cheating
people of earning quick money.
 A legitimate business model does business by selling the products which are of high
quality. A pyramid model does business by taking money from the people for
bringing them into the loop/pyramid. The products in the pyramid model may be of
poor quality
 A legitimate business model does not give false claims. But a pyramid model gives
false claims and cheats people.
 A legitimate business model is very transparent and does not involve more than 3
levels. Say for example, a manufacturer, a whole seller or distributor, and a retailer

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or reseller. Whereas a pyramid model has multiple levels. The levels could be in

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hundreds and thousands also.

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 Legitimate business model is an ethical and most approved model by the
government. A pyramid model is unethical and has not been approved by the

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government.
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3. How has Herbalife demonstrated social responsibility?
 Herbalife foundation volunteers in giving charities to different child organizations and
to the poor children whose health is at risk
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Herbalife provides support to nutritional initiative programs and disaster reliefs.

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 The company has partnered with GHSI to improve the nutritional intake of the
children in India.
 Herbalife sponsors several professional athletes, teams and the sports events
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https://www.coursehero.com/file/41001219/Discussion-Board-Herbalifedocx/
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