It is not hard to believe that the Federal Trade Commission is investigating Herbalife. The agency announced it is looking into claims that the nutritional supplement company is actually a pyramid scheme.
Really? I’m shocked.
The reason many like me are not surprised that Herbalife is accused by going through salespeople like they were tissue paper is that its brand and business model were so flimsy to begin with. Of course, it was a pyramid scheme. (“I’m shocked, shocked to find that gambling is going on in here!”)
For those that don’t know, Herbalife has a business model akin to Tupperware. It hires people to sell its products directly, often holding events much like Tupperware parties.
The Herbalife investigation claims that the company mostly just sold products to those reps. That is, it made its profits by going through reps so quickly that another dupe would be hired to buy more products. So on and so on.
That’s a pyramid scheme, if true. What makes it news is that Herbalife is a public company, which saw its stock drop 15% when the news broke.
But here’s the thing. For regulators and even those customers Herbalife was not really (allegedly) targeting, the sad fate of the Herbalife brand and business model makes the charges of a scheme more believable.
It already had a reputation as slightly shady. The products, which have seedy competitors at just about every supermarket, highlighted promises that seem outlandish. (Statements that, as noted on Herbalife’s disclaimers, have not been evaluated by the FDA.)
More importantly, the business model is out of date. Tupperware exists because it is a long-standing brand from yesteryear, but even it has so many competitors it will have to re-think its model. It has increased its online presence and now sells other products other than food storage containers such as toys and knives.
For those who sold Herbalife, being a part of the process might have felt like selling bitcoins.
Sometimes, the media is the message. In this case, the direct sales model makes it emotionally believable that it was all a pyramid scheme. Its brand, a little too clever and even less plausible, didn’t help. I’m not saying the brand and business model couldn’t be used to increase sales. I’m saying it makes the claims believable.
Maybe if Herbalife had thought a little harder about what is brand means and how it delivers it, it wouldn’t be in so much trouble.