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Prominent Expert Economist and Former FTC Advisor Provides Analysis of the Herbalife Business Model
Estimates That 97% of Herbalife's Products Are Purchased for
Determines That Herbalife's Operations
Dr. Vandaele is an economic expert with significant experience in, among
other areas, the regulation and operations of firms in the consumer
goods industry. Among his many professional accomplishments, he has
previously served as Economic Advisor to the Director,
Among his numerous determinations, Dr. Vandaele concluded that, "Herbalife's U.S. business operations are consistent with the socially beneficial MLM model and inconsistent with the socially harmful pyramid scheme model."
Dr. Vandaele conducted extensive research and analysis to compile his report, which supports Herbalife's U.S. business practices and validates the Company's classification as an MLM. Key findings of his research include:
1. An estimated 97% of Herbalife's U.S. product volumes are purchased from Herbalife for end-use consumption. The vast majority of Herbalife's product volume (80%) is consumed by individuals outside the Member network (39%), or consumed by Members who join the Herbalife network primarily to receive product discounts for their own use or that of their family (41%).
Applying an economic test that would require Member performance payment incentives to be primarily funded out of retail-based product sales to be classified as a legitimate MLM, Herbalife's U.S. business operations constitute an MLM and not a pyramid scheme. Based on this test, at least 62 percent of total Herbalife product purchases would need to be retail-based to represent the primary funding source of Member performance payment incentives (or at least 46 percent based on an alternative definition of Member compensation that includes Members' wholesale purchase discounts).
- As already mentioned, an estimated 97% of Herbalife's product volume is purchased by Members for direct and indirect retail end-use consumption. This percentage significantly exceeds the 62% (and the alternative 46%) retail threshold required by this economic test for classifying Herbalife as a beneficial, legitimate MLM.
- Even if personal consumption by Members who joined primarily to participate in the resale business opportunity were excluded, an estimated 80% of product purchases still would be considered retail end-use consumption, which also exceeds the 62% (and the alternative 46%) threshold for classifying Herbalife as a legitimate MLM.
2. Herbalife products have significant intrinsic value and market demand.
3. The investment required for Members to join Herbalife is not large and is mostly recoverable. Member starter pack purchases, unsellable inventory, and discretionary training material purchases can all be returned to Herbalife through a 100% money-back return policy.
4. For those who choose to participate, the Herbalife business opportunity offers a reasonable prospect of operating a financially successful business:
- Members have a reasonable prospect of being able to profit from reselling Herbalife products.
- The low participation costs allow lower level Members to resell profitably.
- Many Members who choose to pursue the resale business opportunity do in fact earn performance payment incentives.
An estimated 32% of those individuals eligible for performance
payments with one or more Members in their downline earned at least
$1,000, 7% earned at least $10,000, and 2% earned at least $50,000.
- Members can earn significant performance payments in reasonable periods of time. Of the three highest level Members, 64% were only in this position 10 years or less and 26% were Members for 5 years or less.
Dr. Vandaele's findings are based on review and analyses of a variety of
information and data sources, which was performed beginning in the
summer of 2013. This information includes results obtained from
Herbalife-sponsored surveys of its U.S. customers and Members that were
undertaken by the market research firms
In addition to survey results, Dr. Vandaele also obtained from Herbalife an extract of profile and financial data for all individuals enrolled as U.S. Herbalife Members at any time during calendar year 2012. These data include for each Member, information such as start and termination dates, level achieved in the marketing plan, number of recruited downline Members, volume of product purchases, and performance payment incentives received from Herbalife for product purchases by their downline. The data did not include any Member's name, address, or other similar identifying information.
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