Is Avon a Pyramid Scheme?

Avon is a cosmetics and retail chain that has a long-standing history of 136 years to date. With the popularity of cosmetics for women even at the height of The Great Depression, it has risen above all, being one of the major leads to bringing face and body items that are quite affordable. Since its prevalence in the United Kingdom and soon marketed and distributed around the world, many people have had opportunities to sell the products of the brand, and later on generate income may it be part-time or full-time.

With Avon’s popularity going mostly upward in the past decades, it has entered into a system that recruits people to sell its products rather than just full-time employees doing the selling for them. The structure Avon embraced has shifted from direct selling to pooling in networks, being able to offer jobs that mostly rely on commissions and offering an opportunity for others to earn even when at home. From the direct sales business model, they transformed into a Multi-Level Marketing structure in 2005 and have long been actively recruiting representatives to venture with the brand and reach out to others.

Avon’s Multi-level Marketing System

Multi-level marketing is a system wherein companies hire or recruit individuals to venture into business with them. Successful recruits act as a representative for the business, or better yet an individual umbrella, where they have a series of networks who will then sell the product on behalf of the brand. With selling, representatives are not required to have business permits, especially for those who just do retail, and often just reach out to other individuals who would also want to earn in the convenience of their homes. Representatives can also sell through door-to-door transactions, or even hold small conferences and meetings, where products will be distributed to them and sold directly to consumers.

With Avon, they did not embrace such a structure before. From its starting years to its popularity, it always had a direct sales structure where they tap on businesses to showcase its products, sell them, and sellers would then get a percentage of the sales. But then, Avon started to lose its grasp on upgrading sales and later admitted that the company’s income declined at the start of the 20s. In an article by The New York Times in 2004, a decline in sales has been forecasted already; this decline would be significantly damaging, with a 4% decline in its net profit.

This, in turn, made Avon shift into an MLM structure, where products will not be marketed only in stores, but in individual households as well. The brand then started to recruit women, as most of their products are for women and presented a business opportunity for them to earn commissions by selling.

Avon: MLM or a Pyramid Scheme?

To note, while Avon is known to have been an MLM rather than a Pyramid Scheme, it is still important to know how one can differentiate both terms.

MLM is a business model wherein a brand can recruit representatives and sell products where they can earn commissions – you know the rest. With the Pyramid Scheme, a business will actively recruit representatives in a way that will promise a good income to them, without even having a tangible product to sell to consumers. This scheme also requires commissions from the networks, in a way that it will seem to turn out as an investment and let recruits work for them by also recruiting others.

As you may notice, the only difference between MLM and Pyramid Scheme is the presence of products; MLM has physical products, while a Pyramid Scheme does not. While the former recruit to sell a product for them, the latter recruits to sell an idea of them earning something big and let their networks do the trick. Still, with the thin line between both business structures, one could not help but wonder that perhaps, MLMs are just cloaked Pyramid Schemes to avoid being considered illegal and therefore be treated as a genuine system where one could earn and prosper.

With Avon’s MLM, one may consider it as technically a legitimate business structure, but others can refute it otherwise. You may say that Avon has been successful, but in recent years, has it really been? More and more recruits have been predominantly disappointed with the business structure in the way that it actively creates more recruits rather than being paid well when it comes to commissions. As sales have been clearly declining for Avon, recruitment has been an important aspect with the company’s overall net profit.

Truth be told, Avon’s decline in sales was, later on, backed up by their significant rise in registered reps. These representatives are often enticed by the business opportunity to become rich, rather than being rich by selling a product. Consequently, recruits have been rising over the recent years, even when the demand for Avon’s products was significantly lower than the average. Because of this, it is not the product that representatives are pooled to, but to a high degree the idea of becoming rich by recruiting more and more people who work as a downline for them.

The Gist

Although Avon actually has a wide range of products for consumers, the demand for such has been declining. With this, it is to note that the only thing keeping the brand alive is mostly the investment recruits have to provide to get the products, which are unfortunately not-so-sellable with the competition being so tight nowadays. Still, although Avon has physical products, it might be functioning as a pyramid scheme essentially, although not technically. As Avon does not disclose commissions and net profits of their recruits, one could say that the intention to sell a “big opportunity” is there and that the idea is more sellable than the product itself.

More than this, very few representatives are significantly making a livable income out of selling the product. In most cases, they succumb to recruiting even more, because that’s where the money comes from.

So it’s a Pyramid Scheme then? – Well, you could not say, but numbers don’t lie.