DORIS WOOD : Direct Marketing’s Other Side : Official Praises Industry, Warns Against Pyramid Sales

Doris Wood’s industry is under siege. She is the president of the Multi-Level Marketing International Assn., or MLMIA, an Irvine group that represents thousands of people interested in selling products for profit to friends and acquaintances.

These salespeople can make even more money by recruiting people into the company whose products they sell. Some label this kind of salesmanship pyramiding, as in pyramid scheme.

FundAmerica--an Irvine firm that is under investigation in at least five states--says it is a multilevel marketing company that earns cash rebates for its members on such services as travel. But Florida authorities last week charged FundAmerica, a member of the MLMIA, with operating a pyramid scheme.

Wood refuses to speculate about FundAmerica but says that the vast majority of multilevel marketing programs are legitimate operations. She has invested a lifetime trying to improve multilevel marketing’s image.

Wood first got involved in the business after attending a Tupperware-like party in the mid-1950s.

She says she went on to sell $1 million worth of jewelry in just a year. Oriflame, a Swedish multilevel marketing firm specializing in cosmetics, named her a vice president of sales in the early 1970s.

Several years later, she co-founded two Orange County enterprises of her own--a cosmetics company called AloEssence and a computer firm called the Personal Computer Corp. America.

Now she runs the Wood International Group, a consulting firm for multilevel marketers, and is in her fifth year of heading the marketing association. In a recent interview with Times staff writer Gregory Crouch, she talked about the pros and cons of multilevel marketing.

Q. What is multilevel marketing?

A. Multilevel marketing is a non-storefront way of moving merchandise, products and services through a tiered structure. Sound familiar? I think that’s the way insurance and many, many products are moved. Each person within the industry gets paid on their own personal sales and the sales of those people that they personally sponsor.

Q. Can you give an example?

A. OK, why don’t we pick cosmetics. A company either manufactures or purchases the cosmetics and then distributor A purchases the product through them at a suggested retail price minus the retail commission. Distributor A then sells that product at home parties, on a one-to-one basis, and uses it himself or herself. Distributor A can then bring in new people who want to sell the product, sponsoring Distributor B, C and D. And distributor A receives a commission on the sales of B, C and D.

Q. So you tell your friends and they tell their friends and so forth?

A. It’s definitely a duplication of self. Most of the people within the industry start with their friends and neighbors in the beginning. The successful ones are like any salesman and understand that they have to make cold calls and do prospecting.

Q. How much money can someone make in multilevel marketing?

A. It would depend on the company’s compensation plan and the amount of effort that the distributor put forth, the amount of sales they did and the amount of sponsoring. Distributors earn as little as $50 a month and as much as $50,000 a month. Those who make large sums--let’s just say in excess of $10,000 a month--do not do it overnight.

Q. For most multilevel marketers, is this a full- or part-time job?

A. The majority of the people in the industry are in it on a part-time basis. Of the approximately 12 million people in the industry, probably 10% to 20% are in it on a full-time basis. Most people want the security of a 9-to-5 job and need that set income each month to meet their obligations. When they are in multilevel marketing and earning as much on a part-time basis as they were on a full-time basis, then they should consider going into multilevel full time.

Q. How many people and companies belong to the association?

A. The association currently has about 90 corporate members and about 90 support members, including attorneys, data processing firms, consultants, product manufacturers and industry suppliers. Essentially, anybody interested in supplying a product or service to the industry through a company. And then we have many thousands of individual members who are distributors of products.

Q. Do you have any members that would be household names, such as Amway?

A. Amway and Mary Kay are members of the Direct Selling Assn. out of Washington, D.C. Our members that they probably would recognize are companies like Torrance-based Sunrider (a seller of nutritional products), Network 2000, which sells US Sprint services out of Independence, Mo., and Omnitrition, another nutritional company in Dallas.

Q. What is the difference between the Direct Selling Assn. and MLMIA?

A. The Direct Selling Assn. has been in existence for approximately 80 years. And so they have a much larger budget than we do, and they represent the old-line, direct-selling companies that have the same type of structure as multilevel but call themselves direct selling. Mary Kay Cosmetics, Tupperware, Fuller Brush, Avon and Encyclopaedia Britannica are members of the Direct Selling Assn.

Q. What is MLMIA’s purpose?

A. We’re primarily an information center. Who do you need to help you? What do you want to know about a company or an individual? If it’s in our files and you are a member, we will give you the information. We’ve been called the Better Business Bureau and Chamber of Commerce of multilevel marketing. And we recognize special achievements within the industry. We definitely want to improve the image or perception other people have about multilevel marketing. People within the industry love it and people outside the industry don’t understand it and still feel a legitimate multilevel marketing is a pyramid scheme. MLMIA’s first goal is to strengthen multilevel marketing around the world through education. By that I mean educating the people within our industry, educating the consumer to the opportunities available in multilevel and educating the general public about the legitimate, ethical way of doing a multilevel marketing business. We also work with regulatory agencies to help purge the industry of people and companies that seem to do business in an illegal and unethical manner. We encourage adherence to our code of ethics and we develop effective methods of self-regulation.

Q. What do you mean by self-regulation?

A. If my office gets a call from anyone and they lodge a complaint about a company that maybe hasn’t paid a distributor or is (engaged in) an unethical practice, I get in touch with that company. I tell them that a complaint has been lodged and ask them to straighten it out. In almost every instance, they have. When they don’t, we send them a letter. If in our judgment it is a legal matter, we contact the regulatory body in their area and ask that an investigation be made.

Q. What is the difference between multilevel marketing and a pyramid scheme?

A. First, a legitimate multilevel marketing firm should make no earnings representation until there is a verifiable track record of average earnings of distributors in a particular geographic area. In a start-up company, that is almost virtually impossible to do. Second, a company cannot legally make a profit on the sign-up fee. Any sales kit or demonstration kit that a distributor needs to sell the product should be sold at cost. And that should be the only cost that a distributor must incur.

Q. What about getting paid to bring in new people?

A. Anybody should watch out for plans in which fees are paid for head-hunting or the emphasis is on recruitment of others rather than on the sale of a product. A distributor cannot be paid for recruiting. A legitimate multilevel marketing program has no minimum purchase requirement nor any inventory requirement to become or remain a qualified distributor. Now a distributor may have to meet certain sales requirements in order to get bonuses--as is the case with any company, you have to do something in order to make something.

Q. What else distinguishes a legitimate multilevel company from a pyramid scheme?

A. Front or inventory loading is illegal. A distributor should not buy more product than they know they can sell in a 30-day period. Also, if you purchase any product that is going to take you more than 30 days to sell, make sure that the company has a buyback policy. Don’t get stuck with products in your garage. That’s not what multilevel marketing is all about. That’s a pyramid scheme. Legitimate companies want you to purchase only what you can comfortably sell in a month’s period of time. The focus of the marketing program should be to promote retail sales to non-participants.

Q. What type of authorities do you contact when you suspect wrongdoing? Did you call anybody about FundAmerica?

A. Attorneys general or the head of consumer fraud in some states. We did not get any complaints about FundAmerica. In fact, we got a lot of compliments about them and how the company was run.

Q. What do you think of FundAmerica? Is it multilevel or a pyramid scheme?

A. When the owners of a company do something that seems wrong, that doesn’t necessarily make the company itself wrong. And it certainly doesn’t make the distributors who were selling the benefit packages in this case wrong. The companies that were behind FundAmerica--the credit card companies, Ask Mr. Foster Travel and MCI--certainly benefited from the sales that those distributors made.

Q. Several states, though, claim FundAmerica was a pyramid scheme and that some of the company’s independent representatives got very rich, not from selling the company’s services but from bringing in new people to the company. What do you think?

A. The fact that some distributors might practice front loading or selling large amounts of product to someone as they came into the company doesn’t mean they all do it. And it doesn’t mean the company endorsed that type of practice. To my understanding, a few of the over 100,000 distributors purchased large numbers of memberships and encouraged others to do that. Front loading is wrong. And any distributor that does that is breaking the law. This does not necessarily mean that the company encouraged it.

Q. But it sounds like FundAmerica or its members violated MLMIA’s code of ethics. Did the association fall down in this instance in the watchdog role you’ve talked about?

A. You are assuming before there has been any trial that FundAmerica is wrong. I was brought up to believe that any person is innocent until proven guilty. FundAmerica was in seven or eight states, and we had not had one complaint about them, so there was no way we could know what was happening. This is the first time since the days of Glenn Turner (Turner ran a company called Dare to Be Great) for a company to get this much adverse publicity. (Turner was convicted in 1987 of running a pyramid scheme and was sentenced to seven years in prison).

Q. Why do you think multilevel has a bad image?

A. Through the years there have been companies like Holiday Magic, Dare to Be Great and a few other companies that have used the guise of multilevel marketing and done the things I told you made it illegal--paid for recruiting, front-loaded a product. They were played up big by the media as pyramids. Every time a multilevel marketing company is mentioned in the media--almost every time--they are referred to as a pyramid-type program, which isn’t true. Of the approximately 1,200 companies in the industry, many of them have been (in business) for many years and given many people opportunities to get off welfare, further their education or buy a home.

Q. Will FundAmerica’s problems worsen multilevel marketing’s already bad reputation?

A. Absolutely not. FundAmerica has affected, let’s say, a million people. That’s less than 10% of the number of people in the industry. They have fewer than 200,000 distributors and there are about 12 million distributors in the industry. The publicity has not been helpful to the company, but I don’t believe it’s going to hurt the industry as a whole.

Q. Should there be even greater regulation of multilevel marketing?

A. We would definitely like to see a unified set of laws (instead of) a different law in every state or city municipality across this land. The laws (applying to multilevel marketing) are all different. We fall under business opportunity laws, security laws, pyramiding laws--and I don’t know how many others.

Q. How does someone get involved in multilevel marketing?

A. Anyone who wants to get involved in multilevel marketing should call the association and ask for the list of companies. There is a small fee ($15 for members; $25 for non-members). The list gives them the address, telephone number and a contact person, as well as a 25- to 30-word description about each company. They are all members of the association and agree to adhere to the code of ethics. We’ll also talk with them about their particular interests and recommend several companies that might fit their hobbies.

Q. What is the background of multilevel marketers?

A. There is no typical background. People in multilevel come from all walks of life--taxi drivers, secretaries, salespeople, doctors, attorneys. Some of them just want to supplement their income, others want to make it a career and some want to become rich.

Q. What types of products or services do multilevel marketing companies sell?

A. Everyone is aware of the household-type products: personal care products or animal care products. But the trend is toward services because people don’t have to have as much inventory on hand. Many companies are offering travel packages, insurance programs, dental plans, telephone discounts.

Q. What does it take to succeed in multilevel marketing?

A. You should sell the product or service at least weekly. You should sponsor at least monthly and train the people you sponsor. Don’t rush to become a distributor. Read the company’s literature. Try the products.