One of the MLM companies most studied by Dr. Jon Taylor is Nu Skin Enterprises, Inc., which has recently operated as Pharmanex, Big Planet, and IDN (Interior Design Nutritionals)* – all of which could be considered Nu Skin corporate facials. Under tremendous pressure by persons he respected, he was aggressively recruited by Nu Skin (then IDN) promoters in 1994. He said “no” four times, but then decided to perform a one-year test of the program by signing up as a distributor and giving it his all for a year. He was successful as a recruiter and rose to the top 1% of distributors by the end of the year, but he was still losing money. His decision to quit and report his findings led to more extensive research on the entire MLM field and to the reports on this web site.
During this experience, Taylor learned that the numbers that were quoted him on average earnings of distributors and other relevant reports were full of misrepresentations, as were the reports of many other MLM companies. A more complete account of Taylor’s experiences with Nu Skin is reported in “Nu Skin attempts to discredit its whistleblower.”
1. Nu Skin satisfies all 5 Red Flags of a “recruiting MLM”** with a highly leveraged breakaway compensation plan, causing an extremely high loss rate.
When one examines the compensation plan of Nu Skin Enterprises, including Pharmanex and Big Planet, one finds all “5 Red Flags for Identifying Exploitive Product-based Pyramid Schemes, or Recruiting MLM’s*”. When these 5 red flags are all present, available data lead to the conclusion that the loss rate approximates 99.9% – far worse than the average 90% loss rate of clearly illegal 1-2-4-8 no-product pyramid schemes. In other words, of all participants who sign up for such recruiting MLM programs, approximately 99.9% can be expected to lose money – especially if purchases from the company to qualify for commissions and advancement in the scheme are subtracted as a business expense! See the shocking statistics in the chart “Comparing MLM success rates with no-product pyramid schemes and gambling.”
For reports on recruitment-driven MLMs, or product-based pyramid schemes, and related reports, read the reports listed under “consumer guides” – and/or read other reports on research related to MLM or network marketing. You may also find information on legal and regulatory issues related to MLM or network marketing on our page on law enforcement and MLM or network marketing. For a more complete listing of pages on our web site go to the home page of our site – www.mlm-thetruth.com. Or if you just want to be entertained, go to our page on MLM humor and satire – including some great cartoons.
Here is how Nu Skin stacks up against the “5 Red Flags” of a recruiting MLM**, or product-based pyramid scheme
(1)Recruitment of participants is unlimited in an endless chain of empowered and motivated recruiters recruiting recruiters. YES
(2) Advancement in a hierarchy of multiple levels of participants is achieved by recruitment, rather than by appointment.YES
(3) Significant requirements that participants “pay to play” the game via product purchases. Thus, new recruits are the primary customers. YES
(4) MLM company pays commissions and/or bonuses to at least 5 levels of participants, creating great “leverage” at the top. (Nu Skin uses a breakaway compensation system, with six levels of whole groups of participants, making it a mega-pyramid with one of the most extreme or highly leveraged compensation plans in existence. This is great for those at the top, but the pits for hundreds of thousands beneath them, who become its victims.) YES
(5) Most of the payout goes to the upline, rather than to the person selling products, creating excessive incentive to recruit and inadequate incentive to sell products (except to new recruits) – and an extreme concentration of income at the top of a hierarchy (pyramid) of participants. YES
2. Victims of Nu Skin and its various divisions tell a sad story of a money trap for all but those at the top of a mega-pyramid of distributors.
It is revealing to extend the average payout and percentage of active distributors who are at the various income levels. About 102 Blue Diamond distributors in the U.S. get 52.64 % of the total payout to distributors. The other 47.36% is split among approximately 63,418 distributors—perhaps over a half million past and present U. S. distributors who were seduced into this money trap.
I once saw a photostatic copy of a monthly check for one of the founding distributors totaling over $400,000. That’s about $5 million a year! Where did that much money come from? Later investigations convinced me that the majority of the money came from the losses of the thousands of downline distributors beneath him (primarily product purchases) who had been sold the “opportunity of a lifetime.”
3. Nu Skin’s reports provide a fascinating case study of misleading reports, of deceptive sales practices, and of FTC ineptitude (and of lax law enforcement in Utah)
In about 1999, I published a lengthy “Report of violations by Nu Skin of the FTC’s 1994 Order for Nu Skin to stop its misrepresentations of distributor earnings”. Appendix Eof the report showed the mega-pyramid structure of Nu Skin’s breakaway compensation plan, which enriches Blue Diamond distributors at the expense of huge downlines of victim-participants. In 1998, Nu Skin reported almost five times as much U.S. revenues to prospects (until 2001) and to the FTC as to the SEC in its official financial reports. Also, while Nu Skin officials did disclose some average income figures as requested by the FTC, the report supplied to the agency and to prospects was found by Dr. Taylor to contain 20 deceptions on the a single page! This also was reported to FTC officials. Other typical MLM deceptions and a summary of the statistical research on MLMs such as Nu Skin are included in Chapters 7 and 8 of the eBook Multi-level Marketing Unmasked, which can be downloaded from this web site.
If you were a responsible FTC official reading this, (after working the numbers from Nu http://www.mlm-thetruth.com/research/multi-level-marketing-unmasked/Skin’s own reports), could you see any justification for failing to act on such blatant misrepresentations? Yet, even after such strong evidence of ongoing violations, the FTC failed to fully enforce its own Order. And this is only one example of MLM’s that engage in massive misrepresentations in order to recruit participants who will invest in products in order to “play the game.”
4. Officials in Utah (and most other states) lack the resources and the will to cope with MLM.
The above-mentioned “Report of Violations” by Nu Skin was amended to include the strong evidence of violations of Utah statutes against pyramid schemes and deceptive sales practices, based on the same evidence and arguments in the complaint filed with the FTC.
This information was presented to Utah’s Division of Consumer Protection (DCP), along with the names of several complainants, but no general action was taken against Nu Skin – only a settlement on a complaint filed by one brave ex-distributor with a small claim. One major claim filed with DCP was forwarded to Nu Skin, but with very little effort expended by DCP to resolve the formal complaint on behalf of the victim, who lost several thousand dollars from his participation.
The DCP’s justification for not conducting a general investigation of Nu Skin and other MLM’s which have proliferated in Utah is that they get too few complaints to justify a general action against most MLM companies. But if you read Taylor’s Frequently Asked Questions, you will understand why victims of established MLM’s almost never file complaints.
So – based on Nu Skin’s loss rate of approximately 99.94%, literally millions of victims suffered losses totaling several billion dollars without either the FTC or Utah’s DCP doing anything concrete about it.
You can find more updated information on legal and regulatory issues related to MLM or network marketing in the ebook Multi-level Marketing Unmasked: The Case against Multi-level Marketing as an Unfair and Deceptive Practice.
5. Olympic officials just want the money – Forget the ethics!
When the Salt Lake Olympic Committee (SLOC) accepted Nu Skin as a sponsor of the 2002 Salt Lake Winter Olympics, a report entitled “Nu Skin’s Naughty Numbers” (NNN) was sent as a petition to them and the local press to discourage SLOC from allowing Nu Skin to exploit its Olympic connection. SLOC, USOC (US Olympic Committee), and IOC (Int’l Olympic Comm.) ignored the petition; and the Olympic rings were displayed at Nu Skin “opportunity meetings” (recruitment rallies) world-wide and on recruitment and product literature. (The Olympics still accepts Nu Skin as a sponsor.)
6. Nu Skin’s reactions to it’s whistleblower are typical MLM defenses.
You may find it interesting to read“Nu Skin attempts to discredit its whistleblower.” which refutes charges Nu Skin circulated to news organizations about Dr. Jon Taylor. It includes Taylor’s rigorous one-year test of the Nu Skin program before reporting his experiences.
7. Nu Skin claims to be a direct selling company, but lobbied for the removal of the direct selling requirement from Utah’s Pyramid Scheme Act.
In 2005 and 2006, Nu Skin communicators (based in Utah) lobbied for legislation (SB 182) removing the requirement for direct selling to legitimate customers in Utah’s Pyramid Scheme Act. In doing so, they did a great disservice to consumers world wide who are affected by Utah-based schemes. Nu Skin executives worked closely with the DSA (Direct Selling Assn.), the lobbying organization which has been taken over by MLM chain sellers and which has been deceptively lobbying to weaken anti-pyramid statutes in state after state.
8. Use the “Answer Cards” to tell five others about this site, and ask each of them to tell 5 more, and they each 5 more, etc. . .
Print a supply of these handy answer cards for distribution to persons who try to recruit you or persons you care about.
* The nu face of Nu Skin in 1994 was Interior Design Nutritionals, which was shed with two new facials – Big Planet and Pharmanex.
** A recruiting MLM is an MLM with a compensation system that rewards recruitment more than actual sales of products to persons outside the network of participants. So significant income is unlikely without recruitment of a large downline.
The truth about Nu Skin ( Pharmanex, Big Planet, PhotoMax, and its other “nu faces”) has been answered in the following:
- Surveys of tax professionals (those who handle the taxes of persons who participate in network marketing)
- FTC and court records for actions against Nu Skin
- Surveys of consumers in areas of intense participation by Nu Skin,
- Nu Skin’s financial reports
- Nu Skin’s marketing materials,
- Communications with top Nu Skin officials
- Correspondence and meetings with FTC and state officials regarding Nu Skin
- World-wide feedback from thousands of victims who have suffered losses from participation in Nu Skin programs
- Insider documents of Nu Skin officials
- Interviews with current and past distributors from Nu Skin programs
- Reports of comparative analyses of alternative income opportunities
- Compensation plans, and actual income reports of Nu Skin and other MLM/network marketing companies (compared with gambling and no-product pyramid schemes)
- First-hand experience in the full sales and recruitment program by the author
- REPORT OF VIOLATIONS of the FTC Order for Nu Skin to stop its misrepresentations of earnings of its distributors, etc. After ten years of research, all this information is now made available this site. You can now find the answers to your questions regarding the truth about Nu Skin and its divisions, as well as other MLM/network marketing programs.
- Summary of important links to learn more of the truth about MLM:
To gain help with decisions about MLM participation, go to MLM Consumer Guides, especially the 5-Step Do-it-yourself Evaluation.
To learn what the odds of actually making a profit in typical MLMs, go to MLM Statistics page.
To learn if the products are what promoters claim and worth the price, go to MLM Products.
To gain a greater understanding and a nice summary of why the media and academia is not more critical of MLM as a business model, read Frequently Asked Questions.
To read why MLM is virtually unregulated read and check out the links from the Regulation and Law Enforcement pages.
To review the research behind all this, go to the research references on this website.
To have a good laugh about the cultish culture at Nu Skin opportunity meetings, read “Jon Taylor observes Nu Skin convention as ex-distributor“