The scandal started on social media this week, starring celebrities and influencers They promoted an easy device, quickly escalated to media across the country and in the last hours motivated an official complaint.
In the center, Nu Skin, a direct sales company of cosmetic products of North American origin, with a presence in 54 countries, which in 2019 billed $ 2.4 billion.
The company entered Argentina nine years ago and today, with offices in Buenos Aires and Rosario, it directly employs 60 people.
The whirlwind of criticism and testimonies that multiplied on social networks linked the firm with the alleged use of the so-called “pyramid scheme”, a mechanism for capturing income that involves a fraudulent and distorted use of direct sales, the latter a legitimate business that billed 43 billion pesos in 2019 in the country.
Late this Thursday, the 21st, the Nation’s Commerce Secretariat reported that it accused Nu Skin for “providing false and misleading information for the promotion and sale of its products.” The portfolio acted ex officio by understanding possible violations of Law 24,240 on Consumer Protection, which establishes sanctions of up to five million pesos.
The Ministry of Commerce considers that the company would have failed to comply with the duty to provide truthful and objective information about the products it sells and its operating scheme, which would be “pyramidal or multilevel”. And it questions aspects of its business model, such as the collection of initial amounts of money ($ 20,000) from those who join the sales system. At the same time, he talks about possible “misleading advertising” regarding the real impact of his products.
The entity revealed that it will notify the company of the complaint so that it can exercise its right to defense. Here you can see the official statement with the full complaint. It is urged to send complaints and inquiries to the mail email@example.com, via Twitter to @DNDConsumidor or through the official website.
Pyramids and fraud
The pyramid scheme in question is based on participants recommending and recruiting (referring) more customers, with the aim that the new ones produce benefits to the original ones, all with the false promise that joining the scheme will quickly generate high profits.
In these cases, the true flow of business income comes from attracting new sellers and from the investment of income they make rather than from selling products to a consumer end in itself.
The repercussion of the Nu Skin case –which even motivated the firm to hire an agency for communication and contact with the media in the last few hours– is associated with the great growth of the brand’s network of vendors in the country (totaling five thousand, of which a thousand are people residing in Córdoba) and upon entering this conglomerate of media figures (actresses and models) and high-profile on social networks (influencers).
Nu Skin executives say the company is experiencing a true “explosion” of growth in the context of quarantine, a context that prompted many more people, including the “famous”, to be interested in selling the products.
“Orders in our e-commerce (Nu Skin’s only sales channel) multiplied by five in April. We had an operational bottleneck that we are solving, ”said Carlos Demarco, director of operations for Latin America at Nu Skin.
And he added: “Córdoba is our second to third place, according to the month. It is important and we bet to continue growing in it. There are 20 percent of our distributors (80 percent women). ”
The manager had a dialogue via Zoom with The voice, along with Don Lovelace, vice president of sales and operations for Latin America, and Karen Tamai Gómez, director of marketing for Latin America.
In the interview, which was conducted hours before the accusation of the Ministry of Commerce was made public, they gave their response to several of the accusations that the company faces.
–They are accused of being a pyramid business.
–Carlos Demarco (CD): We must make something very clear: every pyramid concept is fraud and Nu Skin is not fraud. The pyramid concept is far from what we are. We are a direct sales system in which people earn money from commissions they receive for selling products, that is the model.
–And why people who have gone through the system accuse you otherwise?
That sometimes happens due to a lack of information about what this industry is. Sometimes the confusion comes because there is direct sales of single-level and multi-level, where there is a person, and under that person, another who sells the product, and so on. That, the multilevel, is our model, but all must sell product to earn money and commission based on the sale of our products. The Argentine Chamber of Direct Selling brings together several companies that use this model. There is a very clear code of ethics in the entity to which we adhere here and in other countries. We sell products, not dreams or anything else.
(Photo Twitter @Barbieclas)
–Karen Tamai (KT): A pyramid does not generally grow globally, and we operate in more than 50 countries. It does not last more than five years, and we have been in the industry for 35 years and we are a publicly listed company in the United States. Our sales are public.
–Don Lovelace (DL): Anyone who wants to be a part has to accept the terms, we have clear rules with our distributors (sellers). They do not have to buy anything to enter, they do not have to pay any fee. They enter for free and from there they share the products and receive a commission.
–However, there are testimonies from vendors who assure that kits of products must be purchased to enter, with start-up investments of 30 thousand pesos, for example. Today the sale price of each kit on its website averages 21 thousand pesos.
– (CD): I think the confusion there is that it is difficult to testify to a technology that one does not know. This technology is very innovative and positive and it is difficult to explain how it works and its attributes if one has not been able to personally test the products. But it is a personal decision to acquire them, the company does not compel anyone to make the purchase of any kit. You can start being a distributor with zero, but it is difficult to say to someone “I invite you to try this even if I never tried it”.
–Is there an operative way to sell the product without first buying it?
–Nu Skin does not require anyone to have inventory because it provides all the necessary tools to sell the product: an internet platform where, if I am a distributor, I contact you and tell you to buy Nu Skin. The company has the inventory and sends the product directly, from my sale, to the client.
– (DL): The distributor does not have to invest in maintaining a stock of products.
–What percentage of vendors entered without making an initial purchase?
–I don’t have the number in my hand, people enter in various ways. Some want to have each kit to test each technology; others only some. And some sell it to others without having the product. But we want people to be genuine and, obviously, we have to get to know each other to understand things and train ourselves in products. Most of our sales do not go to people who do business, but to customers.
–Is it true that the amount of commissions charged for sale grows as you go up the pyramid? So, you earn more for a sale that makes a referral than for a direct sale …
-It `s the opposite. The closer you are to the sale, the higher the percentage you earn. You get a much higher commission of five to 30 percent (depending on the salesman’s rank) for personal sales, and your teams’ sales are five to 10 percent. It’s in your best interest to stay very active and sell, and there’s also an incentive to help people on your team sell.
–Are extras paid to recruit vendors?
–We only pay bonuses for selling products. The incentive is that more and more people buy and get to know the brand, but we are not saying that you should go out and recruit 10 people. We say: for every product you sell, we will pay you a commission and the same to your team. The more you sell, the more money you earn and a higher percentage, but it’s like any compensation plan.
–The average seller, how much does he receive for his sales and how much, for the sales of his team?
–I don’t have the data at hand. I can say that 89 percent of people only sell products so they have their commission. They do not attempt to qualify for large ranges (move up the firm’s vendor scale system) and their goal is to sell products.
–Salesmen assure that with the first purchase a score is obtained and there is little time to sell enough products and manage to maintain it. This encourages more vendors to help achieve goals in the urgency of billing more.
– (CD): Given that, I can say that we have a return or refund system for our distributors. During a year they can make the return and the company reimburses 90 percent of what they have spent. Customers also have 30 days to return the product with a 100 percent refund.
(N.d.R .: Regarding the income of vendors and terms, the firm also specified that “they earn a commission from the first machine they sell, but they begin to receive that amount by qualifying as brand representatives. It is a period of sales that is made in which they sell a certain number of “points” during a period of three or six months. “And he admitted that there are many entrants who” do not reach “that first rank of saleswomen).
–What role do “influencers” play for the brand?
– (DL): This business is always operated by word of mouth. And the networks had a very big impact because they greatly amplify that by having so many arrivals. The influencers They have thousands or millions of followers. We saw great interest from influencers who want to participate in our business, sell our product and receive commissions.
–Are you paid to advertise products?
– (CD): We do not contact them directly nor do we allow our network of distributors to pay the influencers for promotion or that they give them products. This is part of our policy: no advertising is paid, no products are given away. It happened that the company’s distributors have contacted influencers and they presented the business opportunity, and they took it.
– (KT): It is important to clarify that it is not a mandate to be influencer to work with the brand. But these people with so many followers saw a great business opportunity in Nu Skin, and more at a time when other means of income they had, such as travel and promotion of certain products, have fallen.
–Why do the majority not mention the brand and refer to private accounts on the same social network to obtain products?
– (CD): The reason is that, if they put the brand, consumers can seek to buy the product by any other means, and not through them. In that case, they do not receive their commission. Instead, by sending the data subject to their private network, they make sure that sale goes through them to the company. It is a strategy that they created.
–This “boom” of “influencers “selling Nu Skin is only Argentine?
– (CD): The influencer It exploded in recent months and rocketed sales. Our e-commerce it shot up by five in April, and that created a bottleneck in the operational part, which we are solving with investment. In addition, Nu Skin is a product that is sold without contact, and that also favored it in this context of quarantine. The difficulties that occurred in the delivery of orders and the greater visibility may also have contributed to this situation that was generated in the networks.
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