After a contentious and lengthy fight with the FTC, the direct sales supplement company Herbalife is back in a big way. Last week the company scored a big win with a $200 million settlement with the FTC, the long awaited end to a terrorizing two-year inquest by the Federal Trade Commission.
While the FTC failed to retract some of the more damaging language leveled at the company in the past, for example, refusing to declare Herbalife ‘not’ a pyramid scheme, the finality of the decision seemed to breathe new life into the company, especially on Wall Street. After the announcement was made, stock surged ten percent, but that’s just the beginning of the good news for the brand.
All the trouble started for the company when hedge fund manager Bill Ackman came after Herbalife way back in 2012, calling the company a “scam” of “zero value.” Less than two years later, the FTC launched a full-scale probe following up on Ackman’s continued criticism of the company.
In the aftermath, Herbalife can look back over the last four years since Ackman first launched his attacks and see a stock price that has nearly doubled and a renewed popularity among consumers and “distributors” selling its products.
The concept is hardly new and certainly not foreign in the U.S. marketplace. Other networking marketing brands are household names arguably more popular than Herbalife. These include Mary Kay Cosmetics, Avon, Protandim, Tupperware, and Pampered Chef.
Herbalife CEO Michael Johnson released a statement celebrating the settlement as an acknowledgment of his brand’s legitimacy and viability:
“The settlements are an acknowledgment that our business model is sound and underscore our confidence in our ability to move forward…”
That’s not to say everything is rosy on Mount Multilevel. The business strategy still has a negative connotation among many in the country. Millions of consumers don’t take the time to differentiate between legitimate multi-level companies and the sort of scam pyramids Herbalife is accused of being.
While countless “distributors” love the method and the business model, selling the potential to new recruits is becoming more difficult. Sure, people know about Tupperware and Mary Kay, but when’s the last time someone you know went to one of their parties?
The constant suspicion and changing consumer tastes are beginning to wear on certain companies. Avon, especially, is hurting, and certain other companies have tried various name changes to re-energize their brand. Sure, many new brands enter this market each year, but a relative few make it very far, and even those that do face one central daunting task: convincing potential customers it’s not just more snake oil.
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