Global expansion, improved recruitment and in-person events drive profits
Herbalife
Slumping sales in North America and China sent Herbalife to a 70% nosedive in first-quarter profit to $29.3 million.
The MLM giant reported sales during the first three months of the year were down by 6.3% to about $1.3 billion. That includes an 8.9% decline in North America, and continued sluggish performance in China, where sales dipped 36% compared to the same period a year ago.
CEO Michael Johnson said despite plunging revenue, the company will grow and results will improve.
“We’re evolving. And that’s what’s been happening over the last six months, and it’s going to continue,” Johnson told analysts during a recent earnings call. “We still aren’t where we want to be, but we have embarked on a significant journey.”
Revenue in every global region declined during the quarter, except in Latin America, where sales increased by 2.5% to $205 million. The LatAm region was boosted by 8% year-over-year sales growth in Mexico, and a 4% bump in Brazil, which executives said on the earnings call “is returning to growth after several challenging years.”
In China, Herbalife sales have plummeted in recent years, as stringent COVID-19 policies locked down the entire country for much longer than anywhere else in the world.
The country alone accounted for nearly 23% of all Herbalife sales in the third-quarter of 2020, months after the pandemic spread globally and during a period when the company was reporting record revenue. As of the first quarter of this year, revenue from China now makes up roughly 5% of overall sales.
Yet, Herbalife executives remain upbeat about the future in China. In-person meetings in the country, Johnson said, have returned in the last couple of months, and Herbalife Nutrition Clubs—brick-and-mortar locations operated by distributors selling Herbalife shakes, teas and products—are starting to reopen.
“You’ve got to realize that in China, when they went into lockdown, it was much different than any place on the face of the earth. It was a true lockdown,” Johnson said. “Without being too positive here or too negative, I think we’re going to see some interesting news out of China over the next couple of quarters.”
Herbalife did not provide fiscal 2023 guidance, citing as a reason the “rapidly shifting macroeconomic sentiment and backdrop, as well as increased volatility in the market.”
Overall, Johnson said the company is encouraged by improving trends in some areas—what he called “early rays of light, some bright spots”—including the smallest year-over-year total sales decline on a constant currency basis, and predicts a reversal of the negative sales trend by the end of the year.
“Our trends tell us we will see growth in the fourth quarter,” Johnson said.
Q1 Numbers
- Total Sales: $1.3 billion, down 6%
- Total Profit: $29.3 million, down 70%
- North America Sales: $297.2 million, down 9%
- Europe and the Middle East Sales: $262 million, down 9%
- Latin America Sales: $205 million, up 2%
- Asia Pacific Sales: $413 million, down 9%
- China Sales: $67 million, down 36%
Return of In-Person Events Provides ‘Momentum, Increased Engagement’
During the call with analysts, Johnson highlighted Herbalife’s return to in-person events, saying the company had held 700 face-to-face gatherings since the beginning of this year, which has allowed the company to reach an audience of 400,000 people.
Those meetings, Johnson said, gave the company a jolt of momentum and increased engagement by providing a forum for training, mentoring and to launch new products. And they’re a central component of the company’s plans to return to growth by the end of the year.
Herbalife has 10 regional events planned for the rest of 2023, Johnson said, including gatherings in Lima, Peru; Bangalore, India; Singapore, Singapore; and San Antonio, Texas, in the next three months.
“Distributors will leave these events more energized and motivated with enhanced knowledge, training and an opportunity and a plan to expand their businesses,” he said.
“We will be exchanging different unique successful sales methods, opportunities for distributors to train, mentor, motivate, inspire, and learn from distributors.”
USANA
USANA Health Sciences reported better-than-expected earnings in the first quarter, as increased customer activity in Asia helped counter double-digit declining sales in the U.S. and Europe.
CEO Kevin Guest told analysts during a recent earnings call that the company is off to a solid start to the year.
USANA reported profit declined to $18.4 million, down 18%, during the quarter that ended April 1. Total revenue for the quarter was $248 million, a 9% decrease compared to a year ago.
Sales in the Americas and Europe declined by 11% in the first quarter to $49 million. In China, the company’s largest market, sales were down 3% on a constant currency basis.
However, USANA handily beat Wall Street revenue and earnings estimates, and company executives said they are seeing active customer counts stabilize and sequential quarter net sales growth due to several initiatives.
There are also positive signs that have emerged in China. Global sales declines in recent quarters can be largely attributed to disruptions and lockdowns in China related to COVID-19, as well as inflationary pressures and economic slowdowns in other regions.
The company benefited during the first few weeks of the first quarter from increased demand for several health products in China following the government’s shift in COVID-19 policy.
Demand started to increase at the end of 2022, when China lifted its COVID lockdown, and carried over into the first quarter and added $12 million in net sales, Guest said.
However, Guest called it a “temporary lift in net sales.” Also during the quarter, USANA experienced another temporary boost as some customers ramped up buying—$13 million of customer purchasing activity—ahead of the annual price increases.
Executives said global inflationary pressures continue to”meaningfully” impact USANA’s business.
Despite economic challenges, USANA said demand for health and wellness products continues to be strong, “and we remain well positioned to execute our growth strategy.”
Part of that strategy this year will include a heavy focus on live in-person events, Guest said, targeted at “engaging and further incentivizing our sales force.”
The company is also planning to focus on more localized and smaller promotions in 2023 instead of the historical single or large promotions it has held in recent years.
The company said that its strategy of focusing on live events and smaller, more focused, promotions will generate growth in the long-term.
USANA said it expects full-year revenue in the range of $875 million to $950 million.
Q1 Numbers
- Total Sales: $248 million, down 9%
- Total Profit: $18.4 million, down 18%
- Asia Pacific Sales: $200 million, down 9%
- China Sales: $124 million, down 7%
- Americas and Europe Sales: $49 million, down 11%
CEO Transition
Guest, who has been CEO since 2015, is preparing to leave the top spot on July 1 and transition to executive chairman. USANA President Jim Brown will take over as CEO.
Guest used a short portion of the earnings call to highlight the upcoming shift in leadership, saying he has full faith in the company’s future CEO.
“I look forward to continually being deeply involved in USANA’s strategy and mission,” Guest said. “In this new role, I want to express that I am not retiring; I’m just shifting strategic roles. I also want to express my sincere appreciation for and confidence in Jim as USANA’s CEO, as well as USANA’s extraordinary management team employees and associates.”
USANA Global Footprint Grows
During the earnings call, USANA executives also teased an impending global expansion announcement, in what would be the company’s first new market in five years.
At the time of the call, USANA declined to name the new market it was planning to move into, but Guest said it will open later this year, and “we are optimistic about the long-term growth opportunities it will present.”
Turns out that market is India. Expansion into India increases USANA’s global footprint to
25 markets.
The company expects to launch operations in India near the end of the third quarter of 2023, and said it anticipates it will contribute “modestly” to sales during the fiscal year.
“We have spent several years of extensive research and meticulous work to prepare for this expansion into India,” Brown said in a press release announcing the India expansion plans.
“We are confident that our products and business model are ideally suited for India, and we believe in our team’s ability to develop and grow this important market as we work toward our vision of creating the healthiest family on earth.”
Primerica
The Georgia-based financial firm reported a first-quarter earnings increase of roughly 9%, buoyed by growth in its life insurance division and improved results in its senior health business.
Meanwhile, economic uncertainty and stock market volatility continued to hammer Primerica’s investment and savings segment, which was down 25% year-over-year on sales of $2.3 billion.
Primerica is a direct seller of term insurance policies and annuities, along with other financial and investment services.
For the quarter, the company reported a profit of $125 million on sales of $690 million.
Results from the first three months of the year reflected continued growth of adjusted direct premiums in the company’s life insurance division, along with progress in improving the profitability of its senior health segment, CEO Glen Williams told analysts during an earnings call.
Life insurance products introduced last fall have boosted the sales force’s enthusiasm, he said. During the quarter, the company said it issued 84,500 new life insurance policies, a 2% year-over-year increase, and estimated that annualized life insurance premiums were up 6% to $89 million.
Primerica acquired TeleQuote, a provider of senior health insurance and a distributor of Medicare-related insurance policies, in July 2021, but the segment has underperformed consistently since the acquisition.
That’s starting to turn around, Williams said. Results for the first quarter were in line with expectations, and profitability metrics are improving, which he called “encouraging.”
A lucrative part of Primerica’s business—its Investment and Savings Product—reported sales of $2.3 billion, down 25% compared to the prior year period. That sales downtrend is expected to continue, as the company projects ISP sales could decline between 7% to 10% in the second quarter due to continued economic uncertainty.
Along with lower sales, revenue decreased in the investment and savings segment by 13% to
$210 million.
Q1 Numbers
- Total Profit: $125 million, up 9%
- Total Sales: $690 million, down 2%
Recruiting Uptick
Primerica had quite a successful quarter when it comes to recruiting.
About 93,500 new people joined the company in the first three months of the year, a 10% increase year over year. Additionally, more than 11,000 new life-insurance licensed reps were added during the quarter, an 11% increase.
Williams said the company has been able to achieve sales force growth this quarter with no incentives—“it was good fundamentally sound growth in the quarter.”
“What we’re seeing is that we’re getting better at telling our story,” he told analysts. “There’s a better story to tell with our success as we go forward. We just see the desire in a disrupted
kind of employment dynamic of people looking for alternatives, looking for additional part-time income to offset the higher cost of living or looking for alternative career paths.”
Nature’s Sunshine
The nutritional and personal-care products maker reported a profit of $860,000 during the first-quarter and is predicting modest sales growth for the full year.
CEO Terrence Moorehead told analysts in a recent earnings call that the company started the year on a strong note, as figures for the first-three months of the year exceeded Wall Street expectations.
Nature’s Sunshine’s reporting of $860,000 profit this quarter comes as the company netted a $3 million loss during the same time period a year ago, grappling with global supply chain issues and inflationary pressures that offset an overall sales increase.
Sales were $108 million for the quarter, down 2%. The decline was largely driven by sales drop-offs in China and North America.
But Moorehead said the Asia region as a whole performed strong, delivering first-quarter sales that were up 9% on a constant currency basis. Taiwan and Japan were the two best-performing markets in the region.
Moorehead added that the company is seeing encouraging signs in China, where sales momentum is building each month.
“We continued to operate in an extremely challenging external environment,” Moorehead said, “but the underlying fundamentals and strength of our business remained firmly intact, and the steps we’ve taken to create a more consumer-focused business continued to help us build momentum in the quarter.”
Nature’s Sunshine said it is forecasting “low- to mid-single-digit revenue growth” for the year.
Q1 Numbers
- Sales: $108 million, down 2%
- Profit: $860,000, up from a $3 million loss
- Asia: $46.3 million, flat
- Europe: $21.4 million, down 2%
- North America: $34.6 million, down 4%
- Latin America and Other: $6.2 million, down 6%
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Following the decision, the Commission submits supplemental findings to the Texas court adjudicating the Neora trial
By: David Bland
A federal court in the District of Arizona has sided with the Federal Trade Commission (FTC) in its request to shut down a direct selling company called Success By Health (SBH) for violating the FTC Act by operating as an unlawful pyramid scheme. Led by James “Jay” Noland and three other defendants, SBH, as well as a company called VOZ Travel, marketed coffee, nutraceutical, and travel products through multi-level marketing between 2017 and 2020.
After an 11-day bench trial, the Ninth Circuit Court concluded that, in addition to operating as an illegal pyramid scheme, the defendants made misleading earnings claims while marketing both SBH and VOZ Travel. Furthermore, the court found Noland in contempt for violating a nearly 20-year-old settlement agreement with the FTC stemming from his previous direct selling venture that the Commission targeted as a pyramid scheme.
Case History: ‘A Far Cry from Financial Freedom’
In January 2020, a federal court temporarily shut down Success By Health and froze the assets of the company and its executives via a temporary restraining order (TRO) after the FTC alleged that the company was a pyramid scheme.
According to the Commission, the company had unlawfully taken over $7 million from consumers while less than 2% of participants earned more than they had spent on inventory. The FTC deemed this “a far cry from the defendants’ promises of ‘financial freedom.’”
In the filing, the Commission alleged that Noland and his fellow defendants promised affiliates that commissions exceeding $1 million per month were possible—a claim made even more unreasonable, according to the FTC, by the fact that the company allegedly sold products directly to consumers for the same price paid by affiliates.
Furthermore, the FTC alleged that the company’s “Four Steps to Success” training materials emphasized only affiliate recruitment with no guidance on selling products to consumers.
Preliminary Injunction Granted
The following month, the court granted the Commission’s request for a preliminary injunction against SBH, stating that there is “compelling evidence” that the defendants were operating a pyramid scheme and engaging in deceptive practices in violation of the FTC Act.
In September 2020, the FTC filed an amended complaint with the court requesting a permanent injunction and equitable relief, alleging that the same defendants were operating an additional pyramid scheme known as VOZ Travel.
In the court filing, the Commission alleged that Noland and his fellow defendants were selling travel memberships for at least $1,000 each in exchange for access to a discount travel platform and the ability to earn rewards by recruiting others to purchase memberships. However, the amended complaint alleges that the VOZ booking platform was never launched.
In the September filing, the Commission alleged that the defendants were in violation of two FTC Rules—The Merchandise Rule, which protects consumers who purchase merchandise through mail order or telephone transactions, and the Cooling-Off Rule, which protects consumers making purchases outside of a seller’s regular place of business.
Commission Seeks Summary Judgment
On March 12, 2021, the FTC filed a motion seeking summary judgment as to liability against all of the defendants. In the 35-page motion, the Commission detailed their claims that both SBH and VOZ Travel had violated the FTC Act by operating as a pyramid scheme, making false income claims, and providing affiliates with the means to violate the FTC Act. The Commission also accused the companies of violating the two FTC rules.
On May 18, 2021, FTC Commissioners requested that the Court grant them a preliminary injunction with asset freeze and receivership due to the defendant Jay Noland’s alleged unlawful activity, including his supposed violation of a 2002 settlement order with the FTC.
The order barred him from engaging in future pyramid schemes, making deceptive earnings claims about any future multi-level marketing program and misrepresenting the benefits that a MLM participant could receive.
On June 23, 2021, the FTC filed a motion for summary judgment on monetary relief against the defendants in the amount $1.16 million. The Commission stated in the motion that Section 19 of the FTC Act enabled them to seek monetary relief to redress consumer harm caused by the defendants’ rule violations, namely the Merchandise and Cooling-Off Rule violations.
On Aug. 30, 2021 the Court granted the FTC’s request for sanctions against individual defendants for the intentional spoliation of evidence. After advising Defendant Jay Noland to preserve documents relevant to its investigation, the Commission alleged that the defendants began using encrypted messaging platforms called Signal and Protonmail to communicate with each other. It was further alleged that Noland used these encrypted accounts to provide a script for third-party witnesses.
Defendants Found Liable
On May 11, 2023, in a detailed and meticulously reasoned 131-page order, a bench trial in the U.S. District Court of Arizona found the defendants liable for several violations. Although the FTC originally sought monetary damages of $8 million at the outset of the case, the April 2021 Supreme Court decision on the AMG Capital Management case ended the FTC’s powers to seek equitable monetary relief such as disgorgement or restitution. Therefore, the Commission clarified its monetary remedies-related requests to only seek remedy for SBH’s Rule violations and not the unlawful pyramid motions and earnings claims.
The Court identified several outstanding issues to be resolved by the bench trial.
The first issue was establishing whether or not SBH acted as a pyramid scheme. The court established that SBH’s “six-phase” compensation plan required only recruiting, and not sales to ultimate users, in order to earn “any meaningful amount of money.”
Citing both the Koscot test (based on FTC v. Koscot Interplanetary, 1975) and BurnLounge case (2007), the Court concluded that “…the FTC met its burden of establishing that ‘the rewards [SBH] participants received in return were largely for recruitment, not for product sales.’”
A second issue was to establish that the defendants made misleading earnings claims for both SBH and VOZ Travel. Although the Court had previously issued a summary judgment in the FTC’s favor with respect to VOZ, it did not grant a summary judgment for SBH at the time. This judgment was passed by the Court after the bench trial.
Referencing SBH’s claims that affiliates would earn substantial, life-changing money and financial freedom, the Court cited FTC
v. Cyberspace.com (2006) and determined
that despite the defendants’ use of
“disclaimers,” the net impression was that affiliates could reasonably expect to earn these substantial commissions.
Court Awards Minimal Damages for Rules Violations
The FTC requested over $1.1 million in monetary remedies for SBH’s violations of the Merchandise and Cooling-Off Rules. However, the court found that, while the defendants did violate the rules, the Commission failed to justify the full damage amount for the Merchandise Rule violation due to its failure to adequately assess the value of delayed or missing product shipments. The Court awarded damages of only $6,829 for the Merchandise Rule violation.
The Court declined to award any damages at all for the “blatant” violations of the Cooling-Off Rule, as the FTC failed to explicitly show that the Rule violation was directly related to the consumers’ financial loss.
Defendants Ordered to Pay Millions for Contempt Violation
In what turned out to be the most financially impactful part of the ruling, the bench trial determined the extent to which the defendants violated a 2002 permanent injunction stemming from Noland’s internet-based MLM called Bigsmart, which the FTC sued for being an unlawful pyramid scheme.
In the resulting settlement, Noland and his associates were barred from engaging in future pyramid schemes and from making misleading earnings claims while participating in multi-level marketing ventures.
By making false representations while operating SBH and VOZ Travel as a pyramid scheme, the Court determined that the FTC successfully proved the underlying contempt violations with “clear and convincing evidence.”
The Court granted the Commission’s request for the imposition of a $7.3 million compensatory civil sanction that will be jointly owed by the defendants.
Commission Submits Findings for Neora Case
At the conclusion of the bench trial, the FTC submitted a Notice of Supplemental Authority to the U.S. District Court of Texas that is adjudicating the ongoing FTC case against Neora, a direct selling company headquartered in Dallas, Texas, that the FTC is suing as an alleged pyramid scheme.
The purpose of this submission is to bring to the attention of the Texas court the relevant legal authorities and information that was established in the Noland decision.
In the filing, the Commission noted four components from the Noland decision that it believes should have a bearing on the ongoing Neora case.
- The credibility and persuasiveness of two FTC witnesses, which the Arizona Court found to be credible and relevant to its liability findings.
- The proper test to apply for determining if an MLM is a pyramid scheme. The FTC points out that in the Noland decision, the Court evaluated whether participants in the business could succeed through recruitment only, without customer sales. The Court also noted the MLM’s emphasis on a lack of safeguard policies, the use of false product demand, and the high percentage of affiliate incentives to “buy rank” through the purchase of products.
- The proper test to apply and evidence to consider when evaluating whether an MLM has made misleading income claims. The Commission’s Notice referenced the Arizona Court’s findings that the “Defendants’ income claims were false in theory and in practice.”
- Marketing and training materials were used to spread the defendants’ false income claims, which violates the FTC Act for furnishing the means and instrumentalities to mislead others.
Whether or not the FTC’s Supplemental Notice to the District Court of Texas will make a difference in the Neora case remains to be seen. Regardless, the Commission appears intent on continuing its targeting of direct selling companies that it believes are placing a higher priority on recruitment over customer sales.
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Direct sellers navigate the clash of security concerns, creative expression and commercial opportunities
By: Stephanie Ramirez
What triggers a ban is if the words you say in your captions have, ‘sign up now or join me.’ Those words can trigger an audit where TikTok will take a closer look at your profile.
— Brittany Munk, North American Director of Sales, Epicure
In a landscape shaped by the ever-evolving digital age, the realm of social media has become an influential platform for communication, entertainment and commerce.
Among the myriad of apps that have captured the attention of millions worldwide, TikTok, the Chinese-owned video-sharing platform, has emerged as a dominant force, captivating users with its short-form videos and creative expression.
With 1.5 billion monthly active users globally, TikTok is the fastest-growing social media platform, reaching 1 billion users in September 2021—a record set in only four years since its worldwide launch.
However, TikTok continues to find itself increasingly entangled in a web of controversy concerning national security, data collection and user privacy, prompting Washington D.C. rhetoric to intensify.
The Chinese government’s expansive surveillance capabilities and national security implications have raised alarm bells among policymakers, sparking questions about the potential risks associated with TikTok’s vast user base.
Policymakers fear that TikTok, which like many other social media platforms collects vast amounts of data on its users, would be forced to give its data to Beijing under a 2017 law that compels companies to turn over any personal data relevant to China’s national security. These concerns have propelled the app into the center of debates, reflecting the complex intersection of technology, geopolitics and societal influence.
U.S. party members from both sides of the aisle agree that it would be beneficial to have some form of legislation that gives the Commerce Department greater power to ban or restrict apps linked to countries deemed as foreign adversaries, such as China.
TikTok Legal Troubles
A bill, being led by a bipartisan coalition, Sens. Mark R. Warner (D-Va.) and John Thune (R-S.D.), would not guarantee a ban or a forced sale of TikTok, but it would give the federal government more legal standing to pursue
either route.
Sen. Warner said in a press release issued by his office in March, “Today, the threat that everyone is talking about is TikTok, and how it could enable surveillance by the Chinese Communist Party, or facilitate the spread of malign influence campaigns in the U.S. Before TikTok, however, it was Huawei and ZTE, which threatened our nation’s telecommunications networks.”
“And before that, it was Russia’s Kaspersky Lab, which threatened the security of government and corporate devices. …We need a comprehensive, risk-based approach that proactively tackles sources of potentially dangerous technology before they gain a foothold in America, so we aren’t playing Whac-A-Mole and scrambling to catch up once they’re already ubiquitous.”
Sen. Thune added, “Congress needs to stop taking a piecemeal approach when it comes to technology from adversarial nations that pose national security risks.”
“Our country needs a process in place to address these risks, which is why I’m pleased to work with Senator Warner to establish a holistic, methodical approach to address the threats posed by technology platforms – like TikTok – from foreign adversaries. This bipartisan legislation would take a necessary step to ensure consumers’ information and our communications technology infrastructure is secure.”
The bill, known as the RESTRICT Act, if passed, wouldn’t target TikTok specifically. Instead, it would authorize the Secretary of Commerce, under orders of the President, to restrict or ban digital products and services from countries it deems to be foreign adversaries: China, Cuba, Iran, North Korea, Russia,
and Venezuela.
In addition to Sens. Warner and Thune, the legislation is co-sponsored by Sens. Tammy Baldwin (D-Wis.), Deb Fischer (R-Neb.), Joe Manchin (D-W.V.), Jerry Moran (R-Kan.), Michael Bennet (D-Colo.), Dan Sullivan (R-Alaska), Kirsten Gillibrand (D-N.Y.), Susan Collins (R-Maine), Martin Heinrich (D-N.M.), and Mitt Romney (R-Utah).
As of April 2023, the app has already been banned for use by federal employees, and has been banned for use by state employees in 34 states in the U.S. Governors have cited cybersecurity issues and fears over Chinese spying as reasons for the bans.
These bans have generally been justified with national security concerns, due to TikTok’s ownership by the Chinese company ByteDance.
Following state bans of the app on state-owned devices and networks, at least 18 state universities have restricted access to TikTok in recent months on school computers, mobile phones and Wi-Fi, in accordance with executive orders in those states banning the app on government-owned devices and networks.
A TikTok spokesperson, Brook Oberwetter, previously told NBC News the company is “disappointed that so many states are jumping on the political bandwagon.”
“We’re especially sorry to see the unintended consequences of these rushed policies beginning to impact universities’ ability to share campus-wide information, recruit students, and build communities around athletic teams, student groups, campus publications, and more.”
Not long after a Chinese spy balloon was spotted flying over the state of Montana earlier this year, drawing national attention, the state’s legislature drafted a bill to ban TikTok in Montana entirely. Montana is home to one of the nation’s three nuclear missile silo fields at Malmstrom Air Force Base. Montana Governor Greg Gianforte just signed that bill into law last month.
Gianforte tweeted that he has banned TikTok in Montana “to protect Montanans’ personal and private data from the Chinese Communist Party,” officially making it the first state to ban the social
media application.
The bill specifically names TikTok as its target, prohibiting the app from operating within state lines. The law also outlines potential fines of $10,000 per day for violators, including app stores found to host the social
media application.
TikTok has lashed back hitting the state with a lawsuit just days after the bill was signed, which is due to take effect Jan. 1, 2024. TikTok alleges that the ban violates the U.S. Constitution, including the First Amendment, as well as other federal laws, according to a complaint filed in Montana District Court. The ban is “unconstitutionally shutting down the forum for speech for all speakers on the app,” the company said in the lawsuit.
Oberwetter said in a statement, “We are challenging Montana’s unconstitutional TikTok ban to protect our business and the hundreds of thousands of TikTok users in Montana. We believe our legal challenge will prevail based on an exceedingly strong set of precedents and facts.”
Emily Flower, a spokeswoman for Montana’s attorney general, Austin Knudsen, told The New York Times that the state expected legal challenges and is fully prepared to defend the law that helps protect Montanans’ privacy and security.
Direct Sellers Leverage TikTok Algorithm-Driven Content Discovery
Despite the growing controversies, TikTok continues to gain popularity among users of all ages. Direct sellers are increasingly turning to the platform as a way to promote their products and connect with potential customers.
With its short-form video format and algorithm-driven content discovery, TikTok provides a unique opportunity for businesses to reach a wide audience quickly and easily.
“The current generation of young people are on TikTok,” shared Brittany Munk, North American director of sales for Epicure, a direct seller founded in 1997 that offers healthy packaged foods for easy meal prep.
“Regardless of the controversies with the platform, if we’re not there, then we’re missing out on this new up-and-coming generation.”
Munk said that approximately 75% of kids graduating high school now want to be some sort of social media influencer or gig economy money earner after graduation.
“I think it’s imperative that we’re on TikTok while it’s here, and that we understand it,” Munk added. “We’re there on the corporate side to teach our ambassadors, because if we don’t, we’re going to miss out on who will be the next generation of people running the company, being our ambassadors.”
Even though the platform explicitly bans content promoting what they refer to in their community guidelines as “pyramid schemes” and “multi-level marketing companies,” direct sellers have found unique ways to share products and find new customers.
“Users tend to dislike salesy or spammy advertising or content, and instead prefer genuine and authentic content,” Munk said. “It’s important to note that TikTok’s definition of a multi-level marketing company is one where most of the sales come from recruiting and not selling products. So where we are different, and I think most direct sellers now are different, is that distributors make most of their income selling a product.”
Munk said that Epicure puts a great deal of time into researching and training their distributors on how to participate in social media trends, including TikTok.
“Whether it’s a dance or a viral sound clip, users can participate in the trend while low-key promoting their product or company,” she added.
“What triggers a ban is if the words you say in your captions have, ‘sign up now or join me.’ Those words can trigger an audit where TikTok will take a closer look at your profile.”
She continued, “There are four things that get people to stop their scroll on TikTok or Instagram, and the first one is entertainment. So for a direct seller to be entertaining, that is a great way to build your following, build connections, show your credibility, and get people to follow you back.” Then there’s education, followed by motivation and lastly inspiration.
Munk said her company provides quite a bit of training on how to create “viral” content sharing the Epicure products and following the TikTok trends. She added that because of the way the TikTok algorithm works, users can build a following in a short amount of time.
“Facebook allows access to about 2,500 posts per day per user on average, and they only allow you to actually see about 10% of those,” Munk shared.
“With TikTok and Instagram, it’s based on scrolling activity. If you don’t slow down on something, like or comment on something in your feed, they note that, and won’t show you similar content again. But when you pause on something like a cooking video for example, they’re like, okay, she’s interested in this. And soon enough, based on your actions, they have you figured out and they will show you videos of women sharing cooking tips from then on.”
One of the key advantages of using TikTok for business is the ability to create engaging, shareable content that can go viral and generate significant exposure for a brand or product.
By using popular hashtags and leveraging trending topics, businesses can tap into the massive reach on the platform and build a following of loyal customers. Research shows that 35% of TikTok users have bought something off the platform and 44% of users discovered products through ads and content posted by brands and influencers.
Another approach to creating potential sales on the platform is to partner with influencers or other content creators who have a large following on TikTok, according to Hillary Alston, senior vice president of sales for LulaRoe. “By working with these influencers, reps can reach a wider audience and potentially attract new customers.”
Like Epicure, LulaRoe provides a great deal of training on how to properly reach new customers on social media, Alston shared. She said distributors looking to promote their products on TikTok may want to also consider the following:
- Focus on providing value – Rather than simply promoting products or opportunity, focus on creating content that provides value to viewers. This could include tutorials, educational content, or product reviews that help viewers understand the benefits of your products.
- Be authentic – Authenticity is key on TikTok, so it’s important to be transparent and genuine in your content. Avoid using canned scripts or promotional language that could be seen as spammy, salesy, or manipulative.
- Leverage popular trends – TikTok is all about trending topics and challenges, so try to incorporate popular trends into your content in a way that is relevant to your business. This could involve creating a unique spin on a popular trend or creating your own challenge that aligns with your brand.
- Work with micro-influencers – Partnering with micro-influencers or other content creators who live in your area can be a great way to reach a wider audience on TikTok and not cost more than a few products. Look for influencers who have a large following and whose audience is a good fit for your product.
- Be consistent – Consistency is key on TikTok, so it’s important to post regularly and engage with your audience. This can help you build a following and establish yourself as an authority in your niche.
Promoting a business on TikTok requires a strategic approach that focuses on providing value to viewers and avoiding sales pitches or manipulative content.
By following these tips, and staying up to date on the latest trends and guidelines, Alston added, direct selling distributors can use TikTok to grow their businesses and connect with their target audience.
The TikTok paradox continues to captivate attention as the platform grapples with both controversy and a thriving marketplace.
However, amid the turmoil, TikTok has emerged as a robust marketplace where innovative influencers, small businesses, and direct sellers thrive, leveraging the platform’s vast user base to sell products and engage with consumers in new and exciting ways.
As policymakers, regulators, and users navigate this complex landscape, striking a balance between security and innovation becomes crucial.
The evolving story of TikTok highlights the intricate challenges inherent in our digital era, reminding us that finding harmony between safeguarding interests and fostering new ideas remains an ongoing journey in the dynamic world of social media and commerce.
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By: Noah Westerlund
Over the past 18 months, federal lawmakers have intensified pressure on the Federal Communications Commission (FCC) to do something about the ever-growing issue of unsolicited marketing texts. Given those pressures, the FCC and Federal Trade Commission (FTC) have increased their efforts to regulate carriers’ texting practices.
This regulatory push has significant implications for network marketing companies and their distributors. Essentially the FCC and FTC decided to broaden the net cast by the Telephone Consumer Protection Act of 1991 (TCPA Act) and the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act). The TCPA Act regulates telemarketing, including SMS messages and phone calls, while the CAN-SPAM Act covers email marketing.
Though the FCC aims to protect consumers from text message scams and spam, these stringent measures have presented new challenges for network marketing companies and their distributors, affecting their ability to deliver messages to prospects and even
one another.
Regulatory Pressure Has Been Building
In September 2022, the FCC filed a proposal that brought texting under the purview of existing regulations. The proposal required mobile wireless providers to block texts from invalid, unallocated, or unused numbers, as well as numbers on a Do-Not-Originate (DNO) list. The FCC’s intention is to enhance consumer protection and combat the rising menace of text message scams and spam.
Under pressure from regulatory bodies, carriers have introduced new requirements for what they classify as “commercial texts.” Previously, the registration of sending numbers and campaign content was voluntary, but it is now mandatory.
Network marketing companies and distributors must register their numbers and campaigns with carriers to comply with the regulations. This registration process aims to distinguish legitimate commercial messages from unsolicited and misleading ones.
While the goal is to protect consumers, these requirements have posed administrative burdens and potential delays for network marketing companies seeking to communicate with their distributor networks.
Carriers Turn to Automated Filtering
Initially, carriers approached the new requirements with leniency. However, in recent months, carriers have strengthened their enforcement measures to ensure compliance. Verizon has taken the lead in implementing strict filtering practices, and other carriers are expected to follow suit. The filtering process targets unregistered traffic that carriers identify as illicit or commercially related but not properly registered.
Essentially the carriers have implemented automated filtering processes that decide what traffic goes through and what does not. These filters are far from perfect and will often filter out legitimate traffic.
There is an example of a soccer coach who can no longer communicate with his team via text message as he was sending several group messages a week that often-included links to schedules and registration sites. These messages were blocked by the automated software.
While carriers’ filtering practices aim to curb spam and protect consumers, they have inadvertently affected legitimate network marketing messages. Distributors who send messages without proper registration face the risk of having their communications filtered or blocked, hindering their ability to reach their target audience effectively.
In addition, carriers have been reluctant to disclose specific filtering requirements. This lack of transparency has left network marketing companies and distributors frustrated and uncertain how to comply fully. Questions arise regarding the threshold for the number of sends per day or per hour per person, or whether the frequency of specific links passing through the carriers’ networks triggers filtering.
This uncertainty has caused significant challenges for network marketing companies and distributors as they strive to understand and navigate the evolving landscape of compliant texting practices.
To underscore the seriousness of the regulatory measures, the FCC shut down Global UC, a small carrier based in Germany that operated in the U.S. In November, the FCC issued a warning letter to Global UC concerning its robocalls, emphasizing that texts and robocalls are now regarded similarly under the new regulations.
However, Global UC did not take the warning seriously, and one of its executives made a flippant comment publicly. Consequently, in December, the FCC took the unprecedented step of shutting down Global UC’s operations in the U.S. This case serves as a stark reminder to carriers as to the consequences of non-compliance. In turn, the carriers are taking a much more conservative approach to traffic monitoring.
How Does This Affect Your Business?
While many companies haven’t noticed these effects, that doesn’t mean they aren’t there. When a text is blocked there is no message back, there is no warning—the text message is simply never delivered. The only way a distributor or company can determine if the message did or did not go through is to contact the receiver to verify that the message was received.
For many distributors, the ability to quickly send a video link to a prospect via text is central to their ability to do business. Texting has long been an integral part of their communication strategy, allowing them to reach their networks effectively and promote products or opportunities. The new requirements for commercial texts as well as the filtering practices have disrupted these established channels, leading to compliance challenges and decreased communication efficiency.
Network marketing companies now face the task of ensuring that all sending numbers and campaign content are registered with carriers. This registration process, although aimed at weeding out unsolicited and misleading messages, poses administrative burdens and potential delays. Distributors may experience challenges when disseminating time-sensitive information or communicating with their teams, as their messages could be filtered or blocked due to non-compliance.
Moreover, the lack of transparency regarding filtering requirements adds further complexity. Network marketing companies and distributors operate in a dynamic environment that requires frequent communication and information sharing. The uncertainty surrounding the threshold for compliance leaves them unsure about the boundaries they need to adhere to in their messaging strategies.
In this context, network marketing companies and distributors need to adopt a proactive
approach to ensure compliance with the FCC’s regulations. It is crucial to educate distributors about the new requirements, registration
processes, and potential consequences of non-compliance. Companies must provide clear
guidelines and support to ensure that distributors can effectively navigate the evolving regulatory landscape.
What You Can Do
There are several things that companies can do to improve the deliverability of text messages.
First, companies need to make sure that the texting service they use to communicate with their distributor base has provided them with a registered number. In addition, they need to register their campaign. Any SMS provider should be able to walk them through this process. When selecting a service provider, companies should be sure that the company is open to working with network marketing companies. Many well-known providers do not provide services to network marketing companies.
Second, when sharing videos and other collateral materials that are hosted on company sites, make sure those sites have been registered and properly classified by a security company such as Trendmicro.
Trendmicro and other companies like it maintain databases of “safe” domains and will track the reputation of a domain over time. The better the reputation of a domain the higher the likelihood that messages containing a URL referencing this domain will be delivered.
Finally, train distributors on these issues and engage them in proper practices such as refraining from buying marketing lists that haven’t been properly vetted.
The FCC and FTC’s intensified regulations on texting practices have significantly impacted network marketing companies and their distributors. While the aim is to protect consumers from scams and spam, the new requirements and filtering practices have introduced challenges.
The mandatory registration of the sender’s number as well as campaign content, coupled with the lack of transparency regarding filtering criteria, have created uncertainty and administrative burdens for network marketing companies and distributors.
Navigating these regulatory changes requires a proactive approach and a commitment to compliance to ensure effective communication and maintain consumer trust in the network marketing industry.
By staying informed and implementing appropriate measures, network marketing companies and distributors can adapt to the evolving regulatory landscape while maintaining their communication effectiveness and business operations.
Noah Westerlund is President of NOW Technologies.
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Direct sellers included in Notices of Penalty Offense for Product Claims
By: David Bland
On April 13 the Federal Trade Commission (FTC) put 670 companies, including several direct selling companies, on notice regarding the need to substantiate product claims. In a fourth round of warning letters since the Commission resurrected the use of its Penalty Offense Authority (POA) in October of 2021, The Notice of Penalty Offenses Concerning Substantiation of Product Claims reminds the recipients that the promotion or advertising of products using deceptive or unfair practices is a violation of Section 5 of the FTC Act and subjects them to civil penalties of $50,120 per violation.
Companies receiving letters include major corporations such as Amazon, PepsiCo, Novartis and Walmart. Many direct sellers also received the notice, including Amway, Arbonne, Isagenix, Herbalife, Mannatech, Nature’s Sunshine and Nu Skin.
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