IP: Rexall's rotten eCommerce example

[David Farber <dave () farber net>]

> Date: Wed, 21 Mar 2001 18:52:58 -0800
> From: Harry Saal <Harry () saal org>
> Reply-To: Harry Saal <Harry () saal org>
>
> Here is a piece by David Strom, which deserves broader
> distribution, IMHO.
>
> -------- Original Message --------
> Subject: [Web Informant] #241, 21 March 19, 2001: Rexall's rotten 
> eCommerce example
> Date: Wed, 21 Mar 2001 15:09:58 -0500
> From: Web Informant <informant () pez oreillynet com>
> Reply-To: David Strom <david () strom com>
>
> Web Informant #241, 21 March 19, 2001: Rexall's rotten eCommerce example
>
>
> Pyramid schemes are probably as old as their Egyptian
> namesakes, and Internet-fueled pyramid schemes were probably
> invented soon after Al Gore thought about the Internet. But
> lately things have taken a turn for the worse. Rexall, a
> nationally known drug and health products retailer, last year
> launched a combination eCommerce affiliate/multi-level
> marketing program. And the results, while legal, spell
> trouble for unsuspecting participants.
>
> Before I tell you more about this, let's first define our
> terms.
>
> An affiliate program allows people to collect commissions for
> referrals from their web site to a vendor's site, when
> browsers actually purchase something from the vendor. They
> are extremely easy to setup, and there are thousands of them
> in existence. I have been an affiliate of Amazon.com for
> several years and donate the small amount of money I make
> selling books from my web site to charity. Most of the people
> who run affiliate sites don't usually receive big incomes,
> because you need tremendous site traffic and plenty of
> purchases. But the sites are a nice way to direct traffic to
> your favorite merchants. Some non-profit organizations have
> set up large affiliate web pages and use them as a fund
> raising tool. Affiliate programs are legal, and most of them
> are free to setup and maintain.
>
> A multi-level marketing (MLM) program is something whereby
> one person tries to sell stuff to others, who in turn try to
> create their own distribution networks and recruit others
> down the line. Each person who refers others down the
> distribution chain gets a small commission from the overall
> sales, so if you are high enough up on the chain, you can
> receive some pretty big checks. You have no doubt come across
> people selling you Amway, NuSkin, MaryKay or other items in
> this fashion. People that sell stuff via MLMs are called
> independent business owners (IBOs). The whole concept works
> on moving money from people lower down on the pyramid, err,
> distribution chain, to people higher up. Sure, you are
> selling legitimate products. But by the time you quit, you'll
> find that most people don't make the advertised hundreds of
> thousands of dollars in profits, and are lucky to clear even
> a small profit. MLMs are legal, and most of them will cost
> you some money to setup and to maintain.
>
> Finally, we have pyramid schemes. These are not legal,
> because they are structured in such a way financially as to
> prevent anyone -- except the persons at the very top of the
> pyramid who begin such ventures -- from making any money. The
> schemes typically don't sell any real product, and people
> that get involved in them quickly lose money rather than make
> any. The US Federal Trade Commission has a nice explanation
> of the differences between MLMs and pyramids on their web
> site:
> http://www.ftc.gov/bcp/conline/pubs/alerts/pyrdalrt.htm
>
> So, why has the Rexall.com MLM program got me all in a
> lather? Anyone that gets involved in it should beware that
> they are likely to not make much money, and could wind up
> losing lots of money. And I think this particular combination
> of MLM/affiliate program can create a lot of suckers. They
> are not the first to combine the two, to be sure. But they
> are one of the larger ventures to do so.
>
> I found out about the program by getting an email from my
> cousin, who was proudly telling me about his latest web
> storefront that he assembled. Curious, I took a closer look
> and found out that he had created an affiliate site on
> Rexall.com. But it isn't really a true affiliate site: it is
> just an MLM to funnel money from unsuspecting marks. And it
> is shameful that Rexall is doing this.
>
> Rexall claims it is legit because they are helping you to
> sell health and beauty products, real products to real
> people. While not a lawyer, I think this is probably true.
> But your friends and anyone else who decides to buy from your
> web site need to buy lots and lots of Vitamin C before you'll
> see some serious cash. Chances are you will also need to buy
> some extra-strength Tylenol before you opt out of their MLM
> system.
>
> A pyramid scheme requires that participants purchase
> something, and generates its cash by paying people to recruit
> others. Rexall makes it clear that you only have to purchase
> a $30 kit to open your storefront. In addition, although not
> required, you are also encouraged to spend another $20 to
> order your technology "toolkit" to set up your storefront.
> And if you really want to get serious about collecting
> commissions, unless you sell $150 worth of product a month,
> you won't become part of a confusing series of bonus and
> additional commission programs. You try making sense of this
> page, and tell me what you think:
> https://www.rexall.com/present/forms/
>
> What makes the Rexall scheme unusually reprehensible is
> several reasons. First, the company combines two programs
> that by themselves rarely make money for the vast majority of
> their participants: affiliate programs and MLM. What are the
> chances that you will become rich from this venture? Not
> high. Getting to the bottom of understanding both programs
> will require a fair amount of research and technical
> expertise, not to mention wading through some very carefully
> crafted legalese.
>
> Second, Rexall has been very clever in terms of marketing it
> to folks who are new to the Internet and eCommerce. In other
> words, they choose people who don't have this expertise to
> understand what they are getting involved in. Now, while
> there is nothing wrong with this from a business perspective,
> I don't endorse this method as a way to show eCommerce
> leadership by your company.
>
> Finally, the program is pervasive. The company claims over
> 35,000 IBOs -- that means that chances are just about anyone
> you are going to try to sell their products to has already
> got their own distribution network and commission structure
> to deal with. That is another problem with most MLMs and
> pyramids: by the time you hear about this great
> "opportunity," chances are all of your friends have too.
>
> It is a shame that Rexall is doing this, because this could
> sour many people's initial experience with eCommerce, let
> alone get them into deep financial trouble. It is also yet
> another indication that eCommerce has gone mainstream. With
> opportunities such as Rexall's, people can quickly lose money
> fast over the Internet. Rexall has a rotten idea, and I hope
> others realize it for what it is. And I wish that there were
> someway to prevent companies from joining MLMs and affiliate
> programs, because the two combined are nothing but trouble.
>
> Entire contents copyright 2001 by David Strom, Inc.
> David Strom, david () strom com, +1 (516) 944-3407
> 938 Port Washington Blvd., Port Washington NY 11050
> Web Informant is (r) registered trademark with the
> U.S. Patent and Trademark Office.
> ISSN #1524-6353 registered with U.S. Library of Congress.



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