Monday, February 4, 2008

TEAM: California lawsuit, part 4

Original Post

California lawsuit, part 4

The plainitffs in the class action lawsuit alleged,

At a Diamond Meeting of the Company Internet Services in 1997 or 1998, a price
discussion ensued regarding the price of the Amway dog food. When asked
why the dog food was so expensive, an Amway representative stated that Amway
does not look at the marketplace to determine what a competitive retail price should be. Instead, the Amway representative stated that the products are priced at the IBO cost. Essentially, the Amway representative was suggesting that the IBO cost, considered the “wholesale” cost, is actually the retail price. Thus, IBOs attempting to resell the dog food would have to
sell it at cost, foregoing any profit, in order to be competitive.

In April of 2000, the IBOAI conducted a “Confidential Competitive Analysis” of the
Quixtar products. The IBOAI compared the Quixtar products with three
competitive market leaders in each type of product and a cost per unit of measurement was established to fairly compare the products. In almost every item, the Quixtar products were substantially overpriced in comparison to the three industry leaders. In response, Quixtar promised to “work on it.”

“Amway does not look at the market place to determine what a competitive retail price should be. Instead, the Amway representatives stated that the Amway products were priced at the IBO cost.” To me, this clearly demonstrates that Amway had very little desire to market the products to outside customers; instead they relied on purchases and consumption from their IBO’s. This arrangement worked out well for Amway because there were numerous IBO leaders who got good at recruiting massive amounts of people into the Amway business. Because the tool companies emphasized the opportunity portion of the business, IBO’s were willing to purchase the products for personal use. Although the IBO leaders were good at bringing in massive amounts of people into Quixtar, I’m willing to bet that only a small percentage of the people in the Quixtar/Amway business actually purchased products. In this regard, I would agree 100% with IBOFightback. IBOFightback has argued on this blog, and others as well, that a large percentage of IBO’s never purchase a single product. Why do you suppose that was the case?

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