Direct selling has a long history and is sometimes referred to as the oldest distribution channel in the world. Direct selling is a person-to-person sale where a customer purchases a product or service from another person – often referred to as an independent distributor or representative – who is knowledgeable about the product or service they are selling.
Similar to other industries like automotive, pharmaceuticals, e-commerce, and more, consumer protection standards and credible business practices protecting direct sellers are paramount. In direct selling, there are laws that protect consumers, inform direct selling regulations, and guide voluntary industry self-regulations that are driven by the desire to build trusting relationships with consumers.
How Regulations Protect Both Consumers and Direct Sellers
In many countries, there are general regulations and industry standards that all companies must comply with: general consumer protection, truth in advertising, good manufacturing practices, etc.
Specific to the direct selling industry, which is a $186 USD billion industry worldwide, multi-level marketing or anti-pyramid regulations exist in most countries. These regulations protect the integrity of the direct selling industry by regulating or seeking to remove the “bad players.”
Let’s take a deeper dive into three types of regulatory practices that share the same goal – to protect consumers and direct sellers.
Government Regulation Protecting Consumers
Government agencies worldwide regulate all types of industries to protect the consumer and ensure compliance with legislation, whether it’s technology, fashion, banking, or direct selling. Around the world, there are administrators that have been instructed by their government to protect consumers.
Some examples include:
- The Food and Drug Administration and the Federal Trade Commission in the United States
- The European Commission in the E.U.
- The State Administration for Market Regulation in China
- National-level Fair Trade Commissions in multiple other countries
Government regulations frequently:
- Set parameters and create clarity on what an industry can and cannot do with its business and products.
- Ensure a fair level playing field among industry members.
- Let consumers know that they can expect a certain quality standard when they purchase products or do business with a compliant, regulated company.
Federal and municipal regulations contribute to building trust with consumers by ensuring that, for example, food is safe to eat or that cars work properly and are not dangerous to use.
Direct Selling, Multi-Level Marketing, and Anti-Pyramid Legislation
Pyramid schemes are always fraudulent and often try to disguise themselves as direct selling companies. A pyramid scheme is a system that offers compensation based on recruiting others to join the scheme, not based primarily on profits from any product sales to real, genuine customers.
Anti-pyramid legislation strives to define and prohibit these fraudulent schemes. Additional regulations distinguish direct selling, which is legitimate, from pyramid schemes, not only on the compensation element but also through the business requirements to repurchase unsold inventory and the prohibition on inventory loading.
Pyramid schemes are illegal in almost all countries around the world. Many countries also have multi-level marketing and additional laws regulating personal or independent contractor licenses. Direct selling companies are required to follow these various national and municipal laws that offer protections and guarantees to their distributors and customers so they can be confident they are safeguarded.
Industry Self-Regulation
Governments often look for industries to self-regulate where they can. In many countries, trade associations or intergovernmental organizations take on the critical role of raising industry standards for their members to comply. Some relevant global examples are the World Trade Organization, the International Chamber of Commerce, and the World Federation of Direct Selling Associations.
These types of organizations are relevant because they encourage collaboration between companies, offer sector-specific advice and guidance on key issues, engage with policymakers to advance public policy issues, and promote best practices, which are typically above the protections provided by law.
The World Federation of Direct Selling Association (WFDSA), for example, has a Code of Conduct that sets standards for members on many relevant topics, including, for example:
- Recruiting practices
- Product and service guarantees
- Sale and return of product inventory
- Pyramid schemes
- Earnings claims
They also have the authority to enforce the rules and have independent code administrators, with remedies going from fines to removal from the national Direct Selling Association (DSA) membership.
Herbalife Nutrition is a member of 58 DSAs around the world, including the DSA of Brazil, France, Japan, Mexico, South Africa, Taiwan, the United Kingdom, and the United States. The Company has been a leader in self-regulation processes for decades.
How We Go Beyond Industry Standards
Herbalife Nutrition has been in business for over 40 years, maintaining high standards in product quality, customer service, and consumer protections. One of our core values is “we always do what’s right” because we know that a company that stays true to its principles inspires its team and increases its customers’ trust.
We go above and beyond industry standards because we are committed to good business practices and to protecting each consumer and direct seller. For example, the industry’s standard for a money-back guarantee – a refund on returned unopened products if someone decides they no longer wish to operate as a direct seller – is 90 percent of the cost of products; at Herbalife Nutrition, it is 100 percent. We also cover the shipping costs, both the initial delivery and return shipping.
Our Member Business Practices and Compliance (MPC) group is another example of how we seek to be a best-in-class direct selling company. MPC seeks to ensure that independent distributors conduct their business with the highest integrity and comply with the Herbalife Nutrition and industry rules while providing excellent customer service.
These goals are achieved through:
- Coaching and education on easy-to-understand rules and business practices
- Engaging training content, including an award-winning Better Coaching Program
- Proactive monitoring of distributors’ activity to identify potential issues and trends early, which helps uncover issues and allows for better coaching opportunities
- Using compassionate compliance and effective enforcement
Conducting our business as we do is key to maintaining the trust of our distributors’ customers, which is why we actively work with government officials – along with many other direct selling companies – to help shape fair, firm, and reasonable direct selling rules and regulations.
One bad actor can damage the credibility and reputation of the entire direct selling industry. We strive to help set both voluntary and mandatory rules that allow companies to thrive and help ensure that everyone in the industry lives up to the same high-quality standards. We have been active in helping shape the rules and voluntary codes in many countries, including the U.S., India, Vietnam, Korea, the EU, and Mexico.
Our Company’s future goals for oversight policies are to see modern, relevant, reasonable yet firm laws, regulations, and voluntary codes in place in all our markets. We will continue to work passionately with stakeholders, colleagues, and companies that strive for the same objective.
For the betterment of the industry and for consumers and direct sellers alike, we try to think beyond rules and checklists. We encourage other direct selling companies to go beyond industry standards – to invest in their independent distributors through best-in-class education and resources and to enforce more robust compliance and training programs.
Doing so would not only improve the perception of our industry but would also help us achieve what direct selling was originally meant to do, which is to allow for the sale of a quality product directly to consumers, create personalized connections, and an opportunity to earn income on your own terms.