Chapter 11, Problem 1EA

As cosmetics companies roll out line after line of products to satisfy consumers' quest for youth, the shelves are getting crowded. How can a company stand out? Products such as the Cosmedicine and Rodan+Fields lines promote their affiliation with research institutions and medical doctors to distinguish them from their competition.

Shortly after Johns Hopkins University began consulting with the then-owner by companies that produced Cosmedicine products, claiming that its consulting work does not imply any endorsement of Cosmedicine. "We have been pretty clear about our role," said Hopkins CEO Edward Miller. "We are reporting on the scientific validity of studies that were done by outside testing agencies." Consmedicine packaging includes a disclaimer that discloses the nature of the research and financial relationship between Hopkins and the cosmetics company. Similarly, Rodan+Fields, Beachbnody, and Plexus also is controversial to some. Basically, multi-levelmarketing enlists a new salesperson by making the individual purchase training and inventory of the company product at a discount and begin selling the product at retail prices, while also recruiting new salespeople as their "downline" salespeople. The idea is that eventually you will makemost of your income viathe results of your downline salespeople—the people you brought into the business.

There are numerous critiques of multi-level marketing, the most notable being investor Bill Ackman's accusation that weight loss company Herbalife was engaging in a pyramid scheme. A pyramid scheme is an arrangement whose entire whole purpose is the enrichment of the top of the pyramid at the expense of new recruits. Herbalife was able to refute Ackman's accusations in a lawsuit brought against them by that their results based on product sales rather than recruitment and that they offered money-back if the recruits unable to the product.

Ethical Dilemma: Is it for research institutions like Johns Hopkins and medical doctors to endorse products such as skin care? Is the practice of multi-level marketing ethical? Does the money-back guaranttee provided by Herbalife provide evidence that they are not engaged in a pyramid scheme?

Source: "Multi-Level Marketing," Investopedia.http://www.investopedia.com, accessed October l, 2017; Alissa Fleck, "How Women Making Men Rich Has Been Misbranded as Feminism."Huffington Post, http://huffingtonpost.com, August 28, 2017; Kristen Calderaro, "Why Are Doctors Becoming Rodan+Fields Consultants?" Linkedin, htttp://www.linkedin.com, October 29, 2015; Rhonda L. Rundle, "A NewName in Skin Care: Johns Hopkins,"The Wall Street Journal,April 11, 2006 p. Bl.

Summary Introduction

To determine:

The ethical impact of professionals endorsing products and multi-level marketing.

Introduction:

The concept of ethics stands in between the two extremes of codified law and personal freedom. It refers to what is considered to be as correct behavior based on the societies interpretation. As and when society interprets things differently, what is once the standard for ethics can change over time? For example: Slavery in the 18^th century or smoking in the 19^th century.

Explanation of Solution

Professionals like any other individual has the right to endorse a product if he/she believes that the product provides the benefits it explains. However, the dilemma lies in the fact as a professional you are supposed to be unbiased and most endorsements comes with monetary benefits to the endorser. Therefore, the question is whether the endorser is actually speaking his mind or is his judgement clouded by monetary benefits.

In terms of the concept of multi-level marketing as a concept it is nothing more than an another sales strategy. However, the problem is that it can very easily be converted into a pyramid scheme where members at the top benefit while members at the bottom loses it all. A well designed muti-level marketing strategy can actually benefit the community by providing jobs, but there is still the problem of early recruiters gaining more benefits than others.

Money back guarantee provided by H is no guarantee that they are not engaged in a pyramid scheme. The best way to identify this is by looking at the core business. While the core purpose of a pyramid scheme is to collect money from members, MLM's core purpose would be to move product. Apart from this you can test the legitimacy of MLM by calculating the amount of money one needs to invest, will the company buy back inventory?, support received to sell and move products etc.