Herbalife: Success Through Multi-level Marketing – The Case Centre

Abstract

A global network marketing company, Herbalife Ltd (Herbalife) based in the US, had sold nutritional supplements, energy, sports fitness products, personal care products and weight management programs through independent distribution network. It had adopted the Multi-level Marketing (MLM) approach in its growth path since it was started in 1980. It was ranked as one of the top 10 MLM companies in the world. In 2011 Herbalife had recorded retail sales of $5.4 billion and also won the ‘Most Trusted Brand Award’ in Korea for the health related food category. Herbalifes’ independent distributors were motivated to sell more and more of Herbalife’s unique products to earn more commission on sales. As the volume of sales increased enabling lower unit cost of sale, Herbalife was keen to look for more distributors to enhance the sales volume further. At the same time, Herbalife’s MLM method had also invited lot of criticisms. Bill Ackman, Head of Pershing Square Capital Management, had alleged that the MLM practice of Herbalife was a ‘fraud,’ ‘a pyramid scheme,’ and a ‘modern-day version of a Ponzi scheme’. His arch rival Carl Icahn had acquired stake in the company and the share prices went up after that acquisition. The issues raised by hedge fund giants leading to investigations by the Securities Exchange Commission captured the attention of the media on Herbalife’s future. In this context, it remained to be seen whether Herbalife would tackle all these issues valiantly and come out of the controversy regarding its MLM schemes to stay ahead in the market.