Network Marketing Buying Clubs

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Now we’re going to cover some common myths associated with network marketing buying clubs. I hear these myths so often, that I decided to actually present the myth first, and then I’ll provide you with the facts to so you can see the contrast and understand the truth as it relates to one of the oldest, most traditional products/services in network marketing.

Wholesale buying clubs

Myth: Wholesale buying clubs are a powerful way to develop a large international marketing business while at the same time enjoying the benefits of wholesale prices on thousands of consumer products.

Fact: Wholesale buying clubs are a fantastic way to save money. However, MLM’s version of the wholesale buying club is not exactly wholesale. You can save as a consumer by skipping the middle-man retailers and going directly to the wholesale warehouse, but generally there is not enough profit margin left to run a true wholesale buying club. What you get instead is simply “a buying club.”

Here are some definitions of a wholesale buying club vs. a buying club:

Wholesale Buying Club: A group of consumers who band together to form a large purchasing organization to take advantage of volume discount prices. These clubs are exclusive to those who officially become members. Typically, wholesale buying club members will pay a monthly or annual fee for the exclusive right to purchase at factory-direct, wholesale prices. Traditional buying club members only shop at stores, but in today’s modern age, it is usually done through catalogs, 1-800 lines, and now, the Internet.

Buying Club: A group of consumers who band together to form a purchasing organization. The organization offers the same items you might find in the retail and wholesale store at similar prices, or possibly a bit higher. The organization retains the profits that would otherwise have been savings to the consumer. These profits fund the organization.

Most buying clubs are designed as fund-raising organizations for churches or other non-profit organizations. You may buy a ticket to an upcoming country western concert, and some of the proceeds go to the local fire department. Your church or school might sell chocolates that you could find at the store for about the same price or even much less; however, the church or school retains a percentage of the profits. Also, buying clubs are common among profit-producing organizations, such as direct sales or network marketing companies. A company offers items in a catalog that you can find for about the same price in the stores—the catalog prices could even be a bit higher. The company passes a percentage of its profits to independent distributors who are actively promoting the products and program.

Myth: Amway/Quixtar is a wholesale buying club.

Fact: Amway/Quixtar is a buying club, not a wholesale buying club. When Amway was founded back in the fifties, they offered a variety of household cleaning and maintenance products. These were high-quality products sold at reasonable prices—a good deal. As the company grew, Amway began diversifying. They brought on personal care products, nutritionals, and more household products, and eventually grew into one of the world’s largest network marketing companies.

During the last twenty years, Amway (now called Quixtar in North America) has taken a new direction. Amway decided to become a product broker in addition to marketing their own products. A broker is essentially a middleman who regulates the buying and selling of existing name-brand products and services. For example, twenty years ago, you could only buy products exclusively produced by Amway through Amway distributors. These products included Amway soap, Amway cleaners, Amway air fresheners, etc. Amway/Quixtar now offers a large variety of non-exclusive products through its existing network of distributors (name-brand stereos, name-brand automobiles, name-brand food items, etc.). But at what advantage does Amway offer these products? If the same product can be purchased from another source for less, there is no reason for the customer to purchase the product from Amway or any other buying club.

Today you must ask yourself, “Is this company a wholesale buying club or is it just a buying club?” Amway/Quixtar offers nearly every product imaginable through catalogs, and the company claims to be a wholesale buying club when, in actuality, Amway/Quixtar is a classic example of a buying club. Are you saving money? Sometimes you are, and sometimes you’re not. Remember that you are still paying the middleman. The middleman has simply become several levels of distributors and the company itself. In other words, when you purchase a Sony TV from Amway/Quixtar, you will typically pay more for that TV than you will at today’s popular retail and wholesale stores. Why? Because when Amway/Quixtar purchases that TV from the wholesale warehouse, they take their cut. Then they place more mark-ups on the TV to pay out several generations of commissions to distributors. Since Sony is the manufacturer, they take a large cut, leaving very little room for discount pricing. Even distributors usually pay more for the product with the rationalization that they are buying from their own store and they are supporting the cause of Amway/Quixtar. This distributor loyalty to the cause of Amway/Quixtar is largely what keeps Amway/Quixtar viable. People are in it for the cause, not the discount. They’re in to support Quixtar and the American Dream, not to save money on toilet paper.

Myth: A true wholesale buying club would be the perfect MLM vehicle since you have all industries under one roof.

Fact: No true wholesale buying club has ever endured the test of time. Let’s look at a company that was a true wholesale buying club, Consumers Buyline Inc., or CBI. CBI had the same idea of offering every product known to humanity, but with a completely different concept. CBI charged a monthly fee of around $20 to be a member. This fee allowed you to join millions of other consumers in a gigantic purchasing club. Everyone was allowed access to factory-direct shopping. No mark-ups were placed on the products in order to pay out commissions to the distributors in CBI. The only mark-ups were made by the product manufacturers in order to make a modest profit. This allowed CBI to keep prices so low that they were literally unbeatable. CBI only made money on the start-up fee, annual renewals, and the $20 per month that was used to pay distributor commissions. This was a true wholesale buying club concept. Unfortunately, profit margins were not healthy enough to keep this program afloat, and CBI failed with a little help from an inexperienced management team and a lousy compensation plan. Would CBI have had a better chance of staying in business had it marked up its products? Maybe, but then it would have been a buying club, not a wholesale buying club. The opportunity would have no true value. And don’t think other companies haven’t tried this model.

Len Clements includes a laundry list of defunct wholesale buying clubs in his book Inside Network Marketing. Here are some of the more famous (or infamous) programs: Fund America, Life Plan, Mainstreet Alliance, Passport To Adventure, Personal Wealth Systems, Success America, Team USA, United Buyer’s Service, and CBI.

Myth: As a buying club distributor, I can make money representing name-brand products, like Ford, Sony, and AT&T.

Fact: It’s not name-brand products but exclusive products that drive all network marketing opportunities. When you’re a product broker, you’re forced to limit payout to your distributors since you have to pay the middleman for the product. It is also more difficult to competitively price your brokered products. When a company is able to establish an exclusive on a product or service, the distributorship then takes on greater value. After all, customers can only get that core product through an independent distributor. They can’t simply go down to Wal-Mart and pick up that product. Experts agree that it’s better to avoid brokering products altogether. If a company can’t afford to research and develop their own products, they can’t afford to start a network marketing business.

About the Author

Daren C. Falter launched his direct sales career in 1990, and has since become a passionate student and advocate of network marketing / MLM. He started work on the first edition of How to Select a Network Marketing Company in 1995 and published it as a paperback for the first time in 1998. Daren is now a top consultant, master trainer, popular convention speaker, and a full-time independent business owner in network marketing. Daren maintains a close connection to the industry and keeps his finger on the pulse of the independent distributor by continuing to conduct daily interviews with MLM’s most successful leaders. He maintains an active downline of distributors numbering in the tens of thousands. There’s nothing he enjoys more than training aspiring network marketing leaders and high-integrity MLM companies. Contact Daren Falter at www.networkmarketingreview.com or www.networkmarketingbook.com.

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