Comparative Business Ethics: Herbalife Nutrition Case Study Report

This report examines Herbalife Nutrition, a multi-national company using a multi-level marketing (MLM) structure to sell its products. The report delves into the similarities between Herbalife's compensation model and pyramid schemes, highlighting the confusion and accusations that have arisen. It analyzes Herbalife's business model, comparing it to MLM practices while differentiating it from pyramid schemes. The report further explores the foundations supported by Herbalife Nutrition and its social responsibility initiatives, particularly its focus on children's nutrition. The conclusion summarizes the challenges faced by Herbalife due to the similarity between MLM and pyramid schemes, acknowledging the existing evidence and business strategies, whilst clarifying the lack of concrete proof to categorize Herbalife as a pyramid scheme.

HERBALIFE NUTRITION/

SUMMARY
Herbalife nutrition is a multi- national drug
selling company
They sell their products using the multi- level
business structure.
Their business has in the past been accused
of being a pyramid scheme
This is because multi- level marketing and
pyramid schemes have many similarities and
can easily be confused (Tummala 2017).

INTRODUCTION
Herbalife nutrition is a company located in the
US that sells nutrition and weight loss products.
The company uses independent distributors to
sell their products.
It is one of the most productive companies in Los
Angeles (Herbalife nutrition 2019).
They manufacture most of their ingredients but
also have help from third party companies.
They also support a non- profit organization
which provides proper nutrition for vulnerable
children

BUSINESS MODEL
Herbalife nutrition markets its products
using multi- level marketing.

MULTI- LEVEL MARKETING
There is a shorter chain between the
manufacturer and the consumer.
This is because their products are sold
directly by distributors without having to pass
through wholesalers and retailers.
This type of marketing is considered to be
more cost effective (Bryant 2019).

PYRAMID SCHEMES
It advertises itself falsely as an MLM.
It lures people by promising to pay them or offer
services for recruiting others into their business.
These companies have poor quality products or
services, or none at all.
Their revenue mainly comes from soliciting money
from its members (Banks 2015).
The growth of the company is solely reliable on
addition of new members.
Only those at higher tiers benefit from this
scheme.

WHY HERBALIFE’S COMPENSATION MODEL
IS CONFUSED FOR A PYRAMID SCHEME
Both MLM’s and pyramid schemes use a
multi- level business model.
They bot involve recruiting new distributors
and are advertised by word of mouth.
Herbalife requires a large initial investment
before getting a bonus.
Critics believe their products are overpriced.
Some of their promotional content focuses on
getting rich.

DIFFERENCE BETWEEN PYRAMID SCHEMES
AND MLM’S
Pyramid schemes require a large initial
investment.
They offer no return policy on their inventory.
They emphasize on making money rather then
sale of products.
They have a lot of tiers between the manufacturer
and customer.
Their products are non existent or of poor quality.
They advertise themselves by flaunting their
money.

FOUNDATIONS SUPPORTED BY HERBALIFE
NUTRITION
Herbalife family foundation
Casa Herbalife nutrition

HERBALIFE SOCIAL RESPONSIBILITY
Herbalife nutrition foundation was founded
under it in 1994.
They improve children’s lives by granting
them access to proper nutrition.
They work with hospitals, orphanages and
schools globally.
They also partner with charities that have the
same goal (Fitzpatrick 2019).
Herbalife also supports the active and
healthy lifestyle of their employees.

CONCLUSION
Due to the similarities between MLM’s and
pyramid schemes, Herbalife nutrition can
accidentally be categorized as a pyramid
scheme.
Some of their business strategies give red
flags.
However there is little evidence to prove that
it is really a pyramid scheme.

REFERENCES
Banks, T. 2015. Phenomenology of the Pyramid Scheme.
Annalen der Physik, 528(1-2), 193-197.
doi:10.1002/andp.201500210
Bryant, M. 2019. Multi Level Marketing Secrets.
TopBooksClub.
FitzPatrick, R. 2019. Ponzinomics: The Untold History of
Multi-Level Marketing and How Direct Selling Became an
American Swindle.
Herbalife Nutrition. 2019. Herbalife - US - Official Site.
Retrieved from https://www.herbalife.com/
Tummala, C. 2017. Herbalife Distributor, Increase Sales.
Scotts Valley, CA: Createspace Independent Publishing
Platform