Multilevel marketing company distributors are asking for cash donations so they can buy their own supplies to give to first responders, doctors and nurses and others on the front lines of the COVID-19 pandemic. But experts warn this is a marketing ploy to improve sales volume and that consumers' donation money is better spent directly donating to hospitals or other reputable organizations.
Distributors for companies including Arbonne, a skincare, cosmetics, and nutrition MLM; and Scentsy, an MLM that sells wax warmers and products, are soliciting funds through Facebook fundraisers, asking for money on social media through Venmo or PayPal or asking for consumers to buy items directly through their sites so they can be donated. On Facebook alone, dozens of fundraisers had gathered more than $13,000 for "care packages" or "break room bundles" containing items like "fizz sticks" or protein bars from Arbonne. Distributors are posting on Facebook, Twitter, Instagram and even LinkedIn to raise funds.
As COVID-19 has spread the globe, people have tried to take advantage of the situation in many ways. In March, CNBC found that many distributors for MLM companies, such as Doterra and Young Living, were claiming on Facebook that their products can prevent consumers from getting coronavirus.
This latest tactic is not as egregious as medical claims — distributors in their fundraisers are not claiming that their products can cure or prevent disease. But consumers should be aware that their donations might help the MLM companies and vendors more than the people receiving the donations.
For instance, some distributors that said they were buying items for specific hospitals or health systems. But when CNBC contacted those hospitals and organizations or reviewed their donation policies, they typically said they preferred direct financial donations or were primarily seeking personal protective equipment. Some said they weren't accepting food donations at all.
Some sellers claimed they wouldn't take a commission. But even if they're not taking commissions themselves, portions of each sale would still go to the distributor's upstream suppliers and the multilevel marketer itself, and would help the distributor's ranking in the company, experts said.
"Every time a distributor buys a product, whether they buy it with their own money or donated money, the parent company makes a significant margin," said William Keep, a marketing professor and interim provost and VP for academic affairs at The College of New Jersey who has studied multilevel marketing. "When a person donates money for someone to make a purchase from an MLM, they are actually supporting the profits of the parent firm."
A spokesman for Scentsy said it is never appropriate for Scentsy consultants, who are not employees of the company, to "use situations of natural disaster or government-declared states of emergency as a means to promote their businesses or the sale of Scentsy products – and this [includes] fundraising efforts." He said when the company is aware of consultants doing so they work with them to stop those efforts. He also pointed to a number of efforts at the company at the corporate level to help amid the pandemic.
Arbonne sent a statement Saturday saying that it "upholds the highest standards of integrity" and that it does not condone "deceptive, unethical or illegal practices of any kind." The company also provided a link to a Facebook post from its "Business Ethics and Sustainability Team" about its charitable giving policies, which state that any fundraising efforts organized by consultants can't be "sanctioned, endorsed or promoted by Arbonne" and that consultants shouldn't take any actions or imply anything that could be viewed as "taking advantage of the current situation."
Its statement also said its compensation plan does not have minimum purchase requirements for its independent consultants to join Arbonne and doesn't have requirements to build a team.
"We recognize that many Independent Consultants have a generous spirit of giving back to local communities. Arbonne has published guidelines for our independent sales field in this regard," part of the statement reads. "For example, Arbonne recommends that Independent Consultants check with their chosen non-profit to determine what they can accept, as we have heard that in light of the COVID-19 situation, many can only accept a financial donation."
The Direct Selling Association, of which both companies are members, said in a statement that direct selling companies and their salespeople are often involved in charitable activities that support their communities.
"Direct sellers will be an important part of recovering from this crisis, and DSA is confident that our member companies and their salespeople will make charitable contributions with the same level of responsibility, concern, sensitivity and ethics with which they should always conduct their business," it said in the statement. "Commitment to community is more vital than ever, and every business, direct sellers included, should abide by the highest standards of business ethics and responsibility to consumers." The organization also pointed to a resource hub on how to respond to the pandemic.
Multilevel marketing companies have convoluted financial structures that often reward the recruitment of other sellers and the volume of product sold by a distributor.
"There's a lot of pressure to maintain minimum volume requirements," said Stacie Bosley, an economist and associate professor at Hamline University in Saint Paul, Minnesota. "People may be encouraged to be very creative about that, especially in times when traditional demand is disrupted."
Bosley said consumers should be aware that giving cash to a MLM distributor is not the most efficient way they can help in a situation like this.
"If I know an institution has needs or I'm not sure what those needs are, but I want to make sure my money goes as far as it can, give to trusted organizations that can make that connection for you. That can help you understand what is the most efficient use of your $15," she said.
Keep feels donation pushes are being used as a marketing tool by distributors to maintain purchase volume.
"The carrot that's being held out here is that we're helping people who need to be helped," he said. "The reality is we don't even know if the people want the products or how much money is actually getting to the people. You just don't know. … This is a self-serving strategy to maintain purchase behavior, and it profits the parent firm."
Robert FitzPatrick, who is president of a consumer group Pyramid Scheme Alert, said this donation strategy isn't new.
"They've been doing this before but the pandemic provides a nice rationale for this arrangement," he said in an email. "MLMs are in deep trouble now in their own peculiar way from the pandemic. They can't hold meetings which are highly orchestrated for emotional response and for dominating and influencing the recruits with visions of money, etc. So, they are now claiming MLM is the perfect business for the pandemic — work from home and work online... It is a myth, a come-on."
As a result of the pandemic, hospitals and healthcare facilities in the U.S. are facing a tight supply of personal protective equipment, including masks and gowns. Groups have sprung up to collect supplies or even to make equipment like face masks. But few hospitals seem to be actively soliciting the kinds of products these MLM distributors sell — and some say they can't accept them at all.
One fundraiser said it was collecting $5,000 to buy "goody bags" with Arbonne protein shakes, bars and other items for professionals at Monument Health in South Dakota. But on its website, the hospital lists select items it wants as donations, including masks and goggles. The site says the hospital cannot accept food.
Another on Facebook titled "Maine Medical Center - Break room" is raising money for gift baskets containing items like protein bars, fizz sticks, and other products from Arbonne. It had raised more than $300 as of Friday morning.
A spokeswoman for Maine Medical Center said the organization appreciates the offers of support coming in, but recommended community members wishing to use their dollars give directly to the hospital's COVID-19 Response Fund to make sure money gets to where it's most needed. The center's own donation site says it's collecting donations for masks, gowns, gloves, or protective eye gear.
Yet another fundraiser was asking for money to provide products for the Henry Ford Health System in Michigan. But the organization told CNBC it encouraged anyone wishing to support to donate directly and said it was also accepting donations of some new and unused medical supplies.
"If the intent is to donate money directly, why would anyone need to purchase goods at all?" asked FitzPatrick. "They could just send a check."