[Editor's Note: This article is long and I hope you find the information you need to make an informed decision. Towards the end, I have a special gift for you. (If you want to cheat, click here to get it now.)]
It's not often that a personal finance blogger says that they are getting involved in multi-level marketing scheme. However, earlier this week, I woke up to an email from a friend saying just that. Specifically it went like this, "I'm really sleepy but had a quick read of this and.... Isn't Rodan and Fields a pyramid/MLM scheme?" Then she posted the link to this Jenny Pincher article on multiple streams of income.
I consider The Jenny Pincher to be reputable, so this came as a surprise. Last I had heard from her was about a month or two ago. She was thinking about taking some off and finding someone to run to the blog. I was initially interested and reached out to her, but soon after I did, I realized that I couldn't keep the "voice" of the blog. She agreed and we moved on. Now I'm wondering if she found someone else.
I had never heard of Rodan and Fields. Fortunately, the Jenny Pincher article gives me a little background:
"The third source of income is from my newest venture which is as a Rodan + Fields consultant. If you are not familiar with Rodan + Fields, its the premier skincare line created by the doctors who created Proactiv. I chose this opportunity because I saw this company was at the ground floor level (preparing to go global). Rodan + Fields is the 4th largest and fastest growing premium skincare brand in the U.S., following Clinique, Estee Lauder and Lancome. I have only been working this business 1 month and I work this business in 15 minute pockets here and there. I received my first check this month, which was almost enough to cover a car payment, I was shocked! If you’d like an overview of the business opportunity, you can click here."
I'm not going to suggest that I am a skin care expert, but I had heard of the others. In consulting my wife, she too had never heard of this #4. Google Trends to the rescue. Here's a comparison of the four brands:
As you can see Rodan + Fields is barely a blip on the radar at the bottom. It's hard to find a definitive list top skincare brands in the United States, but I did find a top 10 global beauty brands, which referenced a list here. Here's the top five: Olay, Avon, L'Oreal, Neutrogena, Nivea. Three of the top 4 are from the United States. We haven't even gotten to any of the three big players we were looking for. They show up at 6 (Lancome) and 8 (Estee Lauder), sandwiching the well known Dove. Biore and Shiseido round out the top 10. Clinique didn't make it.
While this list is from 2012 and it is beauty brands, I call BS on Rodan and Fields being #4 in the United States. There's no evidence that such a shake-up happened to move the Lancomes and Lauders to top status and drop all the others down below the obscure Rodan and Fields.
And if such a shake-up did occur, I can promise you that you aren't getting in the ground floor, as stated in the Jenny Pincher article. If it's bigger than Neutrogena with all its shelf space in drug stores everywhere, you can simply move on... it's already saturated.
So already we've come some inconsistencies in the marketing. As is often the case in MLM, sources for the claims are missing. Some people ask why MLM has such a bad name. This is just one of the many reasons.
It's gets worse with the "preparing to go global" comment. In the normal business world, this is a good thing, seen as a sign of success of the business. In the MLM world, it is called pop and drop. In short, if a pyramid scheme starts to implode in one country, start it up in another country. The initial growth in that country (the "pop") will cover up the "drop" in the initial country and overall, the company can pitch a message of "we're growing!" Billionaire Bill Ackman has criticized Herbalife for bringing expensive diet products into countries that have hunger as one of their top problems.
It gets worse. The Jenny Pincher article continues on past the point I quoted. She says, "As I begin to share these products, I gain a customer base and I start building my team where I will get paid for sharing the opportunity."
This is greatest example of Orwell's Doublespeak that I can think of. What MLMers call a team, is what everyone else calls a pyramid. It certainly sounds better to "build a team" than "craft a pyramid scheme" doesn't it? Unfortunately the acts are one in the same. A rose by another name, right?
The distributors in Vemma's MLM talked about "building a team" too. In August the FTC got a court of law to shut them down for being a pyramid scheme. It's a long, complicated story, but the upside is that the FTC allowed Vemma to operate with a compensation plan that requires salesmen to be salesmen, not recruiters of a pyramid scheme. The result has been nothing less than disastrous for Vemma which looks to be losing money and almost out of business.
Rodan and Fields touts a great growth rate which seems to coincide with their switch to MLM. Now that I've seen what taking away the pyramid scheme does to Vemma, it makes me look at Rodan and Fields' growth in a whole new light.
Rodan and Fields' Misleading Euromonitor Claim
Update: I need to thank some commenters who have added more insight into the claim on Jenny Pincher's website of "Rodan + Fields is the 4th largest and fastest growing premium skincare brand in the U.S."
It is important to note that Euromonitor, their source, did not include Rodan + Fields in their ranking. Rodan + Fields seems to admit this, but they are inserting themselves into the rankings based on their data. The image that they ask their distributors to share really promotes the title of "4th Largest...", but it misleads people to think that Euromonitor did include them. I don't think the FTC would appreciate the marketing of the image with the very small, unclear disclaimer.
Logically, Rodan and Fields can't assume the 4th position because they don’t know how many other competing companies were also not included that may have been ahead of them. In fact, we have to question the accuracy of the report in general if they were truly leaving off the 4th largest brand. A reputable report doesn't come out with a top 10 list and omit a big player at #4.
The other issue is that Rodan and Fields can't really qualify exactly what a sale is. Let me explain. In the world of MLM, distributors need to qualify (usually by having "personal volume") to earn commissions. This is easiest done by buying product each month (often called "autoship"). What we found with Vemma is that much of the sales were coming from people looking to qualify to make money. Without the pay-to-play "business opportunity" they didn't have many sales and are actually losing money based on the link I provided above.
I believe Rodan and Fields is counting sales as sales to distributors. This is apples and oranges compared to what Estee Lauder is reporting. Estee Lauder is reporting actual sales of products at a store to people interested sole in the products. This is commonly referred to as "sell-through." They aren't reporting sending a product to a store as a sale. To do an apples and apples comparison, we'd need to say that distributors are like stores and only reported sales from these distributors to other people count as "sell-through."
Vemma's tremendous collapse shines a bright spotlight that nearly everyone was interested in the "business opportunity" and buying the products as an admission fee for that. Otherwise, they'd have no problems selling the very same product without the pyramid scheme attached to it.
People in the comments have noted that Rodan and Fields products weren't successful in retail stores. The founders were able to buy the company back and make it an MLM. Once again, given what we've seen with Vemma, it's hard for me to believe that people suddenly became huge fans of the products and it has nothing to do with sales to people exploring a "business opportunity."
Aren't Rodan and Fields Products Reputable?
As they claim, they appear to be the dermatologists behind Proactiv.
They both went to Stanford University Medical School, so they aren't dummies. Commenter Tom points out: "Katie Rodan attended medical school at USC and Kathy Fields graduated from University of Miami." Just to dig a little deeper on Fields, she is listed as an Adjunct Clinical Assistant Professor. Boston University points out that "adjunct" positions are "part-time" and "adjunct clinical" positions "are usually without salary." I presume that Fields with the title of assistant is an assistant to a part-time, unpaid professor. Katie Rodan did a residency at Stanford, but attended undergrad, medical school, and interned elsewhere.
However, it turns out that Proactiv isn't anything special. The active ingredient is benzoyl peroxide. Consumer Reports found that Proactiv didn't work better than other products that contain benzoyl peroxide... and the other products are much cheaper.
Their recommendation: "To treat acne on your own, start with a benzoyl peroxide-based treatment, and buy by price. Nearly all of our test participants were satisfied enough with the topical product they tried to say they would buy it. Remember, acne outbreaks are cyclical in nature, so yours might get worse before it gets better. Also keep in mind that benzoyl peroxide can irritate skin."
Of course you can pay more for Proactiv, but it looks like you are just paying for Justin Bieber and Katy Perry to make Proactiv commercials.
It seems like Proactiv's true contribution to skin care is marketing, not the product.
Oddly, Rodan and Fields eschews what works, marketing skin cream with celebrities, to go with MLM.
By the way, shouldn't Proactiv rank above Rodan and Fields if Rodan and Fields are using it for name recognition? Just another skin cream brand that would seemingly be in the large gap between Clinique/Estee Lauder/Lancome and Rodan and Fields.
Mini-FAQ on Products, Policies, and Pricing
(This section of the article is still in development.)
Q. Are the products safe?
A. I found this video on YouTube (it isn't mine) showing why they aren't:
The links on YouTube's website use information at EWG.org. The Environmental Working Group gives good, unbiased information and it seems like Rodan and Fields don't score particularly well.
The downside of the video is the beginning that says it isn't a scam, which is something we'll cover in more detail in the section on pyramid schemes.
Q. Is there anything interesting in the Rodan and Fields Product Policy?
A. Rodan and Fields policies states, "Sales of the R+F Products through any other website, including but not limited to Internet auction sites such as eBay or Amazon, or third party bulletin board websites such as Craigslist, are strictly prohibited."
It is the highest level of hypocrisy of Rodan and Fields to attempt to ban Ebay.com. Ebay is the epitome of "direct sales" in the United States. Rodan and Fields simply can't call themselves a "direct sales" company if they are against the biggest form of direct sales today and substitute it with "autoshipping" from a factory.
Q. What about Product Pricing?
A. Despite the attempted ban, products do make their way on Amazon and Ebay. Typically these products make their way there from distributors who realize they got scammed and want to make back some of their money. I still feel like these products are a waste of money, but if you are convinced they are great, that's up to you. I can't and won't tell you what to buy.
However, I would highly suggest you avoid involving yourself in any kind of pyramid scheme (see below) by helping someone on Ebay get some of their money back. You'll also save a lot of money!
For example, I found Redefine Regimen Mask for around $169 on Ebay.
Of course, you may not want to buy it if you read the Amazon Reviews. There are a lot of one-star reviews in there. There are definitely more 5 star reviews, but many of them give themselves away as Rodan and Fields consultants by saying, "Don't buy here, buy from a Rodan + Fields consultant." Take away those fake and obviously biased reviews and you'd be left with something earning a very mediocre 3 stars with a lot of 1 star horror stories.
Looking at MLM Skin Cream Products
I've stayed away from writing about MLM skin cream products. It seems straight-forward to explain how juice isn't going to heal your cancer, but it's less so about skin creams. One thing you can say about skin creams is that there are no shortage of products claiming to be really awesome... some of them even rock the 3AM infomercial circuit. And certainly the backs of the magazines wouldn't lie.
However, just like how MLM relies on psychological tricks to make it seem juices work, the same can be true of skin creams. In fact, the FTC used to warn of MLM lotions (creams) and potions (juices) (PDF). The FTC's advice applies to a broader range of products now, but there's no denying that most MLMs focus on unquantifiable consumable products like creams, juices, and weight loss shakes. Have you seen an MLM refrigerator company? Me neither.
Serendipitously, I received an interesting comment on my article about Nerium, which is another cream. The comment author's sister harassed her into buying the product. She never used it, but gave it to her husband. Her sister went on and on about how great her sister's skin looked... and doesn't appear to have ever mentioned the husband's skin. It cost her $700 over several months to "support her sister's business." Not only that, but the comment author makes it seem like there's some kind of Photoshop going on:
"The LOL moment though was I was with her on the day she posted a pic of herself. My sister has terrible acne scars on her face and the day I was with her she looked the same as I have always known her without makeup. That day a pic went up where she said look at me 3 weeks in and see the difference? ummm, where were the scars? I was just with her!"
I'm not suggesting that Nerium and Rodan and Fields cream is the same, just that people see what they want to see. And sometimes, it appears, purposely fake results. If it can happen with one cream, it can and probably will happen with others.
Reddit shows the Evils of Rodan and Fields (and MLM in general)
[Update: Well the person speaking out about Rodan + Fields seems to have been strong-armed by lawyers. She deleted the blog I mention below and went into Reddit and deleted all her posts and her username. She didn't post a correction which would expect if she changed her mind. Instead her useful information has been deleted so you can't read it.
I could go into much greater detail about Rodan and Fields. Maybe over time I will. However, I found that there's an outstanding Reddit thread filled with juicy information. (You can see bubbapink43's responses are deleted when you compare it to the archive above.) For example, they have the same car scam as ViSalus, where you can qualify for car payments. You have to first put the car in your name and if people in your team/pyramid stop buying products, you'll no longer qualify for the car payments and be forced to pay out of pocket... an expense of $750 that many didn't plan on.
There's a lot more in the thread, but that's just a taste.
The Reddit thread is started by the person who has created a very good blog on Rodan and Fields. (Blog deleted)
Rodan and Fields Consultants Mislead the Public?
In my research of Rodan and Fields, I came across Bonnie Cribbs asking "Is Rodan & Fields a Pyramid Scheme?". Unfortunately his article is useless because he confuses heirarchical organizations (which do not rely on endless chain recruiting, such as a school system) with pyramid schemes which do rely on endless chain recruiting. (Read more: Corporate America is Not a Pyramid Scheme). Bonnie even goes as far to say, "Why are people so afraid of a triangle?"
This is a common deception in the world of MLM. Unfortunately the MLMers spread it because it sounds reasonable and helps them recruit more into the scheme.
He also includes a video on his site that depicts Eric Nelson's dangerous MLM deception.
You shouldn't be afraid of a triangle, but you should be afraid of people spending false information to defraud people by recruiting them into an illegal pyramid scheme.
(By the way as made famous in the Jake from State Farm commercial, the cream doesn't seem to be helping Bonnie as she looks hideous. When "Bonnie" is writing about skin cream, I am thinking it is going to be a girl.)
Is Rodan and Fields a Pyramid Scheme?
Sounds like an easy question, but it's extremely difficult to answer.
"Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money."
However as NY Times' Joe Nocera points out:
"In one of those letters, he quoted from a 2010 F.T.C. staff report that said that identifying pyramid schemes entails a complex economic analysis.” The report added that 'there is no bright line disclosure that would help consumers identify a fraudulent pyramid from a legitimate [multilevel marketing company].' Really?
On Friday afternoon, I called the agency and asked what distinguished an illegal pyramid scheme from a legal direct-selling company. Even having talked to Craig, I found it hard to believe that it wouldn’t have some kind of definition.
A few hours later, I received an email from an F.T.C. public relations staffer. 'I’m sorry,' it began, 'but we won’t be able to offer you any on (or off) record assistance.'"
So as a consumer, there's no easy way to tell if you are getting in a legal or illegal business. The one thing we do know is that when money is rewarded from people you recruit and sales to them (commonly referred to as a downline) it appears to be a pyramid scheme according the official FTC website.
"'Unless a great deal of care is taken by the leadership of a multilevel marketing company, it is possible to allow even a well-intentioned structure to devolve into a pyramid scheme, where payment depends on recruitment,' says Bill Keep, dean of the School of Business at the College of New Jersey."
As Michelle Celarier of The NY Post Tweeted:
This looks like a pyramid to me: https://t.co/QByoC5tcZu
— michelle celarier (@mcelarier) February 4, 2015
In case Rodan + Fields takes that link down, I've archived a copy of the PDF here.
When you open up the PDF, the monthly duplication pattern is built on a pyramid of recruiting and not selling product to people outside the pyramid. The example shows a 4-month plan where one person recruits a 1632 team/downline/pyramid that earns $40,590 a month.
Of course there's the disclaimer at the bottom about the above assumptions. The problem is that these assumptions can't mathematically carry through. If one person has a 1632 team/pyramid, it becomes very obvious that those people will have difficulty doing the same as the 1000+ people on the bottom all have to recruit 1632 team/pyramids for a total of over 1.5 million people who all have to recruit 1632 people into their team/pyramids. In just a few levels you can see how a billion people would have be recruited for just the first 1632 to reach the point in the example. You simply run out of people in the population of the world, and almost everyone is left at the bottom.
If that's not the embodiment of a pyramid scheme, I don't know what is. It clearly isn't an example of how much someone can make by selling a certain cream to friends and family.
The "False" "Value" of a "Stevie" Award
Rodan and Field's distributors have recently taken to talking about the "Stevie" Awards as if it adds credibility to the company. One commenter even pointed to Apple winning the one the year before.
Maybe next year, I should apply for Lazy Man and Money. Spending $505 for a 30-40% chance isn't bad. Better yet, maybe I should come up with my own "Lazies" where I undercut them and price it at $400 to collect a thousand entrance fees. Seems like a good way to raise $400,000. Oh and then I'll charge them to attend the dinner party too.
Reputable companies don't waste their time on such awards that no one has ever heard of and don't mean anything. Part of scam/confidence game is trying to use them to give the company some kind of legitimacy.
WZVN (ABC-7) News and Diana Haytko Join Scam the Public?
A commenter noticed this "special report" from WZVN (ABC-7) news. Here are some of the issues that I have with the segment:
The companies that are being referred to in the segment (Rodan+Fields, Nerium, Beachbody, Herbalife) are commonly known as Multi-level Marketing (or MLM) companies, not Direct Selling companies. They've adopted the Direct Selling Association (DSA) a lobbyist group for MLM companies, whose members make up more than 90% of the organization.
The "expert" that was used in the segment, Diana Haytko, has been employed by the Direct Selling Education Foundation (DSEF) as noted on this website. The DSEF prominently features a top Rodan + Fields executive on its Board of Directors.
Diana Haytko misinforms the public that pyramid schemes can not have products. If this were true, the FTC would not have been able to shut down Vemma last summer. Vemma had products such as energy drinks and juices in their MLM scheme. Vemma was also a prominent member of the Direct Selling Association, which obviously didn't police their member company very well.
The FTC has a posted guidelines on MLMs and pyramid schemes here. As you can see from this document there is no mention by the FTC that pyramid schemes can't have products. In fact, it is quite the opposite as they show companies with products can indeed be pyramid schemes.
It looks to me like this segment may been funded by the DSA as it seemed to specifically highlight DSA sources funded by MLM companies. It lacked any balance from the FTC or similar authoritative, unbiased, sources to correct the false information presented.
I contacted the director of ABC-7 programming, Deborah Abbott, via her listed email address and received no response after 10 days. A reader reports to have written Diana Haytko in the comments and says there was no response as well. Hopefully, they'll post a public apology that I can link to here.
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For more visit my five minute financial fixes article. If neither of the above is helpful, I'm sorry. I appreciate you for just being here. The person recruiting you has a financial incentive to present only one side of the story. Kudos to you for searching for more information to make an informed decision.
Final Thoughts on Rodan and Fields
Like many of the MLMs that I've covered, there is more of the same here. More misinformation, more psychology tricks, more deception.
When there is doubt it is best to assume that it is a pyramid scheme and stay away. It's simply not worth losing a ton of money and going to jail over. If the company was truly reputable they wouldn't try to walk the line in the first place.
It would be very simple for them to simply pay a straight commission on products sold and eliminate the endless recruiting aspect that signifies it is a pyramid scheme. When a company consciously chooses to associate itself with pyramid schemes, what else do you really need to know?
Sample Reader Comment(s)
I want to thank so many people for leaving great comments. I'd like to highlight a few that I think are noteworthy. I think it's worth reading all the comments before buying products or becoming a distributor/consultant:
Ellie said: "But guess what? 95% of [Preferred Customers] don’t order every two months. So, more posting and commenting about the love of R+F on the posts of other consultants just so they’ll comment on mine... Again, I like the products but do I think they are worlds above other lines? Not really. Are they ridiculously expensive? You bet. Do I stress every month about not meeting the minimum qualifying volume of 600? Yes. Am I making any money? Nope. Do I feel like a complete idiot despite being a pharmacist and actually being pretty smart? Yes. Am I tired of spending $100 a month on a website and products that I give away? Yes."
Note to lawyers looking to send a frivolous lawsuit my way.
Most companies are smart enough to realize that such lawsuits trigger a Streisand effect that makes them look much, much worse. It invites media coverage. It's probably not a good look to threaten a consumer advocate, his military wife, and 1 and 2 year old that they are going to be homeless after a huge judgment. I maintain open communication channels via my contact form and the comments on this article, which is a far better way to resolve any differences in opinion your client may have.
694 Responses to “Is Rodan and Fields a Scam?”
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