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Unit III Article Review
Dang Hoang Quan
Columbia Southern University
Business Ethics
Dr. Victor Reppert
July 6, 2023
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Amway was established in 1959 in the United States by Jay Van Andel and Richard DeVos. It is
one of the largest direct marketing companies in the world, with over three million independent
business owners (IBOs) in over one hundred countries and territories (Amway United States |
Start Your Own Business | Become an Amway IBO, n.d.). Its mission is to help people live
better lives by giving them the opportunity to establish their own business and earn money by
selling premium products. It aspires to be the greatest business opportunity on the planet.
Freedom, family, faith, and reward comprise its core values. Amway sells a variety of products
in the disciplines of nutrition, beauty, personal care, and household care. However, Amway has
also been accused of unethical pricing practices, such as price fixing and deceptive or misleading
advertising.
Direct marketing is a strategy that entails contacting potential consumers directly and personally,
as opposed to through mass media or intermediaries (Direct Marketing: What It Is and How It
Works, 2022). It enables marketers to tailor their messages and offers to the specific preferences
and requirements of each customer segment. Additionally, it facilitates the measurement of
campaign effectiveness and return on investment. However, direct marketing has a number of
disadvantages, such as being intrusive, annoying, or spammy to some consumers and violating
their privacy or data protection rights. Principally, Amway advertises its products through direct
marketing. It relies on its network of IBOs to sell its products to their friends, family, neighbors,
coworkers, and other contacts through personal recommendations and demonstrations. It also
employs direct marketing to contact its IBOs via phone calls, emails, texts, newsletters,
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webinars, blogs, podcasts, etc. It intends to provide training, support, motivation, and recognition
to its IBOs and assist them in growing their enterprises.
There are two types of unethical pricing practices: those that involve charging unfair or deceptive
prices for products or services, and those that violate the laws or regulations regulating pricing in
a market (Pricing Ethics: 5 Ethical Issues in Pricing Strategies [+Avoiding Them], 2022).
Consumers may be harmed by unethical pricing practices if they are forced to pay more than
they should or if they are denied options or quality. For instance, a clothing retailer that
advertises a "50% off everything" sale but excludes certain items or brands without clearly
disclosing the exclusions; a travel agency that advertises a "low-cost" vacation package but adds
taxes, fees, or other charges that significantly increase the final price; or a furniture store that
advertises "free delivery" but charges hidden fees or surcharges for delivery to certain locations
or at certain times. Furthermore, unethical pricing practices can be detrimental to society by
creating market inefficiencies or distortions, reducing competition or innovation, or undermining
social welfare or justice. For instance, a large online retailer that sells books below cost to drive
out smaller competitors, a supermarket chain that lowers its prices in certain locations where it
faces competition from local stores but raises its prices in other locations where it has no
competition, or a pharmaceutical company that sells its drugs at a loss in developing countries to
prevent generic manufacturers from entering the market.
The case of unethical pricing by Amway in 2010 was a class-action lawsuit filed in California in
2007 by some of its independent business owners (IBOs) (Amway Agrees to Pay $56 Million,
Settles Case Alleging It Operates a "Pyramid Scheme," 2010). The lawsuit alleged that Amway
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and several of its leading distributors engaged in price fixing, which is the unlawful practice of
agreeing to set prices at a certain level to prevent competition. The lawsuit also alleged that
Amway misrepresented the income potential and business opportunity of its IBOs and violated
the Racketeer Influenced and Corrupt Organizations Act (RICO) by operating a pyramid scheme.
Amway agreed to pay $56 million to resolve the lawsuit in 2010, without admitting guilt. The
settlement included $34 million in cash and $22 million value of goods for distribution to the
plaintiffs. The settlement also required Amway to modify its business practices, including
providing more accurate information about its products and income opportunities, permitting
IBOs to return products for a full refund within one year, and prohibiting IBOs from charging
fees for training or promotional materials. The settlement was one of the largest in the history of
direct selling and was considered a win for the plaintiffs and a setback to Amway's reputation.
Amway maintained that it settled the case to prevent further litigation expenses and distractions,
and that it was confident in its business model and products.
The costly and even existential lesson of Amway demonstrates that the sustainability of a
business is founded on trustworthiness, openness, and conformance. It also demonstrates that
business is not only about maximizing shareholder value or stock price, but also about
maximizing stakeholder value. Amway should evaluate its pricing policies and strategies to
ensure that they comply with the laws and regulations of each operating market. It should also be
more open and trustworthy with its customers and IBOs regarding its products and their prices. It
should also employ a more ethical and responsible marketing strategy that respects the rights and
interests of all parties involved. From a business perspective, it would be preferable to have a
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moderate profit margin and experience longevity rather than to earn exorbitant profits that are
short-lived. In conclusion, being profitable and ethical are not mutually exclusive.
References
Amway agrees to pay $56 million, settle case alleging it operates a “pyramid scheme.” (2010,
November 3). Mlive.
https://www.mlive.com/business/westmichigan/2010/11/amway_agrees_to_pay_56_million.html
Amway United States | Start Your Own Business | Become an Amway IBO. (n.d.). Amway United
States | Start Your Own Business | Become an Amway IBO | Amway United States.
https://www.amway.com/
Direct Marketing: What It Is and How It Works. (2022, May). Investopedia.
https://www.investopedia.com/terms/d/direct-marketing.asp
Pricing Ethics: 5 Ethical Issues in Pricing Strategies [+Avoiding Them]. (2022, February).
Pricing Ethics: 5 Ethical Issues in Pricing Strategies [+Avoiding Them].
https://www.priceintelligently.com/blog/pricing-strategy-ethics