What is Multi-Level Marketing

Herbalife is a global nutrition company founded in Los Angeles in 1980. We now operate manufacturing plants and facilities in the United States for both domestic production and to export products to 90 countries worldwide. We are a publicly traded company on the New York Stock Exchange (NYSE: HLF) with approximately 7,400 employees and millions of consumers. The company reported worldwide net sales of $4.825 Billion for the year ended December 31, 2013.

• What is Multi-Level Marketing?

Multi-level marketing (MLM) is a retail distribution model in which a group of registered independent members market and distribute a manufacturer’s products directly to consumers.

MLM is therefore a type of direct selling. It is distinguished from other direct selling methods by its compensation system, which awards income to members both for their “personal sales” (sales they themselves generate to end users) and the personal sales of members downline from them (that is, members who are introduced to the program and mentored by the upline member) generate to end users.

The MLM model of compensation is widespread. For example, in 2011, 15.6 million direct-selling members in the United States generated $29.87 billion in retail sales.1 Worldwide direct-selling sales were $153.727 billion in 2011, generated by more than 91.5 million direct-selling members.1 As of 2011, the United States was the largest national market for MLM sales.1 Almost all of the 241 current and pending members of the US Direct Selling Association use a multilevel form of compensation.1 Other direct selling companies who use a multi-level marketing model include Amway, Avon, Shaklee and Tupperware. Visit www.dsa.org for a full listing of all members of the US Direct Selling Association.

1 Source: Direct Selling Association

• What is a pyramid scheme and how does it differ from a MLM? What makes Herbalife a legitimate MLM?

Simply put, an illegal pyramid scheme awards payments to participants for the simple act of signing up other participants. A legitimate multi-level marketing company, like Herbalife, pays compensation to participants based on the sale of product to satisfy demand by end-users.

Herbalife is focused on selling its products to people who want to consume them. There is widespread consumer demand for Herbalife’s products. Independent research by Nielsen in 2013 showed that 8% of the US adult population – or 19.2 million - have purchased an Herbalife product for personal use. A separate study by Lieberman Research Worldwide in 2012 showed that 5% of US households, or 5.7 million households, had purchased an Herbalife product within the last 3 months.

Herbalife members are compensated solely based upon activity supporting their product sales (which includes retail profit from direct sales to customers) and the product sales of the members in their “downline.” Nothing is earned by Herbalife members for mere recruitment or for converting a customer to a member. This business model is referred to as multi-level marketing.

In a multi-level marketing model, members do not receive compensation solely for recruiting other members into their downlines. Instead, they become eligible for increased discounts or “commissions” only when and because the new members in their downlines purchase Herbalife products for consumption and/or for resale to consumers.

Herbalife products are sold by independent members.

Most members join simply to receive a discount on products they consume; some join to make part-time income as well, and a small percentage join in search of full-time income.

• What protections against significant financial loss does Herbalife provide its members?

Herbalife sets the industry gold standard for member financial protections, including:

• Comprehensive information, including earnings disclosures and descriptions of the amount of effort required to succeed at all levels of the business opportunity are provided in our Statement of Average Gross Compensation along with details about becoming an Herbalife member. Click here to view The Statement of Average Gross Compensation, which can also be found at Herbalife.com or www.myherbalife.com
• No one is required to make a minimum purchase of product to become a member, and there is a low cost to receive certain educational materials and sample products in a member starter kit.
• A fully refundable 90-day money back guarantee for the cost of a member starter kit if membership is cancelled for any reason, with no requirement to return the member starter kit (excludes original cost of shipping).
• No requirement to invest in any sales or business tools (beyond the member starter kit) to start up or succeed in Herbalife membership.
• An industry-leading return and refund policy, including a 100% refund on all product purchases made within the prior 12 months that are returned in re-saleable condition. Herbalife pays the return shipping costs, and membership may be cancelled for any reason.
• Compliance policies and enforcement to encourage best practices and prohibit exaggerated income and product claims.

• Are Herbalife’s products good? Are they healthy? Are they safe?

Our products are based on proven nutrition science, a commitment to ongoing nutrition research and development, a rigorous quality assurance program and the control of product integrity from ‘seed to feed.’ Herbalife’s products are not medicines and Herbalife does not make disease diagnosis, prevention, treatment, or curative claims — but Herbalife products can be used as part of a healthy and active lifestyle.

Our flagship Formula 1 healthy meal replacement shakes are market leaders. Herbalife’s market share in the meal replacement category for 2010, 2011, 2012 and 2013 was respectively 24.2 percent, 26.6 percent, 27.6 percent and 29.6 percent1, consistently making Herbalife the Global market leader in this category.

In 2012, Herbalife spent $44 million on scientific areas of research, quality assurance, product safety and compliance. A former FDA official oversees the quality of our products. We also partner with world-class ingredient suppliers to leverage their science, research and production competency to better our own products.

1 Source: Euromonitor International Limited; all retail channels, 2014 edition; retail value sales at retail selling prices.

• How many people does Herbalife employ? What is Herbalife’s economic impact?

Herbalife currently employs about 7,400 people and has hundreds of thousands of non-employee independent members.

While many companies export manufacturing jobs overseas, Herbalife purchased and is converting a 500,000-plus square-foot facility in North Carolina for both domestic product and to export products around the world. The company is investing more than $100 million in the facility, which is due to be operational by mid-2014, and will create more than 500 local jobs.

• Do Herbalife members have to buy a lot of product or invest a lot of money to get started?

No. There is no minimum purchase requirement and Herbalife explicitly discourages inventory-loading – that is, purchasing more inventory than is needed for current sale or consumption purposes. In addition, the Mini Member Starter Kit (costs $59.50 in the United States) contains Herbalife products with a greater suggested retail price than its cost, and the cost of the Member Starter Kit is fully refundable.

• Does Herbalife unfairly target specific immigrant communities?

Absolutely not.

Herbalife is incredibly proud of the diversity of its independent members.

Herbalife’s model rewards an entrepreneurial spirit and supports the development of successful members, something we believe draws members of all communities nationwide to our company and our products. We also make sure to provide low risk and easy entry into – or exit from – the business. And Herbalife welcomes a meaningful dialogue with any group or community that believes we can better serve its needs.

• How can members earn income from the Herbalife business opportunity?

People become Herbalife members for a number of reasons. The majority (73%) join us primarily to receive a discounted price on products they and their families consume and enjoy.

Some wish to earn part-time money, wanting to give direct sales a try and are encouraged by Herbalife’s low start-up costs (at their option, a mini Member Starter Kit at $59.50 or full Member Starter Kit at $92.25) and money-back guarantee. These people can begin to earn income from immediate profits on retail sales to customers. Over time, some customers may themselves become members and begin to build a sales network (their ‘downline’) beneath the existing member, which can lead to additional forms of income over time.

Others are drawn to Herbalife because they can be their own boss and can earn rewards based on their own skills and hard work. These individuals can, over time, build a significant network of members in their downline and can earn commissions and bonuses on the sales of their downline organization.

Anyone considering an active membership needs to understand the realities of direct selling. It is hard work. There is no shortcut to riches, nor is there any guarantee of success. However, for those who devote the time and energy to develop a stable base of customers, and perhaps mentor and train others to do the same, the opportunity for personal growth and an attractive part- or full-time income exists.

Further details may be found by downloading the Statement of Average Gross Compensation.

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