PHIL210 Case study 2 Assignment
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PHIL210 Case study 2 Assignment
Multilevel Marketing Under Fire: Herbalife Defends Its Business Model
Introduction
Herbalife International is the third largest direct-selling multi-level marketing company. Its product line consists of weight-management and nutrition products. These products are not sold in retail stores. Rather, consumers interact with independent contractors to order the products. Herbalife’s headquarters are located in Los Angeles, California, and they operate in several countries throughout the world. The company is publicly-traded and is both loved and hated by investors and consumers.
This case will first discuss the history of the company from its founding to its present status, followed by a description of the types of products Herbalife offers. We then discuss multi-level marketing and the role of independent contractors in the direct-selling model. Next, we discuss pyramid schemes and why they are often confused with the multi-level marketing model. We explore Herbalife to determine whether it constitutes a pyramid scheme, as well as the reasons for why some people accuse it of being so.
This case also illuminates the role of hedge fund investor William Ackman behind the backdrop of Herbalife’s business model, showing his contentions with the company as well as some of the criticisms against him. The case demonstrates that while the Ackman accusations may be the most widely known, there are other accusations (mostly referring to pyramid schemes) that Herbalife has had to face over the course of their existence. The case ends with a brief overview of Herbalife’s social responsibility program and some conclusions.
PHIL210 Case study 2 Assignment
History
Herbalife is a company that focuses on nutrition, weight-management, and personal care products with independent contractors in more than 80 countries. Mark Hughes founded the company in 1980 with diet supplement maker Richard Marconi. It was created out of a desire to create a safe alternative to other weight loss products after Hughes’ mother overdosed on prescription diet pills. Herbalife’s first sales were made from out of the trunk of Hughes’ car in Los Angeles, California. Two years later the company reached $2 million in sales. By 1986, Herbalife made a name for itself on the New York Stock Exchange (NYSE). and has since become a multi-billion dollar global company
In 1999 Hughes planned to take the company back to the private sector by purchasing all of its remaining shares, but this attempt was stopped as investors sought legal action. The next year, Mark Hughes died at the age of 44 due to an accidental overdose of anti-depressants and alcohol. Christopher Pair, who was Herbalife’s former Chief Operating Officer (COO), then became President and Chief Executive Officer (CEO) of the company. His reign at Herbalife was cut short as he stepped down one year later due to the board’s criticism of his management style.
PHIL210 Case study 2 Assignment
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