Pyramid Schemes (and how to tell Traveling Vineyard isn’t one)
Written by Christine Bondola on July 5, 2016
Triangles Do Not a Pyramid Make
We can (and do and will ) extol the virtues of direct sales in general and Traveling Vineyard in particular for hours upon hours. (Literally. We have hours of footage of our Wine Guides talking about how much they love it.)
But the first question we get when introducing the concept to newcomers is, inevitably, this: How do I know this isn’t a pyramid scheme?
It’s a fair enough question. The organizational structure of even legitimate direct selling companies is distinctly triangular in shape, with each higher-level leader recruiting and training a number of new salespeople, who in turn each recruit and train more, and so on down the line. The whole thing branches and blossoms outward the farther down we go. One might even say the end result is pyramidal.
That is where the similarities end.
So we’re going to take a few minutes to talk about all the ways in which Traveling Vineyard is not a pyramid scheme and settle that question for once and for all.
“While marketing fads come and go over decades and even generations, direct selling remains among the best ways to get high-quality products and services into the hands of consumers. Its low barrier to entry and opportunity for millions of entrepreneurial-minded people to supplement their income or build a more substantial business make direct selling unique and valued in the retail space.” – Adolfo Franco, Executive Vice President & COO, Direct Selling Association
Ready? Let’s begin.
The Very Beginning: Some Definitions
Technically, both direct selling and pyramid schemes fall under the category of multi-level marketing (MLM). Also known as network marketing, an MLM is a business where individuals sell products to the public, and receive compensation for recruiting new salespeople to act as a team under them. The recruiters also earn what are called ‘override commissions’ from the sales of their recruits. (This is typical in most sales industries. Managers of salespeople receive bonuses or ‘overrides’ based on the performance of their teams.)
The salespeople of a legitimate MLM earn their income from their sales to their customers (and the sales of their teams). The money comes from outside the organization.
In a pyramid scheme, the recruiters earn their money based on how many people they recruit and the money those recruits pay to be part of the business. The money comes from inside the organization. (It’s also illegal.)
That’s the difference, in a nutshell.
The most common type of MLM is direct sales, which earns its name because it takes the product directly to the consumer, away from a central retail-type location.
Direct sales come in many different shapes and sizes, but one of the most popular operates on what is called a party plan: someone hosts a party where potential customers get a chance to check out and purchase the merchandise. Traveling Vineyard is a legitimate MLM, a direct-selling company that operates using the party plan model.
Now you know the terminology. Let’s take a look at what that means in real life.
The Business Model
We call our salespeople ‘Independent Wine Guides’, because that’s the best description of what they do. They team up with people who want to host a free, in-home wine tasting. They bring along some of our exclusive wines and guide people through the simple pleasures of trying new wines.
Through the Wine Guides, guests are given the opportunity to order the wines from a licensed and bonded winery the company owns. Traveling Vineyard processes and directly ships the orders.
Our Wine Guides receive a personal marketing fee based off the wines successfully sold by the winery to their hosts and guests.
Wine Guides also have the opportunity – though not the obligation – to build teams of new Wine Guides. Traveling Vineyard pays them a bonus for coaching and mentoring their team members. Even at a leadership level, Wine Guides are expected to maintain their personal sales volume to collect all the perks of their rank.
The short version? The company makes a profit on creating and selling the wines. The Guides act as an independent marketing team for the winery and the company.
To be clear, pyramid schemes can use a number of different gimmicks as a front: ‘investment clubs’ or ‘gift programs’. But some of them do present themselves as direct sales. The specifics of their business model will likely be unclear.
Executives, sometimes called sponsors, will be very, very excited to recruit people into the chance to sell some kind of ‘miracle’ product. Herbal remedies with a top-secret, ancient-wisdom-type ingredient are a popular example.
The newly-recruited distributors will purchase their place in the organization. They will purchase the right to sell the product, the product itself, and the training materials they need to sell it. The executives pocket most of those fees.
The distributors are strongly encouraged to rise through the ranks – where the compensation is generous – by recruiting more members. Most of their financial rewards come from recruitment. Products will either never materialize or prove worthless and/or unsellable.
By the time the mass of distributors realize this, the executives have skedaddled off to a desert island somewhere with as much of the distributors’ money as they could get.
The short version? The executives make money from the start-up and training fees of their recruits. The distributors are the source of income.
Wine Guides are trained in sprinkling the suggestion of Wine Guiding at their events. Most new Wine Guides have attended tastings and decide to give it a try from there.
The conventional wisdom among the Guides is this: If I’m having fun, they’re having fun. People like having fun. They want to know if they can have fun with an awesome job like mine. So let’s have some fun.
Not everyone wants to sign up on the spot. That’s why potential Wine Guides are put in contact with current Guides and encouraged to ask questions. We publish explanatory materials (not unlike what you’re reading now) and we host webinars to dive deeper into the specifics.
We strongly encourage our potentials to make the decision in consultation with their family and friends.
Pyramid schemes will often target tight-knit groups, like sports teams or social organizations, to increase the peer pressure to participate.
“Do your research and ask a lot of questions before you join. When you are dealing with a legitimate business model they will LOVE to answer your questions. A scheme on the other hand will only provide you with vague answers.
– Deb Bixler, Direct Sales Coach”
The sales pitch is usually swift and dazzling. Deadlines and ‘exclusive opportunities’ are presented. Recruits are pressured to sign on the dotted line without time to do adequate research.
Signing Up & Paying Fees
Once the decision is made, the new Wine Guide purchases a Success Kit. The kit, which is a one-time-only cost, includes absolutely everything that a new Wine Guide needs for their first two tastings: the wine, all needed accessories, and all their official and marketing paperwork.
They also have immediate and ongoing access to our extensive training materials and resources.
Wine Guides replenish the wines from their tasting sets, but the fee is waived if they meet a minimum event volume. Because the winery processes and ships all orders, Wine Guides are not expected to purchase and store any stock beyond their five-bottle tasting sets.
Traveling Vineyard will refund 100% of the Success Kit within 90 days of purchase and 90% of the cost within the first year, provided all materials are returned intact.
In addition to the Success Kit, Wine Guides pay $15.95 per month for their personal website and the communications that can be sent to their personal customer base from it. (The first three months are free, giving the new Wine Guide a chance to make sure they really like what they’re doing.)
That’s it. Those are the only costs and fees. There are no hidden clauses or penalties or licenses required.
Given that the general idea is to make as much money as possible off each distributor before they wise up, costs are high.
In addition to startup and training fees, new distributors can expect to be offered the chance to sign up for ‘additional training’ with the promise of rewards and perks for attendees. Often, rebates are promised to those who achieve promotion, justifying the exorbitant fees for new recruits.
Pyramid schemes of the direct selling type will demand that their distributors buy their products outright and, well, good luck on finding a clear refund policy. There almost certainly won’t be one, and if there is, it won’t be generous or come with any kind of surety.
We create and bottle exclusive and award-winning wines.
And, as we’ve said, the vast majority of our Wine Guides come to us from tastings. Which means they’ve already sampled our wines before they sign up. They know exactly what product they’re getting when they join us. (Though we do delight in introducing them to new wines every season.)
Furthermore, we don’t require our Wine Guides to purchase or keep stock on hand. That means that if their sales falter for whatever reason – tastings fall through or they have to step back for personal reasons – they’re not operating at a loss.
Some pyramid schemes operate strictly on the promise of a product. There might not actually be one. There will, instead, be a lot of sparkle and pizzazz about the revolutionary! miracle! product that distributors can gift to the world through their efforts.
If there is a product, distributors will find it, at the very least unprofitable, if not downright unsellable. It might be a placebo or it might simply be something no one wants or that they can get a better deal on somewhere else.
And it will, almost certainly, be non-refundable. Which means distributors are stuck with boxes and boxes of fake vitamins or cheap shampoo and have no way of actually making any money from it.
Compensation & Promotion
All Wine Guides, regardless of their level within the organization, receive at least a 15% personal marketing fee from each tasting. This is the foundation income for each Wine Guide.
Like any other sales professional, they have the opportunity to earn bonuses for an explosive start, for achieving an exceptional volume, for building a team, for earning a promotion, for coaching their team to success.
Team leaders also earn a marketing fee from the orders of the Wine Guides who work beneath them: 5% from the people they personally recruited, 3% from those recruited by their recruits, and 1% below that.
All bonuses and extra commissions come out of the company’s share, not the Wine Guides’ pockets. It is paid to encourage the leader to coach, motivate, and mentor all the way down the line. Upline bonuses do not diminish downline profits.
Promotions are earned through a combination of sales volume and team building. And in order to continue earning promotions, your team has to be earning them, too. Emphasis is placed on mutual success, not exploitation.
“The Direct Selling Association (DSA) has helped America’s best companies and their independent salesforces thrive…Our anti-pyramid legislation – H.R. 5230 – would make it clear that evidence of a scheme exists when participants are compensated for the act of recruitment instead of retail sales.” – Adolfo Franco, Executive Vice President & COO, Direct Selling Association
For most pyramid schemes, at least 70% of the income comes from internal sales: money paid by distributors to their sponsors. Low-level distributors can expect virtually no income from their sales efforts. Instead, compensation and promotions are offered for recruitment of new members. The new recruits’ fees go to the executives, who reward top recruiters with bonuses or advancement, with no correlation to actual sales volume.
Because advancement in our organization is based on mutual success, our people are warm and encouraging, from top to bottom. We have a flourishing and supportive online community. In fact, just about every Wine Guide has a story of posting on the forum a frantic question raised at an early tasting and getting a reply before the tasting was over. Our World Headquarters staff is also dedicated to the success of our Wine Guides. We offer training, encouragement, and celebration at our annual Harvest conference and the dozens of regional training events held during the spring and fall. And every single Wine Guide can earn a place (or two!) on our yearly, all-expenses-paid incentive trip to a new exotic location.
Eventually, every pyramid scheme collapses under the weight of its deceptions. Executives want to get in and out with as much fast cash as they can grab. There is no time to foster any real community.
Their presentation will be sleight-of-hand: shiny and full of showmanship to distract you from the scam. Everything will be fast and slick and high-pressure; they don’t want you to have time to think or regroup or reconsider.
You Don’t Have To Take Our Word For It
There are plenty of sources that you can use to measure Traveling Vineyard’s (or any direct sellers’) bona fides.
First, there’s the Federal Trade Commission. The FTC defines a legitimate multilevel marketing plan as one where “the money you make is based on your sales to the public.” Likewise, the FTC defines a pyramid scheme as a plan in which “the money you make is based on the number of people you recruit and your sales to them.”
If that’s not specific enough, that’s okay. You can trust the Better Business Bureau. Traveling Vineyard is BBB Accredited, with an A+ rating.
If you want to dive a little more into specifics, you can trust the Direct Selling Association, an organization dedicated to weeding out the schemers and the scammers from the legitimate direct sales companies.
We passed their intense scrutiny to become a DSA member company. That means that not only are we bound to their rigorous Code of Ethics, but there is a governing body that can hold us accountable if we fail to keep our promises.
If you want to get a little more personal, you can trust our Wine Guides. Let them tell you about their experiences with us.
Conclusion: Traveling Vineyard Is Not A Pyramid Scheme
So, there you have it. We hereby declare you pyramid scheme experts. You know the terminology. You know the red flags. And you know, with confidence, that Traveling Vineyard isn’t one.
Still have doubts? Watch our Wine Guides address common myths and fears.
And we welcome your questions. Contact us.
Want to talk about it with your friends and family? Click here to get a printout with the relevant facts and definitions to help you have that conversation.