Herbalife's New Preferred Member Program
When Herbalife president Des Walsh was asked in the Q3 earnings call how he expected to price the new Preferred Member program, he responded that they haven’t made “any final determinations”. The Herbalife Welcome Back promotion has been running for three weeks and may have already generated as many as 150,000 free Herbalife members. That’s a lot of potential revenue that Herbalife can simply write off.
The Preferred Member is a new membership category available in the United States and India as of May 2016. This membership type allows Herbalife customers to buy directly from Herbalife at a 25% discount, but they do not have the right to resell Herbalife products or sponsor new people to build a network in Herbalife’s multi-level marketing system. They can upgrade to become distributors (referred to as associates in India) and do Herbalife business if they want to, but Herbalife cannot guarantee them any income.
Herbalife is betting that it can count on a Preferred Herbalife member large group of newly recruited Herbalife preferred members to support the business for the rest of their lives. The company believes they will not drop out and that the products are so good that they’ll keep ordering, even if they don’t earn a single dime from it. The company also believes that the free membership will encourage more people to join its business, boosting the number of active Herbalife Distributors.
But I think the Herbalife is betting on the wrong horse here. The research on consumer loyalty shows that people who pay for a product are more likely to use it and more loyal than those who get it for free. So, while Herbalife might be able to fool Wall Street and the media with these rosy numbers, it’s unlikely they will convince discerning consumers that Herbalife products are worth their money.
In addition to the financial benefits, preferred Herbalife members are part of a vibrant community that shares a common goal of better health and nutrition. They are supported by their Independent Distributor Sponsors who will mentor them one-on-one, inspiring them to unlock their potential and pursue their dreams. They’ll also have access to materials developed by Herbalife to help them grow their business.
In the United States, Herbalife Independent Distributors earn income based on documented retail sales and the commissions earned by their downline team members. Herbalife prefers preferred members to be a primary source of new Distributors, so it’s in their best interest to work closely with their teams. Herbalife expects preferred members to spend a minimum of $200 per month on product orders. In order to meet this requirement, Herbalife provides preferred members with the Herbalife Essentials Kit to help them get started. The kit includes a product sampler, Herbalife shake mix and two Herbalife nutrition supplements, plus a free Herbalife shaker or water bottle. Those who meet the monthly order requirements can earn up to 40% in commissions. Herbalife also offers a 5% referral bonus for preferred members.
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