The Origin of Multilevel Marketing

Stephen Barrett, M.D.

The roots of multilevel marketing are intertwined with those of the Amway Corporation and its Nutrilite product line. The Nutrilite concept is said to have originated about during the early 1930s in the mind of Carl Rehnborg, an American businessman who lived in China from 1917 to 1927. According to Amway publications, this gave Rehnborg "ample opportunity to observe at close range the effects of inadequate diet." He also "became familiar with the nutritional literature of his day." Concluding that a balanced diet was needed for proper bodily function, he began to envision a dietary supplement which could provide people with important nutrients regardless of their eating habits.

After seven years of "experimentation," Rehnborg produced food supplements which he gave to his friends to try. According to his son, Sam, who became Nutrilite's president and chief operating officer:

After a certain length of time, Dad would visit his friends to see what results had been obtained. More often than not, he would find the products sitting on the back shelves, unused and forgotten. It had cost them nothing and was therefore, to them, worth nothing . . . It was at this point that he rediscovered a basic principle-that the answer was merely to charge something for the product. When he did, the friends, having paid for the product, ate it, liked it, and further, wanted their friends to have it also. When they asked my dad to sell the product to their friends, he said, "You sell it to them and I'll pay you a commission."

Carl Rehnborg's food supplement business, which thus began as the California Vitamin Corporation, changed its name to Nutrilite Products in 1939 when it moved to larger quarters. According to Federal District Court records, significant out-of-state distribution of Nutrilite supplements began in 1945 when a company operated by Lee S. Mytinger and William S. Casselberry became exclusive national distributor [1]. Rehnborg acted as "scientific advisor" in the distributional scheme and would explain to sales groups that his supplements contained a secret base of unusual therapeutic value and were the answer to man's search for health.

Gross sales soared to $500,000 a month, but the promoters also ran afoul of the law. In 1947, the FDA began a 4-year struggle to force Mytinger, Casselberry, Rehnborg, their respective companies, and some 15,000 door-to-door agents to stop making wild claims about their products. Potential customers were being given a booklet, "How to Get Well and Stay Well," which represented Nutrilite as effective against almost every case" of allergies, asthma, mental depression, irregular heartbeat, tonsillitis, and some 20 other common ailments. The booklet, which contained testimonial letters, also implied that cancer, heart trouble, tuberculosis, arthritis and many other serious illnesses would respond to Nutrilite treatment.

After Mytinger and Casselberry, Inc., was asked by the government to show cause why a criminal proceeding for misbranding should not be started, the booklet was revised. A "new language" was devised which referred to all diseases as "a state of nonhealth" brought about by a "chemical imbalance." Nutrilite would cure nothing—the patient merely gets well through its use. Most direct curative claims were removed from the booklet, but illustrative case histories were added. Although continued governmental pressure led to removal of the case histories, the booklet remained grossly misleading.

In 1951, the Court issued a permanent injunction forbidding anyone who sold Nutrilite products from referring to any edition of "How to Get Well and Stay Well" and more than 50 other publications that exaggerated the importance of food supplements. The court decree also contains a long list of forbidden and permissible claims about nutrition and Nutrilite products.

Amway's founders, Rich DeVos and Jay Van Andel, were friends who became Nutrilite distributors after high school graduation. They were extremely successful and built a sales organization with over 2,000 distributors. Fearing that Nutrilite Products might collapse, they formed a new company, the American Way Association, later renamed Amway. They began marketing biodegradable detergent products and other household cleaning products and later diversified the product line to include beauty aids, toiletry, jewelry, furniture, electronic products, and many other items. Gross sales rose steadily from half a million dollars in 1959 to over a billion dollars by the early 1980s.

Reference

  1. Notices of judgment under the Federal Food, Drug, and Cosmetic Act. D.D.N.J., F.D.C. 3381-3383, issued Aug 1951.

This article was posted on September 15, 1999..