USANA - MLM

1. USANA - MLM Fred Lizotte

2. Overview • The mission at USANA is “To develop and provide the highest quality, science-based health products worldwide.“ • USANA is a manufacture of these supplements and they are centrally located in Salt Lake City, Utah. They have no retail outlets, they purposely keep the supply chain of the company small as to keep costs low and still provide a great product for a competitive price.

3. Management • Myron Wentz, Ph.D. chairman and CEO. Dr. Myron is the founder and an internationally recognized microbiologist, immunologist, and pioneer in the development of human cell culture technology and infectious disease diagnoses, he holds a bachelor’s degree in biology from North Central College in Naperville, Illinois, master's degree in microbiology from the University of North Dakota, and a Ph.D. in microbiology and immunology from the University of Utah.

4. Management • David Wentz is the president of USANA. He received a bachelor’s degree in bioengineering from the University of California, San Diego. • Gil Fuller is the Executive Vice President of Finance. Gil joined the company in May 1996 as vice president of finance and served in this capacity from May 1996 to June 1999, when he was appointed senior vice president. He has served as USANA’s CFO since October 1997.

5. Competition • Avon Products, Inc. Just like USANA it is a direct marketing company. Avon Products, Inc. manufactures and markets beauty and related products. • Amway is one of the largest multi-level marketing organizations in the world. It is a multi-billion dollar a year company based on the sale of products as varied as soap, water purifiers, vitamins, and cosmetics. • Herbalife was founded in 1980. It is an international is a company that sells weight-loss, nutrition and skin-care products by multi-level marketing, also known as network marketing.

6. History • Dr. Myron Wentz in 1973 he started Gull Laboratories in Salt Lake City to use advanced cell culture techniques to make commercial tests to diagnose viral diseases. • In 1990 USANA was born as the Gull Health Products Division, to test and manufacture herbal and other natural products. • In 1992 Wentz incorporated USANA, Inc., as a wholly owned subsidiary of his Gull Laboratories. In 1993 he spun off USANA as an independent firm.

7. History • By the summer of 1994 the company had begun its own publication for its distributors, USANA Magazine • USANA grew rapidly in the first few years • From 1993 sales in the United States of $3.9 million, the company reported an increase to $7.3 million in 1994. • In 1995 U.S. sales reached $21.5 million

8. History • By early 1996 USANA had joined the Direct Selling Association (DSA), a trade group for firms in network marketing and other kinds of direct sales. The DSA governing board took a year to look at USANA to make sure it complied with the DSA's ethical standards. • In 1998 USANA offered a wide variety of nutritional and personal care products.

9. History • According to the firm's 1997 annual report, USANA received about 82 percent of its sales from nutritional products. • In 1997 USANA also started its Preferred Customer Program for those who wanted to purchase USANA products at wholesale prices but not become distributors. • This was later moved onto the internet website – Preferred customers were required to purchase $20 in products every month. • Since 1992 USANA has paid out $500 million to USANA Independent distributors. USANA has made the Forbes to 20 lists in the last three years in a row, 2004, 2005, and 2006. USANA (2007)

10. Commissions Binary Compensation Plan: USANA Health Sciences (2007)

11. Commissions • Commissions in traditional network marketing are you on top, and you have any number of people under you. This number is not limited, so you can have hundreds of people directly under you getting you sales, generating commissions. In the binary network marketing, you have two people under you, and those two people have two more people under them. The commission comes from multiple levels, so you can benefit from the commissions of the people below you and the people below them and so forth.

12. Distribution Channel – New way to do business • The distribution channel involved with traditional nutritional supplements sold in retail stores includes manufacturing, national distributor, regional distributor, local distributor, retail sales, advertising and customers. • USANA created a distribution channel which includes manufacturing, independent associates, and the customer. By building a business around this fact, USANA was able to change existing channels that occurred in other companies and make it more efficient.

13. Channel • They did this by making sure that information about what is needed, what has been produced, and what is in process is available wherever it is needed in the chain. • They focused on manufacturing the products and they were able to ship them directly to the customer. • They only have a dozen products, which also makes this process run smoother.

14. Channel • There is no excess storage that needs to take place because the only people touching the product are the manufacturer, individual distributor and the customer. • All excess products would be held only by the manufacturer and possibly the independent distributor, but is not required for them to hold any product; the manufacturer could drop ship to the customers as well. • This leads to a very efficient system where the costs could be controlled directly by the manufacturer.

15. Channel • As the Internet became more useful, this company set up a system where the customer could buy products online directly from the manufacture. • They also set up a system that allowed customers to buy online directly from the manufacturer through a discount of an independent distributor. • This solved the channel conflict of independent distributors competing with the same company that sells their products.

16. DSIR • Demand-side increasing return does not exist in a Multi-level marketing system for the customer or the independent distributor. • The customer does not receive anything more by having more distributors asking them to buy products • the manufacturer fixes the prices so there is no competition between independent distributors

17. DSIR • Independent distributors receive very little by having more distributors. They may receive commissions based on new Independent distributors that they have brought in, but it is a self-canceling system. • When there are too many distributors present in a location, the market quickly becomes saturated. When the markets become saturated, no new customers buy products. No new independent distributors will make money, because there are no new customers to buy any products. • The independent distributors on the bottom will not make money; most will realize a loss in money.

18. Fraud Discovery Institute • The FDI was an institute that checks companies ways of doing business to see if there is something that doesn’t seem right. • They did an investigation on USANA and found numerous holes within their company. • When the Fraud Discovery institute did statistics they found that in 2006 the current distributors, 70% of the commissions made by the distributors went to the top 3% of the distributors.

19. FDI • 87% of the distributors lost money in 2006 in USANA Health Sciences. • One of the main focus on USANA is to condemn Multi-level marketing as a scheme, just like the pyramid scheme. • FDI sent a report to the SEC, FBI and IRS earlier this year, the USANA stocks went down 15% in one day.

20. Summary • Before this controversy occurred this company was a very successful growth company. They have been open since 1992. They have had record sales every year for the last 5 years. Forbes has named USANA #12 on the top 200 best small companies in 2006. All in all they are still doing good in sales givin the controversy that was brought up. Since this whole situation was brought up in the last year, we will expect that this situation is not over and there is more to come that may change how good USANA is doing.