Are Mary Kay Directors purchasing a Franchise?
For a number of years, Tupperware distributors were explicitly regulated as franchisees. Tupperware filed for the available exemptions, so that their UFOC is not available online. But there is doubt that, until 2004, Tupperware treated its distributors as franchisees, read the 2004 franchise exemption letter here.
I had a recent post about whether Mary Kay Directors were buying a franchise, as it is defined by the Federal Trade Commission, and I posted a comment to that effect.
The responses to me question about Pink Truth: Directors as Franchises are collected below, along with my response.
Comment 1:
"Micheal WebsterMaybe that is why in all these years the one thing that stays at such a low price is the starter kit----because they are trying to stay below the radar of FTC---less than $500, so that we are not considered a 'franchise'.
Most of the women on this site are BRILLIANT and I am still reeling at the vast amount of collective brainpower here.
I am much less business savy----BUT something about the $100 changing hands at the point of 'commitment'-----like "earnest money" in a real estate transaction.has always bothered me. It is not like the Starter kit is VITAL to our success----since the contents of this kit have changed COMPLETELY through the years----to now mainly just being a few tapes, some samples and a little product.
For some reason which I cannot figure out , it seems more like they need this $100 to comply with some kind of law----.or to make our CONTRACT BINDING----since maybe without the $$$--we could not be HELD to the contract. I don't know----just a thought.
Suzy Q.awesome piece and thanks for telling the truth-----that sure covers the last of the questions I had about what i was doing to make my director mad unintentionally."
Response 1:
I think that you are right. Mary Kay, along with other DSA members, seemed to focus on the low entry costs in their response to the FTC. I was not entirely persuaded by this type of reasoning as it ignored the high cost of being distributor or director.
Comment 2:
"Michael I also read your website with interest. I also wonder why people sitting with frontloaded prodcut aren't franchises. I've read several stories on this site and others where people are sending back upwards of $5,000 worth of product. That would seem like a "significant" amount in my book. But maybe I'm just cheap.I've been thinking about this column since I read it. I couldn't stand the daily pressure of living like this, pink fog or not. How do you keep your sanity for goodness sake? I'd be a basket case before ending DIQ I'm afraid. There's no way I could handle this constant pressure day after day after day. Ridiculous to put yourself and your family in this much turmoil. IMHO, no amount of money would be worth that."
Response 2:
I also wonder if the FTC is persuaded that since the consultant or distributor can send back the product, for up to a year, whether there is a need for the FTC to assume jurisdiction. But it would appear that the new consultant or distributor would need to know just how many people in their position get stuck with unusable inventory after the year is up.
Comment 3:
"With a genuine franchise or exclusive distributorship, there is usually a lot of pre-screening to make sure you are ready for it.McD's for example, requires you to have $200,000 and spend time at their headquarters learning how to run the business … RUN the business, not "work" it. And they do a lot of coaching the first few years because they don't make money unkless you sell product.
MK is not a franchise … it's a 'direct sales' business with 'multi-level comission structure'. Everybody buys from MK, but there are comissions based on your recruits."
Response 3:
I think that this is just a misconception about what a franchise is. McDonalds may do intense pre-screening, but that is far from the norm. To determine whether the Mary Kay director's opportunity is a franchise, you have to analyze the definition. For example, most people would be surprised to know that many vending opportunities fit the franchise definition.
Comment 4:
"Typically, franchises are little more particular about saturation of the market. My insurance business is a franchise. They would NEVER allow as many of us to be around as MK does. They are way too protective of their name and the likelihood of failure of the franchisees"
Response 4:
Again, encroachment is a very hot topic in the franchise world. Most of quick service restaurants give their franchisee no territorial protection.
Thanks again to all those who responded to my post. If you have further questions, you can post them here as comments or back on the Pink Truth website.
