Too 'different' for own good?

Richmond Times-Dispatch/May 16 1993
By Paula Squires

Consumers' Buyline Inc. is a 3-year-old company that says its chief mission is to save consumers time and money. For a fee, members can order anything from athletic shoes to china at less-than-retail prices. All it takes is a phone call. Items are delivered directly to members' doors.

In a world where people constantly are juggling schedules, that sounds like an easy way to shop. Plus, members can earn extra income by becoming "affiliates" and selling more memberships.

If membership is such a good deal why does the company keep getting sued?

Consumers' Buyline has spent more than $ 2 million in legal fees during the last year, said company under and President Keith Raniere. He's not happy about it and offers this explanation: "This company has been through a lot, because we're doing. something different."

What's different is a multilevel marketing program that has caught the eye of regulatory agencies in several states. While it might look like a pyramid operation, it doesn't function like one, Raniere said.

Multi-level marketing refers to a sales structure with several levels of people who earn commissions. Under a classic pyramid, the structure acts like a "big funnel," Raniere explained, with a portion of the profit earned by people on the bottom going up to the top. The pyramid requires an ever-expanding base of people or the person on the bottom gets stuck with no profit.

The Consumers' Buyline program doesn't work that way. When members sell two memberships, the minimum required to achieve affiliate status, they continue to get a commission of $ 5 monthly on those memberships as long as they remain active. It doesn't matter whether the new members sell memberships or not.

However, if the new recruits become affiliates and sell more than two memberships, the person who originally recruited them receives a commission on some of those membership sales, too.

The value of the commission depends on where the member falls in the sales lineup and on the overall size of the sales team. Plus, the member must refrain active or no commission is paid.

The person at the top of the sales chain might not make the most money, Raniere said. If someone underneath is more aggressive and sets up more sales lines, that person will earn more in commissions.

But what about the people at the bottom? The newest recruits must sell at least two memberships before they can begin to earn money.

Raniere thinks his program is so innovative that many people just don't understand it. Thus, all the lawsuits.

Some states, including Virginia, have sued Consumers' Buyline on the grounds that the company operates an illegal pyramid. The company settled with Virginia's attorney general's office last year by entering into an agreement that requires it to split the marketing of memberships from the recruitment of sales affiliates. The two activities must be separate, with the opportunity to sell not used as an incentive to get people to join, the agreement said.

In addition, if a member undergoes training to become a sales affiliate within a year of joining Consumers' Buyline, the person who recruited that member gets no commission.

Raniere was in Virginia last week with a team of lawyers in a legal battle before the State Corporation Commission. The company faced allegations that it violated the state's securities laws. Citing a lack of evidence, the SCC dismissed the case.

Another legal round will be fought in Raniere's home state of New York. The attorney general there filed suit last month to enjoin the company from promoting--you guessed it--a pyramid scheme.

Raniere, 32, is described by some company officials as a mathematical whiz. The New York suit refers to a company press release that proclaims him as having "one of the three highest IQs in the world." Marketing material says Raniere's IQ is higher than 190.

Raniere said that, before starting his company, he worked for Amway and other companies that use multilevel marketing. He left them, in part, because they didn't offer what he says is key to any marketing operation: a product of value. Raniere contends that Consumers' Buyline offers a distinct value. An annual membership fee of $ 349 entitles members to a merchandise network of more than 600,000 goods and services.

The network is possible because of a contract Consumers' Buyline has with Purchase Power Inc. of Austin, Texas. That company acts as a middleman, using the combined buying Clout of millions of members from various groups to negotiate contracts with third-party vendors at competitive prices.

Noah Fuhrman, president of Purchase Power, said his company have been in business since 1964. Clients whom he would not name, include large non-profit groups and credit card companies. Many of them offer buyer's club membership as an incentive to customers, Fuhrman said

To make a purchase, Consumers Buyline members call a toll-free number. A sophisticated telephone system verifies the caller's membership number, learns the item the caller wishes to buy, and transfers the caller to the appropriate vendor, Fuhrman said.

Vendors participate, he added, because his company offers "substantial extra business which they don't have to pay for." According to Fuhrman, Purchase Power offers many national brands as well as a number of services. Mail-order groceries, a coupon clipping service and a drug discount program are a few.

Raniere estimated that, nationwide, Consumers' Buyline has 170,000 members. At one time, before the litigation in Virginia, more than 22,000 state residents belonged. That figure is closer to about 8,000 today, said Robert G. Bremner Jr., a sales affiliate in Mechanicsville.

"We've had some incredibly negative publicity" because of the legal proceedings, he said.

During last week's SCC hearing, the judges asked many questions about the company's operations. For instance, Commissioner Theodore V. Morrison Jr. wanted to know why 30 members listed "Financials" as their last name. "Were these phony memberships to inflate the success of the program?" he wondered.

The lawyers didn't have an answer, although one ventured that perhaps a company bought 30 memberships for employees.