The concept behind the Original Dinner Party isn't original. Ever since 1886, when the first Avon Lady in Winchester, New Hampshire, started peddling cosmetics to her friends, women have understood the importance of networking to make it in a man's world. And businesses have understood that women are usually the consumers in the family and are more inclined to buy when they don't have to leave the convenience of their homes. Women also make excellent salespeople when they can sell to a group of friends in a casual, party-like setting. As a result, companies like Tupperware, which is a household name largely because of its sales parties that began in the 1950s, and Mary Kay Cosmetics, which followed in 1963, have enjoyed phenomenal success.
In 1980, another company whose target market -- and marketers -- consists of women formed: the Pampered Chef. There are now more than 66,000 "kitchen consultants" in the United States, Canada, Germany and the United Kingdom who sell the company's products, which include everything from chef-quality knives to measuring spoons.
Woman usually learn about the Pampered Chef by attending a "kitchen show" at a friend's home. The hostess demonstrates how to use the tools, much as a Mary Kay lady shows her friends how to properly apply blusher. The idea is that the women will buy that must-have spatula and maybe even become salespeople themselves.
The Pampered Chef calls the women who attend or host a kitchen show "appetizers." Those who choose to make a part- or full-time career of selling the company's cookware are considered "entrees." And finally, kitchen consultants who have proven to be good salespeople can earn incentives to sell still more goods; top-selling consultants can win jewelry or trips to Hawaii. Those lucky ladies have attained "dessert" status. Sound familiar?
While the Pampered Chef, Mary Kay and hundreds of similar direct-selling companies are structured like a pyramid -- with the company and its CEO at the top and its busy worker bees at the bottom -- law-enforcement officials don't consider these plans illegal. Ken Lane, a deputy attorney general for the State of Colorado, says the difference between this practice, called multilevel marketing, and schemes like the Original Dinner Party is that actual products are sold in the former. "It's still a pyramid, because revenues are dependent on bringing in more people, but sales are directed outside the pyramid, so it's legal," he says.
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But some companies that sell products can also qualify as illegal pyramid schemes, he says; in those companies, products are sold only to other members of the pyramid. "You sell new members the product, and then they need to bring in new members and sell the product to them," Lane says.
In addition, the Federal Trade Commission says multilevel marketing companies that offer to pay commissions for recruiting new members are operating illegally. "State laws against pyramiding say that a multilevel marketing plan should only pay commissions for retail sales of goods or services, not for recruiting new distributors," reads a consumer advisory issued by the FTC.
Multilevel marketing companies are a $24.5 billion-a-year industry in the United States, according to the Direct Selling Association, of which Avon, Mary Kay, Tupperware and the Pampered Chef are all members. Statistics show that 33 percent of the sales in the more than 140 member companies in 1999 were for cooking and other home appliances, 25 percent came from the sale of cosmetics and jewelry, and 17.8 percent came from weight-loss products and vitamins. And there are many other products that women sell via in-home parties, including scrapbook-making kits, toys and handwoven baskets. The DSA estimates that there are 10.3 million direct sellers nationwide.
At least 56 percent of them are women