The ongoing battle against multilevel marketing (MLM) companies escalated a notch as John Frenaye, a veteran agent and persistent critic of the effects of alleged MLMs on suppliers and professional agents, posted an open letter, “The Hidden Cost of MLM,” on his website which warns suppliers of the dangers of working with MLMs. Frenaye is president of JVE Group, Annapolis, MD.
Frenaye addressed his concerns to Carnival Cruise Lines, Princess Cruise Lines, Holland America Line, Disney Cruise Line, Walt Disney Travel Company, Globus, Trafalgar, VAX Vacation Access, Travel Impressions, Cunard Line, Seabourn, Collette Vacations, MSC Cruises, Costa Cruises, Apple Vacations, The Mark Travel Company, and Travel Guard.
Frenaye urges suppliers not to deal with multilevel marketing firms and card mills. In an interview with Travel Agent, he noted the difficulty and costs now being faced by responsible suppliers with Joystar/Travelstar, which now faces bankruptcy proceedings in federal court, and warned of the loss of brand integrity. Details of Frenaye’s anti MLM stance can be found online at:
Here are excerpts from Frenaye's letter to suppliers:
“I bet you thought that offering a 16 percent commission and a few marketing bucks was a great deal to deal with an MLM when you started. I bet you are wrong. Have you ever taken a look at the hidden cost of dealing with an MLM? When reputation is everything in this industry, I am surprised that you all are willing to sacrifice your hard earned brand image. Please consider the following:
Are you gaining more clients? Or just discounting your product?
* The bean counters all see the dollar signs for the bookings. But it has been proven that most of the sales are to themselves. So it is logical to assume these MLM participants would likely have traveled in any case and purchased via a more reputable means. All that is accomplished here is to cheapen your product by discounting--something many of the suppliers themselves prohibit. The alienation of your sales force by doing so is a whole other discussion. Perillo Tours found out that 90 percent of their YTB bookings were for the agents themselves. Sort of defeats the purpose of hiring an 'agent' to do your marketing doesn't it?
What's happening to your reputation?
* What happens when one of these untrained MLM participants makes an attempt to market your product? I am sure you have seen some marketing attempts--many have been highlighted on this blog. And do you really want someone trying to sell your product, when their goal is to sell them into their scheme so they can travel for free?
* What happens when one of these so called 'agents' decides to collect almost $100,000 from high school seniors and run with it? While Carnival obviously had no responsibility in that matter, the cruise line's good name was certainly dragged through the mud.
* What happens when you do offer reduced rate travel and these MLM participants descend and are soliciting your full fare paying customers? What type of taste does that leave in your customer's mouth? And why do these MLM 'agents' need to be continually reminded on how to be professional?
What's happening to your money?
* Cruise lines are becoming more and more dependent on onboard revenue for their profitability. Has anyone bothered to do a study of the amount of money the MLM clients actually spend on board as opposed to that of a traditional agent? What about the MLM participants themselves? I was on a Carnival ship in November and witnessed a MLM agent from Traverus (an online agency) bragging that they got the cruise for next to nothing, had weaseled out of tipping, smuggled in a lot of alcohol and soda, and brought insulated drinking cups to keep them well lubricated. With all that planning, I am sure a nickel did not make its way to Carnival.
* Sure you pay some of these MLM companies top tier commissions, but for that, one would expect that the agent does the lion's share of the work. Are the MLMs pulling their weight? Have you looked at the time your internal people spend hand holding and re-training the MLM participants time and time again? Is it really worth it to pay 16 percent commission? I recently heard that a major cruise line flew staff from Miami to St. Louis to answer consumer calls during YTB's recent Sail-A-Thon. I suppose they did not want a repeat of the 'service' handed out at last year's event. Honestly, it makes more sense to take the booking direct and not pay a commission at all.
How do your employees feel?
* Have you ever questioned your front line employees about how they feel dealing with the MLM agencies? I have. It is not pretty. You need customers for sure, but you also need employees who are excited to work for you. Why not offer an anonymous survey and allow them to voice their opinions?
* Ask your BDM's their honest opinion. I am sure you will be shocked. Be sure they know you want to know how they feel and not what they think you want to hear.
Do these 'agents' know the product?
* On a recent blog post, a YTB Referring Travel Agent was insistent that a 'tender' was money. While that is certainly a definition of tender, it is not the case in the travel industry. Most likely this agent is advising clients that while in George Town, Grand Cayman that they need to take money to get ashore.
* Speaking of the Caymans, the RTA that took off with the high school seniors' money--she advertised that the 'boat' had 'docked' in 'Grand Caymen.' What impression is left on the consumer? And why are suppliers facilitating it?
* When Royal Caribbean made their move, most of YTB insisted that * 's promotion to the VP of the Hotel Operations was really a demotion for 'dissing' YTB and that she was in charge of changing sheets in the pre-and post cruise hotels. Seriously, I am not kidding.
Is the interference worth it?
* From what I hear, many suppliers have received subpoenas from the California Attorney General requesting access to many financial documents related to the current suit against YTB for operating an illegal Pyramid Scheme. While I am sure that all suppliers operate on the up and up, additional governmental scrutiny can never be a good thing.
"It is obvious the cost is far greater than the commissions paid. The MLM 'agents' are not earning their commission and, quite honestly, your continued dealing with them is slowly but surely eroding your very own brand image. Royal Caribbean took a bold, brave step in 2007 by eliminating YTB from their agency list. Other smaller suppliers followed as well. Last week, NCL came to the realization that dealing with an MLM is simply not worth it.
“Right now, each supplier needs the support of people that know the product and are professional, legal and ethical in operating their businesses. I challenge that you are not getting this with YTB, Traverus, GTI (a online agency) and the rest. Richard Fain and Adam Goldstein reiterated their belief in a trained professional agent to move their product. I applaud them. Traditional travel agents are very relevant to travel suppliers, and they are proving that relevancy each day.”
“How relevant are the MLMs? How committed to you are they? Have you listened to one of the YTB Saturday morning conference calls? This week, the word 'travel' was mentioned exactly once--when they said they 'started with travel' and moved onto flowers and cars. Both Traverus and YTB are now focusing on selling potions and lotions. YTB is selling home decor, financial services, meat and food, cakes and peanuts, and more. Don't believe it, go click on the links. These MLM companies are only dedicated to travel as long as they can use it as the sexy lure to recruit new members.”
Frenaye reminded the addressees that they have received a copy of his online petition that gained nearly 3,000 names of travel professionals. The petition asked suppliers to throw their support to “to the agents who produce for you."
Frenaye concluded his letter noting that two-thirds of the major cruise lines in the world have "seen the light" to make the business decision to not deal with the MLM/Card Mill/Pyramid companies, and asked suppliers, "Don't you think it might make sense for you to take a look as well?"