Friday 5 February 2010

Revenge of the nerds

I love numbers. I’m a self-confessed numbers freak. A real nerd in fact.

I suppose it helps that I’ve always been fairly good at maths. Forgive me while I boast for a moment. I got a grade A ‘O’ Level in Maths when I was only 14 years old. Boasting over, here comes the reality. That was the only A grade I ever got in anything, ever. My academic life was downhill from there. I’ve never had an A in anything since.

However about the same time as that astounding exam my father gave me a Sherlock Holmes detective story to read and I was hooked. I realised that it was evidence that interested me and numbers are just one type of evidence.

That also started a fascination with illusions, perceptual tricks and understanding just how easy it is to fool people with pictures, signs and symbols. (Take a look at the Consumer Watchdog blog if you really think you can trust your senses.)

OK, given that I am an evidence nerd you think I wanted to be a police officer? Oh no, certainly not. I’ve worked with a number of current and former cops and I understand what they say about police work. It’s 99% boredom and 1% terror. Certainly not the right job for a cowardly Mummy’s boy like me.

These days one of my main interests is the evidence consumer are presented with. There are crucially important issues like store credit and the lies some stores tell us to encourage us to sign criminal credit agreements. Then there are the creative lies told by certain micro-lenders, loan companies and every single Get-Rich-Quick scheme. The problem is what bits of evidence are to be trusted and which should be thrown out with the garbage.

One of the key lessons about evidence is that you have to consider it’s “provenance”. Every time you encounter a fact or figure you need to ask where it came from, what is it’s origin, who discovered it (or simply made it up) and what incentive did the source of the information have for publishing it.

For instance if you look at the marketing material of all multi-level marketing schemes you’ll see very little, if any, evidence of what profit people are likely to make. Even when evidence is produced it’s incomplete or misleading.

In the UK a couple of years ago, Amway, the most famous of all the MLM companies was forced by the courts to disclose “earnings” information about it’s distributors. The information this revealed (small pdf download) was surprising. In the 9 month period between October 2007 and June 2008 a total of 2,384 “Retail Consultants” earned a “Customer Volume Rebate”, Amway’s internal bonus. The average bonus they received was a measly £47 (about P500). However that figure is itself an exaggeration because it only includes those people who actually earned a bonus. As well as those 2,384 people who earned something there was another 3,198 who didn’t earn a single penny. If you include those people the average bonus was even less, around £20.

And remember this. That was their income, not their profit. That £20 was BEFORE they paid all their travel expenses, their phone bills, their internet connection fees and the interest they were paying on their bank overdrafts.

Many Amway cult members will tell you that “Amway has produced more millionaires than any other company”. OK, give me their names. That would be good evidence. However I doubt they can. The same evidence from Amway in the UK for that 9-month period disclosed how many people had achieved the pinnacle of the Amway business, “Diamond” status. That’s someone who has brought in over £50,000. Remember, that’s income, not profit. The total number?


Only seven people in the UK took in more than £15,000 before they paid their expenses.

Let’s go back to the “provenance” of these figures. The source of these numbers is Amway itself, under threat of legal action by the British courts. I’m prepared to accept that the figures are true, just for a simple life. Amway don’t justify their figures but I don’t think they need to. If those are the best figures they can produce I don’t think we need to embarrass them any further. The figures are truly pathetic.

This is one of those situations where a company doesn’t need nerdy critics like me. It’s own data shows how little money can be made from pyramid-structured schemes like Amway.

The good news about multi-level marketing schemes and other ineffective money-making schemes is that I think there are signs of a growing scepticism in Botswana. More and more people are using their critical thinking skills and are questioning things before they commit to them. In fact I think there is an increase in that greatest of characteristics, nerdiness (or is it nerdocity?).

Consumers need to be nerds, or to have a Dial-A-Nerd service available to them. Someone they can call for nerdy, evidential, factual, critical, rational, above-all skeptical advice.

Consumer Watchdog is proudly nerdy and we’re delighted to be part of a growing nerd community.

This week’s stars
  • The team at HiFi Corporation. One of our readers went to HiFi Corp just before Christmas to find the place unbelievably busy. Hundreds of last-minute shoppers and lengthy queues. So what did the management do to ease the suffering? They started giving out festive refreshments to people in the queues.
  • Breaking news and celebration. Furnmart have just been in touch to confirm that as from this month they are clearly advertising the full credit price in their advertising materials! Good for them!

No comments: