Session 114

We’re at the last passage of CARS on Next Step full-length 10. Hopefully, you’ve gotten some great tips and techniques to improve your CARS score!

This podcast is in collaboration with Blueprint MCAT (formerly Next Step Test Prep), where Clara joins us once again as she helps us cover Passage 6.

By the way, have you checked out all our other episodes on MedEd Media Network? If you haven’t yet, take some time to listen to them as we strive to help you along your med school journey!

[01:38] Passage 6

In December 2012, billionaire hedge fund Bill Ackman plays the highly publicized and high-stakes wager. Certain that the American nutrition company Herbalife was doomed to fail, he executed a $1 billion short sale on the company’s stock. Ackman had one primary reason to bet against Herbalife. The company, which sold protein shakes and multivitamins to thousands of distributors worldwide, function under a multilevel marketing (MLM) business model. Instead of filling sales positions to salaried employees, MLM companies rely on non-salaried consultants or distributors. Consultants earn a commission for products sold but most rely on a separate, much larger source of income. Bonuses are additional commissions paid as a result of sales made by their recruits to the company. This model had convinced Ackman at Herbalife, along with other MLMs, was nothing more than a pyramid scheme, an illegal business model in the United States and many other countries. Ackman’s claim certainly was not without support. MLM-style businesses have existed since at least the 1920s. In fact, one longtime MLM cosmetics company, Avon, which was founded as a California perfume company in 1886. Throughout this long history, hundreds of thousands of consultants have lost money, often due to large, irregular purchases in inventory, initial fees, or travel expenses associated with motivational events.

The Statistic Brain Research Institute estimates that of more than 18 million individuals directly involved in MLM businesses, 99.7% lost money. Many of these individuals were attracted to these opportunities by promises of dictating their own schedule or being their own boss, and a large proportion were mothers or fathers, some of whom went into significant debt to pay for their future business. In recent years, some MLMs have been accused of encouraging consultants to take out loans to pay for inventory that they often fail to reimburse if the consultant chooses to leave the organization. Nevertheless, vocal supporters of MLM businesses certainly exist.

Tiffany Ruiz, a recent recruit to Cutco Corporation, an MLM oriented around sales of kitchen knives, vehemently defends the controversial business model. “You get out what you put in,” said Ruiz. “Funny how consultants lose interest quickly and of course, they suffer a financial hit. But the network associated with Cutco is amazing and I get to keep a portion of the sales from everyone I recruit.” In fact, Ruiz’ recruits or downline are non-existent as of yet. But she feels certain that this is about to change. With an established downline, she’ll be able to start earning back her initial investment used to acquire a set of knives for demonstrations to potential customers.

[05:15] Question 31

Mary Masterson, a friend of Tiffany Ruiz, works full time as a consultant for Herbalife. All of the following individuals are expected to benefit from the sales of Ms. Masterson’s downline except:

• (A) Ms. Masterson herself
• (B) Bill Ackman
• (C) Herbalife upper management
• (D) The downline consultant who made most of the sales but who joined Herbalife only a month ago

Clara’s Insights:

Clara says D is a tempting answer here, and that it’s really easy to fall for this one since you can easily get rid of A and C. But the right answer here is B. Going back to the passage, Bill Ackman made a bet against Herbalife. So he has not invested in Herbalife.

Clara recommends going back to the passage for questions like this as it only takes 10 seconds and it can save you from making a mistake.

[08:12] Question 33

An assumption implicit in paragraph 3 of this passage is that.

• (A) Ruiz is able to maintain interest in Cutco better than the consultants who end up losing money.
• (B) Individuals who joined MLMs recently tend to defend them more wholeheartedly than individuals who have been with them for an extended period.
• (C) Ruiz is unlikely to ever recruit individuals to fill her downline.
• (D) Ruiz is unlikely to earn back the value of her initial investment through direct sales alone.

Clara’s insights:

The correct answer here is D, which says that “with an established downline, she’ll be able to start earning back her initial investment.” Hence, this implies that she’ll be able to start earning it back when she has an established downline which is to say, people selling under her, versus through direct sales alone.

[12:34] Question 34

Tiffany Ruiz would be least likely to give which of the following as an example of a benefit of her role as a Cutco consultant?

• (A) An opportunity to gain interest on her initial investment
• (B) A close relationship with her downline, earlier Cutco recruits, or others
• (C) The chance to earn income without directly making sales
• (D) The opportunity to work to gain advantages associated with downline recruits

Clara’s insights:

The correct answer here is A as the passage never mentioned this and the investment is knives used for demonstrations so it’s not going to earn interest.

[14:42] Question 35

Which of the following is most likely to be a defining feature of a pyramid scheme?

• (A) Its business model is illegal in the country where the business operates.
• (B) Recruiting customers for the company is encouraged with high bonuses or commissions.
• (C) A key aspect of the business model involved recruiting increasing numbers of participants.
• (D) Nearly all early investors in the business lose money.

Clara’s insights:

The correct answer here is C. All the rest are not necessarily true as it may not be illegal in the country where the business operates. The passage says it’s illegal in the United States and many other countries, but not all countries. So it’s not a key defining feature of a pyramid scheme business model. The same with B. And with D, the passage says 99.7% of people as a whole involved in MLM businesses lost money. But we actually don’y know anything about early investors. They could make a lot of money.

[17:25] Blueprint MCAT (formerly Next Step Test Prep)

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