Monday, June 26, 2017

MLM Is A "21st Century Business"?

Today's blog post is about a slew of recent comments suggesting that MLM is a "21st Century Business", and working that tired old "9-5 job" is a thing of the past. The idea is, MLM is futuristic and its design will be the main style of business for the entire world. MLMers preach that MLM has everything a person needs to make money the way they deserve to make money (whatever that means), because they can work wherever they want, whatever hours they want, and they do not have to answer to anyone. It sounds too good to be true and as the old adage goes, "If it sounds to good to be true, the last thing they will do is share it with you."

First, is MLM literally a "21st Century Business"? The answer, quite resoundingly is, "No it isn't". MLM was first created by DeVos and Van Andel after they worked for Mytinger and Casselberry who were the disciples of the original conman Rehnborg in the mid 1900's (20th century). Rehnborg originally created a magical tonic called "Vitasol" that was filled with the same inert junk you may find in regularly sold MLM vitamin packages today. Mytinger and Casselberry were the first to introduce the idea of a "Starter Kit", and the idea of hiring "Distributors" to help push the product from door-to-door instead of hawking the product themselves. DeVos and Van Andel eventually perfected the technique, gave it the catchy MLM name, and quickly distanced themselves (similar to the mafia) from any direct contact with the "Distributors".

Is MLM more efficient than other methods for delivering products or services to consumers? Again, the answer is a resounding, "No". In fact, MLM is the least efficient method to deliver a product, because it increases the amount of middle men exponentially as the "team" grows. The products have to be significantly higher than competitive retail pricing because every member of the upline needs to get a piece of each individual sale. A typical chain of command in which a product is delivered efficiently from conception to consumer is as follows: First, there is a manufacturer that hires people to innovate and create a desirable product, then that manufacturer sells their product to a distributor, then the distributors buy many different products from many different manufacturers and focus on the sales of those products to the consumers. The reason distributors are important is, they make manufacturer's lives easy for selling their product in bulk, and they make the consumer's life easy by carrying many different products so the consumer doesn't have to go to a bunch of different places. This allows products to be priced competitively, because there aren't a lot of points in which the product's price is raised due to middle men. MLM is the opposite because each individual sale from a "distributor" to a "customer" must have a percentage given to each person that came before that "distributor". It does not matter if the people getting paid a percentage had anything to do with the sale or the "distributor", but rather they are paid because they were there first. This could result in a product having to be marked up hundreds of percentage points to cover the cost of everyone getting a piece of the action.

Is MLM marketed as well as other businesses? This is probably the biggest, "No", because they go out of there way to be as unnoticeable as possible. It's an interesting quandary because MLM is supposed to be about getting more exposure for a company's products, and yet they have horrendous rules limiting the amount of exposure the "distributors" can give. They have specific rules about which channels may be used for selling the products and which cannot be used. The three most notable channels in which MLMs typically do not let a "distributor" sell products are Amazon, eBay, and brick and mortar. They also have strict rules about who can is told about MLM and how they are told. MLMs usually only allow "Warm market" targeting, which means you must know the people you are propositioning, and you are not allowed to create any kind of web presence aside from the generic cookie cutter website you are given. Needless to say, this is the most inefficient method for marketing and selling a product in the "Internet Age".

Finally, does MLM generally generate larger amounts of income for their "Distributors" than a typical "9-5 Job". I bet you can already guess where I'm going wit this, because the answer, once again, without hesitation, "Heck no!" There hasn't been one "Income Disclosure" statement published online from any MLM to suggest MLM is anything other than a money pit. MLMs typically range between 95-99% failure rates, and have less than 1% making the big money. The videos, the "opportunities", and the anecdotes of success are all a facade for taking many thousands, and sometimes millions, of people's monies. MLM has been proven for decades to be the absolute worst "business opportunity" for generating a side income or a replacement full time income. The idea that this could be a "21st Century Business" as opposed to any other century business is a joke, because this "business" wouldn't be effective in any time period.

The title of this blog post was inspired by a "book" (more like a propaganda pamphlet) written by Robert Kiyosaki and it is titled, "The Business of the 21st Century". Robert Kiyosaki proposed that "Network Marketing" a made-up term to disguise MLM, is going to be the future. This man is a fraud, and continues to perpetuate the MLM fraud because he makes large sums of money from writing these atrocious propaganda pieces that can be sold to MLMs as brainwashing tools. 

22 comments:

  1. MLM is the least efficient means of distributing goods. It's not literally door to door, but it's person to person, one at a time. And it adds layers of middlemen to the chain.

    Good example, Amway has about 3 million distributors and in 2016, they did 8.8 billion in sales. WalMart has 2 million employees and did 500 billion in sales. Which is more efficient?

    Amway is a dinosaur along with most other MLMs.

    MLMs also have sales inhibiting rules such as zero or highly restricted advertising, can't sell on ebay or craigslist. Can't make deals to sell at retail outlets and other rules that inhibit sales.

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    1. Joe,

      When it comes to Amway in paritcular, the model is quite possibly the most horrendous method for distributing products I have ever seen. When I was propositioned they said Amway was not about selling products, but "teaching" people to buy from "your" store instead of "their" store. Now let's unpack exactly how the products get from the manufacturer to the person.

      The manufacturer, "Amway", makes the products in China and then ships them over here to warehouses in Michigan. Then, they "teach" their "distributors" to "teach" other "distributors" how to "teach" "distributors" etc. etc. There isn't ever any actual focus on products, and the only way they actually get distributed is from "distributors" getting other "distributors" to agree to buy $300.00 of products a month so they can have the privilege to find more "distributors" to do the same thing.

      THIS IS A COLOSSALLY SCREWED UP SYSTEM!

      The salespersons are the only ones that ever actually get the products, and there is no further exposure except through hidden introductions to the "business opportunity".

      Delete
  2. Dr. Doe. Question why do you dislike MLM's so much? Is there a personal reason for it all? I mean you are free to disclose your opinions online, but before you do make sure you have the correct information before posting misleading info about things you don’t know enough about.
    1st You debunked the article about “MLM literally a "21st Century Business"?” by illustrating the beginnings of Amway not where they are today. You cannot possible give a good argument if you are focused on the past and not the future. Rehnborg was noted as the pioneer of the vitamin industry and was the first to create the world’s first multivitamin using phytonutrients and full plant concentrates. You and anyone else can read his story at his Nutrilite website. Since then the company has perfected their products and are still the largest multivitamin company in the world doing just $3.9 Billion in 2016. They are only sold online and through Amway IBOs, they couldn’t possibly do that by using the same” inert junk you may find in regularly sold MLM”. You are comparing Apples and Oranges because no other MLM is the same as Amway when you fully compare them side by side. You yourself stated that they are the originator of the MLM structure.

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    1. Anonymous said, "Dr. Doe. Question why do you dislike MLM's so much? Is there a personal reason for it all? I mean you are free to disclose your opinions online, but before you do make sure you have the correct information before posting misleading info about things you don’t know enough about."

      You can read about my personal story with MLM in the "Featured Post" section.

      Anonymous said, "1st You debunked the article about “MLM literally a "21st Century Business"?” by illustrating the beginnings of Amway not where they are today. You cannot possible give a good argument if you are focused on the past and not the future."

      Huh? The whole point was to show this isn't a "21st Century Business". How else am I going to demonstrate that without focusing on the past? This doesn't make any sense.

      Also, you can't say my point is wrong, and then not refute it with another point. This is a common MLM apologist error as they are quick to point and say "you're wrong", and then quickly switch the subject because they don't actually have a point.

      The bottom line is, the business model has not changed since the 1900's and to suggest this is a "Business of the 21st Century" strictly based on time line logic would be false.

      "Rehnborg was noted as the pioneer of the vitamin industry and was the first to create the world’s first multivitamin using phytonutrients and full plant concentrates."

      I don't know enough about the history of Vitamins to make a great comment on this section, but I do know that Rehnborg did not invent multivitamins, and after a cursory Google search, the only ones suggesting that he did are the people that wrote the Nutrilite website/wikipedia page. This appears to be misinformation.

      Anyone arguing that there are "Better" or "Different" multivitamins has eaten up the propaganda. The current science suggests multivitamins may be relatively ineffective, and cannot confirm that they actually do anything. Also, everyone sells multivitamins, because they are deregulated by the FDA, and they all contain the same ingredients. If you are going to try and suggest that the "Nutrilite" multivitamin is somehow different from the Kirkland (Costco) brand multivitamin then you clearly haven't looked at the ingredient list.

      Delete
  3. 2nd - Your explanation about the cost of products increasing when the MLM teams grow just tells me you haven’t fully understood how most MLM’s pay works. I will be more specific to how Amway pays their distributors since they are the largest and the oldest at doing this. Amway pays off percentages 3% - 25% on a bonus sliding scale based on business volume (Cash Value) and the amount of points generated per sell (point system due to Amway being in 100+ countries and territories) and they do not pay bonuses or anything based on recruitments. When a team member creates volume everyone in line receives credit for the same volume placed and when it comes to payment each person above the other gets paid off the differentials of those below them. The following example will hopefully explain why your opinion/illustration is incorrect.
    Example: Doe is at 12% and I am at 15% then I will make a 3% bonus from Amway for teaching Doe how to create his 12% bonus.
    Now if Doe is at the same LVL % wise as I am then I do not make a bonus off his volume. Example: Doe is at 15% and I am at 15%, notice the same and nothing different, then I do not get a leadership bonus off Deo because there is not a difference to be made.

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    1. Anonymous said, "Your explanation about the cost of products increasing when the MLM teams grow just tells me you haven’t fully understood how most MLM’s pay works."

      It is a known fact that the compensation plan rewards the earliest entrants to the MLM. You can look at any compensation plan and see that they get paid the most percentage points on each sale and they get a piece of everything. Amway is the creator of this compensation plan hence the name MLM (Multi-Level Marketing). The more people you bring in, the more money you will make.

      The rest of your post here goes into some weird description of a bonus that looks just as convoluted and bizarre as any other MLM compensation plan. The more complex the compensation plan is, the more likely you are being screwed. It shouldn't take calculus to figure out how you are going to be paid for your services.

      Delete
  4. Now that you have a general idea how the pay works, now let’s compare it with your illustration “MLM is the opposite because each individual sale from a "distributor" to a "customer" must have a percentage given to each person that came before that "distributor".” If this was true then Amway would have never been able to create $8.8 Billion in revenue in 2016. If your example was accurate them the cost would have been too high and not competitive for consumers to purchase. Plus, you may not be aware but Amway provides a 180-day money back guarantee on all their core line products and 90-day money back guarantee for those who start a business. So, they are basically on the hook for about $4.4 Billion every 6 months. If their products were not any good why would they guarantee them for 6 months?
    In fact, Amway is even more of a legit business model then other MLMs due to their requirement that all IBO’s are required to have monthly ordering customers just like a traditional business. I say that to say if your model was correct in the illustration you provided then no one would have been able to develop a customer base, because of how expensive the products would eventually become. I would suggest you look at Amway’s site, which anyone can go and see, and you will notice the retail pricing is available to anyone and it is fixed. If your illustration was correct then Amway wouldn’t disclose their pricing to the public because it would have to many variances in pricing.
    The only variance in the pricing that Amway does allow is that the IBOs can provide pricing advantages to their customers if they see fit.

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    1. Anonymous said, “'MLM is the opposite because each individual sale from a "distributor" to a "customer" must have a percentage given to each person that came before that "distributor'.” If this was true then Amway would have never been able to create $8.8 Billion in revenue in 2016. If your example was accurate them the cost would have been too high and not competitive for consumers to purchase."

      Bingo! The products are grossly overpriced! I have given examples in this blog post (http://themlmsyndrome.blogspot.com/2016/12/mlm-and-product-value.html)

      The only reason people buy Amway products instead of the cheaper, and often better quality, products of local stores or multinational corporations is, they are tricked into believing they are going to make money. There has never been an example in which someone showed Amway had a better product than the competitor at a particular price point because they have to pay out the outrageous commission levels.

      This is the point where I note the cognitive dissonance has clearly effected your ability to see objectively. You revealed the heart of the matter yourself, and yet you are continuing to go forward and defend the MLM. This is a defense mechanism to protect yourself from realizing you have been tricked.

      Anonymous said, "In fact, Amway is even more of a legit business model then other MLMs due to their requirement that all IBO’s are required to have monthly ordering customers just like a traditional business."

      Again, you have pointed out the actual problem with Amway and MLM! They have a monthly subscription service that is required to be fulfilled by the "distributors" or they cannot qualify for bonuses (which is where any actual money comes from in Amway).

      "Traditional businesses", I'd like to call them "Authentic Businesses" do not require monthly autoships unless it is subscription based. That is not something that falls upon all "Authentic Business", and is actually a rarity. Most "Authentic Businesses" do not force their customers to have any monthly loyalty to their products.

      Anonymous said, "I say that to say if your model was correct in the illustration you provided then no one would have been able to develop a customer base, because of how expensive the products would eventually become. I would suggest you look at Amway’s site, which anyone can go and see, and you will notice the retail pricing is available to anyone and it is fixed."

      The retail pricing is fixed because the percentages are already baked into the pricing. As the team grows, then the percentages get smaller for the lower tiers, but the top tier always makes the largest part of the money.

      Anonymous said, "If your illustration was correct then Amway wouldn’t disclose their pricing to the public because it would have to many variances in pricing.
      The only variance in the pricing that Amway does allow is that the IBOs can provide pricing advantages to their customers if they see fit."

      You have it backward. That's why they don't disclose the percentages and the compensation plans unless you search for them or ask for them. Amway had no problem leaving out the details of how I would be paid.

      Delete
  5. 3rd “Is MLM marketed as well as other businesses?” – Your argument is valid but not 100% correct. MLM vs. Traditional business you can say that the traditional business can get their name out there faster and create more revenue quicker, but at what cost? Traditional businesses when starting will spend around.$.45 per dollar on advertising to get their name out. Now, let’s compare a traditional start-up to using Amway to get your product name out there. Traditionally you will be spending the most on building your locations, website, and stocking your product then the rest will be funneled to advertising to the local markets where your stores are located. Average business to start up when selling products could cost anywhere on the low end $20K to $250K+. Depends on your model and how you will be distributing the product. It will normally take that business owner to break even around 5 years if they don’t close their doors within that time. It takes around the same amount of time to really get established in the market place and be a stable in the town or online. Now, let’s say a company already has made it that far and is credible and can get this product to millions of people at once, then is when they would want to talk with Amway, therefore so many name brand companies are, they have about 3 Million IBOs globally and in US alone there are 97 Million customers that use Amway Products. Amway has a deal that if your product sells through their site then you pay Amway and Amway pays their IBOs, now that’s a great business model because you just now got your product in front of millions of customers and are on a pay for play setup which is a win-win and better way to spend your advertising dollars, that is if you can get Amway to agree to partner with you.

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    1. Anonymous said, "Traditional businesses when starting will spend around.$.45 per dollar on advertising to get their name out."

      Wow! You have a high marketing budget! I run a business and we don't spend over 10% on marketing, unless something is going seriously wrong, and according to this article (http://smallbusiness.chron.com/percentage-gross-revenue-should-used-marketing-advertising-55928.html), that's the way a business under $5,000,000 dollars a year in revenue should be operating. You are not starting this section off well.

      Anonymous said, "Average business to start up when selling products could cost anywhere on the low end $20K to $250K+."

      First of all, that is a HUGE range, and second of all, where did you get that range from? This range seems completely made up, and there are multiple sources on Google that suggests the average start up cost is near your low end of $30,000.00 a year (https://www.sba.gov/blogs/how-estimate-cost-starting-business-scratch). This would make you 0 for 2 so far.

      Anonymous said, "It will normally take that business owner to break even around 5 years if they don’t close their doors within that time. It takes around the same amount of time to really get established in the market place and be a stable in the town or online. "

      Five years to break even!? I didn't find one thing online to suggest that, and most websites seem to suggest it is more like three years, but of course it varies greatly (http://smallbusiness.chron.com/average-time-reach-profitability-start-up-company-2318.html). This would be 0 for 3, which leads me to believe you don't actually know anything about business or the law of averages.

      Anonymous said, "therefore so many name brand companies are, they have about 3 Million IBOs globally and in US alone there are 97 Million customers that use Amway Products."

      Oh come on Anonymous! Are you really suggesting that 1/3 of the American people are buying Amway products? You were already pretty far out there, but now we can say you just have your head in the sand!

      Anonymous said, "Amway has a deal that if your product sells through their site then you pay Amway and Amway pays their IBOs, now that’s a great business model because you just now got your product in front of millions of customers and are on a pay for play setup which is a win-win and better way to spend your advertising dollars, that is if you can get Amway to agree to partner with you."

      That is not how the "Amway Partnership" works. I have written about this fallacy as well (http://themlmsyndrome.blogspot.com/2016/09/amway-partner-store-con.html).

      Delete
  6. Two excellent point in your post are these:

    1) MLM is quite old, and not "the business of the 21st century." Amway dates back to 1958-59, and has roots in con-games going back decades earlier. Those useless Nutrilite vitamins were a rip-off in the 1940s, and the Amway founders got out of that racket when the FDA started investigating them for fraud. They switched over to "Amway" with its soap and cleanser products to avoid FDA scrutiny. Later, when they felt safer, they started flogging Nutrilite
    again.

    2) The strange and obstructive rules against the free retail of products in a normal manner is another sign of an MLM racket -- Amway in particular. Genuine businesses want their products to move in the marketplace to as many customers as possible in as many ways as possible. The utterly insane "rules" that Amway has against different kinds of marketing (no general advertising, no amazon, no eBay, no actual walk-in stores) only make sense when you realize that an MLM's real business is recruitment of down-line, and not selling products.

    All MLMs depend on people being stupid. Unfortunately, lots of people are.

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    1. Anonymous,

      Thank you for your comment! I hope you enjoy the ridiculous comments a long-winded Ambot left above. He is the first offical pro-MLMer and he also receives an award for being the most long-winded.

      There will be no shortage of "stupid" in those above comments!

      Delete
  7. Thanks for the blog John Doe, and the amount of comment material it managed to invite.

    As owner of an authentic business, I sense much shortage of business basics in whatever they do in MLM training, and many myths on how authentic business works. This seems to be used as perspective against which MLM is defended as being normal. Like it's "normal" for a lean business that requires no hard assets and no stock, to not show signs of profit after a year. Like it's "normal" to remain vague, mysterious yet important when asked what it is that your business does. Like it's normal to submit to a mentor who is vested in your expenses (but not bottom line). (No vested interest is normal, interest in bottom line can go - but what real business on earth would hire a mentor that is a supplier agent, and at the same time vested in {higher} expenses!!??).

    As for the 21st century title. I expected you to be grilled for your unfair sarcasm. I did not expect that premise of 21st century to be defended!

    The spectacular negative growth of the prominent MLM in the last 5 years. Is that how they ready themselves for the 21st century?

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    1. Kwaaikat,

      Thank you for your comments on my blog and other's blogs. Your comments are both intelligent and insightful, and I hope you continue to participate in future blog posts.

      The status quo for MLMers is to point fingers and say, "You're wrong" or some version of that and then not supply a rebuttal. It is the worst form of debating possible, and it only makes them look more foolish. You can't expect to be taken seriously if you aren't going to supply a point to refute the claims of another.

      The "Alternative Facts" these MLMers bring out about "Traditional Business" (Whatever that means) is astonishing. Not only is it often wrong, but they utilize these alternative facts so brazenly. They don't care to do any actual research or fact checking, but rather regurgitate the lies they were told by some other idiot that was probably told the same thing by a con-artist upline.

      I agree that it makes no sense, whatsoever, to charge your downlines for endless "teachings" in the pursuit of making more money only to handicap them by the constant expense which could be put into anything else. The amount of money they drain on the seminars, books, cds, "technology", and travel is insane, especially since there is no efficacy that any of the "teachings" will have a high return rate.

      It is like pouring water into a bucket with a hole. You keep pouring water into the bucket and wonder why it isn't full. Before you know it, you have poured gallons of water into the bucket and still have no water.

      I don't know how the overall growth/decline of MLM as a whole over the last 5 years, but Amway certainly has been struggling. It would appear that MLM as a whole is still growing and flourishing as more and more of these "companies" continue to sprout up like weeds. I'm sure if you go to the DSA website they will have plenty of propaganda and skewed numbers to suggest MLM is the greatest thing since sliced bread.

      Delete
    2. I wonder what the diamonds are saying these days? About 4 years ago, Amway had 11.8 billion in global sales and the Amway-ites were celebrating this as legitimacy. Revenues promptly declined by near double digits three years in a row. In 2016 Amway had revenues of 8.8 billion, about a 25% decline over three years.

      But reading the Amway press release you'd think everything are rosy!

      I believe they have hit market saturation and lacking new territories, their revenues will remain stagnant.

      Delete
    3. Joe,

      The focus on "Never say negative" or "Never think negative" comes to mind. I'm guessing they throw out both numbers, but they utilize them in a disjointed manner and fail to connect the dots for the prospects. It is similar to when they say Amway has paid out "60 billion in bonuses" or whatever they like to brag about.

      I would guess they could say something like, "Amway has real potential! We did 11.8 billion dollars a couple years ago and we did 8.8 billion dollars last year. There is a lot of potential to make BIG MONEY. We aren't like the other MLMs, because we have been around for a long time, have a proven concept, and most importantly we are a multi-billion dollar company!". Note, they don't actually narrate the truth that they are in decline, but rather focus on the continued billion dollar gross revenue.

      It's really frustrating and I blame the schools for not giving young adults the ability to see through the lies. It is more apparent to us because we talk about this stuff regularly, but to the masses, this is nearly impossible to identify as "alternative facts".

      Delete
  8. Amway is the dinosaur among MLM rackets, so naturally its reputation is the worst. Everyone has heard the horror stories about Amway, and that's a big reason why the company has a perpetually declining profit percentage every year.

    The other and newer MLMs have a slight advantage here. They can present themselves to prospective recruits as "something new and different," and something "on the cutting edge of the new century," or some other fatuous bullshit. And stupid people won't recognize that these con-men are simply pushing another version of the old MLM scheme.

    That's why there is a slight difficulty in the anti-MLM movement represented by many blogs, this one by Dr. Doe most prominently. If a blog (like Joe Cool's or Anna Banana's) attacks Amway, the battle is a lot easier. Amway has made so many mistakes, and has such a godawful reputation, and there are so many nightmarish anecdotes on-line about the company's greed and viciousness, that attacking the dinosaur is easy and effective.

    But a blog that goes after MLMs in general is at a disadvantage. It has to argue theoretically about the structural weakness of the entire MLM plan. And with so many of these damned MLMs popping up like mushrooms after a rainstorm, it's often hard to focus attention on any particular one.

    This blog has done a very good job of it, nevertheless. Brear's work has also been crucial and devastating. But it's nice to have an easy target like Amway to keep on hitting, even if it's a plodding old dinosaur.

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  9. Every one of my jobs ever has been in manufacturing, mostly food, but also hardware fabrication. The thing that really, really gets to me when MLM people start talking about how great MLM's are, is that they wouldn't have any products to peddle if people working regular manufacturing jobs were trying to get "21st century" work, too. Biting the hand that feeds you.

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    1. Ally --

      That's a great point! These guys act as though manufacturing and trade-work are some antiquated or ancient form of jobs and should be shunned. It makes you wonder what would happen if the people manufacturing Amway products went to an Amway meeting. Chances are, they would not be thrilled with what they would see.

      Delete
  10. Most Amway products are manufactured in Third-World shitholes, where workers are paid slave-wages. This is what allows the high retail price of Amway products, which has to be divided up among a long line of claimants.

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    1. Source? That sounds likely, but I really don't know where Amway factories are located.

      Delete
  11. An Amway website lists China, India, and Southeast Asia as production sites, but some stuff is also made in North America and Europe. The basic point is that products are made as cheaply as possible, and under unregulated conditions.

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