Network marketing refers primarily to a marketing tool used by producers to increase their sales. For successful channelization of a business, a distributor network is formed which may also be multilevel.
Manufacturers use network marketing to move their goods by using multiple distributors at different levels to widen their reach and meet customers at different levels.
Such distributors may have sub-distributors at times.
As a consequence, this leads to a distribution chain network of retailers that function at different levels.
In this post, we will dive deep into the world of network marketing, understand its structure and learn how businesses use it for optimizing their lead generations and revenues. So, without any further ado, let us get started right away.
Introduction to the Network Marketing
Manufacturers use this vast distribution network for marketing their products to clients at different levels. It helps them indirectly to attract even more customers.
Therefore, these distributors and dealers serve as the company’s official representatives.
As a result, without spending more money on traditional marketing techniques, such as advertising, the company can advertise its products widely. It is one form of business model involving a multi-level structured network of individuals selling the outcomes of a business.
It incorporates a direct selling system in which autonomous intermediaries act as commodities and work distributors. Recruiting and training other independent agents for the construction and management of their business strength promote them.
In this process, a commission is received on the agent’s operating profits and also revenue income of the agent’s hired sales force and its hires.
Often known as multi-level marketing (MLM), mobile phone marketing, or by various similar names, it is one prosperous industry that delivers virtually any portable object, although limited or prohibited in multiple countries because of its past as a consumer fraud tool.
Companies that have expertise in this field are Amway, Mary Kay Cosmetics, Melaleuca, Avon and Tupperware. Network marketing services feature a small upfront investment — usually only a few hundred dollars to buy a new demo kit — and the ability to directly sell a product line to colleagues, family, and other personal contacts.
Origin of Network Marketing
The multi-level marketing model of network marketing came into existence in the year 1945.
Carl Rehnborg invented it for boosting the sales of a supplements company named as Nutrilite. Later, his new consultants Jay Andel and Rich DeVos took the concepts of network marketing to the next level.
By adeptly using this business model, they both established a Network Marketing Company- Amway in the year 1972. From that very time, this business model kept on growing and reaching new heights.
Let us now have a look upon different types of network marketing that are quite prevalent around the world-
Types of Network Marketing
There are three types of network marketing models available, and they are-
1. Single-Tier form of Network Marketing
In this type of network marketing, you will be selling products and services of other companies without recruiting additional distributors.
You register to the affiliate program of an organization with single-tier network marketing to sell their commodities and services.
You don’t have to hire other dealers, and all of the salaries are direct sales.
One of the most famous beauty firms Avon uses marketing for single-tier networking. You are charged for bringing the traffic to the website of the affiliate in some online affiliate programs. Some examples of this networking are PPC and PPL.
2. Two-Tier form of Network Marketing
There is some recruitment involved in this form of network marketing, but the pay is not based on it alone.
For sales, you are paid and direct distribution or linked chaos from associates or distributors that you are hiring to work for you. Site Sell of Ken Envoy is one of the most notable examples of two-tier network marketing.
3. Multi-Level form of Network Marketing
This is one of the most popular types of network marketing that is quite prevalent around the world.
Multi-Level structure of network marketing is a marketing network based on a distribution that involves more than two levels.
Demand-driven contacts and driven by name contact marketing are two other forms of network marketing strategies. Many MLM services enable one to earn more than five tiers genuinely, leaving chances of hiring opportunities.
As discussed above, Amway is one of the most famous examples of network marketing. In addition to this, Magnetic Sponsoring, LuLaRoe, etc. are some of the other models of multi-level marketing.
Now after going through different types of network marketing, let us now have a look upon some critical features of network marketing campaigns-
Notable features of Network Marketing
1) Having a Hierarchal Structure
Assume that an ‘ A ‘ person has a ‘ B ‘ person behind him.
Now A will get the commission if he makes a sale, and when B makes a sale, he will also get part of the B’s commission.
Now, B is going to try to hire an individual C under him and so on to earn more money. It makes a considerable hierarchy for the system.
2) Absence of Advertising
Dependence upon the direct selling mechanism of network marketing allows the company to rely less on ads because custom communication of MLM has more power than any advertisement; there is almost no need for ads.
3) Use of Direct Sales
Network marketing companies advertise and straightforwardly sell their product and make no use of any well- defined distribution channel. The duty to market the goods is passed to the non- employed (participants) who earn their fair share of commission if they make a sale.
4) Profits for the Participants
Participants of network marketing campaigns are also networking users, and they make their profits as well because when they enter the network, they also get discounts and other enticing deals.
5) Inclusion of Selling Philosophy
This approach of network marketing inherently includes a different layer of selling philosophy for convincing target audiences. The main focus is to recruit and sell as much as possible to earn more commissions. There are no relationships. People can even trick you into buying or joining the products.
6) Independent Business Owners (IBO)
Participants are referred to as IBOs as they work as if they support their own company. These are the people who are working to promote their own business in the market.
7) Inclusion of an Unfixed Salary Structures
Network marketing is a commission-based network in which participants (not staff) are paying fees to carry out the specific task. Hence the salary structures are not fixed in this field.
8) An Accountable Framework
In network marketing, every participant is accountable for selling more number of products, as earning of each person is directly proportional to the number of items that they sell. In the commission-based network, it is everyone’s accountability to sell more products and earn more money.
Let us now understand the structure of network marketing campaigns-
Structure of Network Marketing
Firstly, to create a system of network marketing, manufacturers require multiple distributors, sub-distributors, and dealers.
Furthermore, these retailers purchase products at wholesale prices from the producers themselves. They can either use them directly or sell them for profit to other distributors.
The chain is moving on further. Therefore, retailers must end up selling products before they meet consumers or else they can become final customers.
In turn, these retailers have a chance to make some money from this marketing network.
Based on the total volume of goods they buy and sell, they can receive some commission from manufacturers. The operations of these brokers are, therefore, close to those of insurance agents.
Use of Network Marketing
For business structures that require a multi-level form of marketing, manufacturers typically use network marketing.
It is because an extensive network of retailers and sub-distributors requires these business models.
It is also handy for retailers themselves as they can make a profit from it.
Many businesses like Amway and Tupperware are linked to people who work for this part-time. Throughout the world, too, many people are distributors and work directly with producers.
Some of the significant advantages of Network Marketing are-
Advantages of Network Marketing
1) There are no restrictions on the scale of the marketing system of the network. It is because businesses will tie up to become distributors with countless people. Furthermore, distributors can further co-ordinate to increase the revenues of the product with other sub-distributors.
2) Companies do not need to rely on ads to sell their products because of a stable and efficient distribution network that directly reaches consumers.
3) The dealer system, therefore, reduces retailers ‘ profit margins, which corporations consider as a cost. Such premiums are passed on to retailers, and the businesses must not bear their responsibility.
4) Another benefit is that corporations don’t have to spend a lot of money on storage and distribution. It is because these risks end up being covered by retailers themselves.
5) Lastly, this structure enables distributors to earn unlimited revenue from their dealings with the business. We will earn income as well as incentives from their own business.
Along with these advantages of network marketing, there is the other side of the coin as well, so, let us have a look upon the downsides of network marketing-
Disadvantages of Network Marketing
Since manufacturers rely on distributors to assess consumer demand, production expectations can be challenging to predict. They can end up selling their goods under or over.
It is the distributors that promote the delivery of goods to final consumers in this form of business. In this respect, manufacturers have a limited role.
As a consequence, distribution and sales can find it challenging to manage.
Some businesses opt for pyramid structure for their business instead of network marketing, so it is essential here to understand the difference between both-
Pyramid Structure vs Network Marketing
There is said to be a pyramid structure when you get paid to get a recruit, and no product is involved.
It’s an ill practice that takes advantage of friends and family to make a person earn money. Companies with a concept of pyramid structure appear to deceive people by making them believe they can benefit in the future.
Whereas marketing on the network includes combining efforts by-product sales, it is a win-win in a scenario where consumers get what they want, and they get a fee from the participants.
Hot to start a Network Marketing Business Model
If you’re planning to start a company that will depend on any network marketing, make sure to have a strong core by having an eloquent marketing team.
It won’t be suitable for everyone who wishes to offer something; having someone passionate about your company that is not perfect to fit for the marketing team should not be considered. Marketing is crucial to any business’s success; one thing should be kept in mind that honesty and genuine sincerity for a firm or commodity is a way of self-marketing.
If your sales team’s only reward is commission, they can eliminate corners or deceive others to try to get more profit. Time should be taken to study the network marketing laws of your state to ensure that your company is regulated.
If you are not vigilant, deceptive marketing tactics and hierarchal schemes bring you in trouble with valid hot water.
So, incorporating the right strategies of network marketing is very important for running a successful MLM business.
Let us now go through some of the examples of network marketing to understand successful MLM business model-
Examples of Top Network Marketing Companies
1) Amway Network Marketing
Amway is one of the most popular Network Marketing models. Being a direct selling company, Amway sells products of around $9 billion.
Now, Amway is spread in more than 6 continents and 100 countries. It incorporates 1000 scientists and more than 17000 employees. It is involved in selling around 450 products across the globe.
2) Oriflame Network Marketing
Being a top-level Swedish Network Marketing, Oriflame is spread around 62 countries.
In the year 2017, the revenue of Oriflame was $1.6 billion. Its MLM business model gets revenues from Skincare, Cosmetics, and Perfume sorts of products. Anyone can join the network marketing model of Oriflame just by paying the onetime fee.
3) Nu Skin Network Marketing Business
Being one of the top-rated anti-aging companies, Nu Skin is spread in more than 55 countries around the globe.
With the help of the MLM model, Nu Skin makes a revenue of $2.5 billion and incorporates more than 5000 employees. The company shares 43% of its revenue in sales commission to its participants.
Network Marketing Wrap Up!
So, that was all about the network marketing concept, and we hope you would have understood why network marketing is one of the most productive business models for those who want to use multi-level marketing for optimizing the reach, lead generations, recruiting and conversions for their businesses.
Network marketing is also quite apt for those who want to join a business framework as a distributor to make extra income.
How important do you consider the network marketing business model in today’s time? Share your views with us in the comments.