What is Network Marketing?

What is Network Marketing?

Network marketing is a lot like what its name suggests. Sometimes called direct marketing, it’s a business model that utilizes networks to advertise, distribute, and sell products and services. Network marketing doesn’t use a middleman; instead, manufacturers use independent distributors to promote products directly to consumers using the distributor’s own expense. Thus, companies eliminate the need for:

  • Advertising costs
  • Building and training a sales force
  • Overhead costs

There’s a bit of confusion between network marketing and multi-level marketing, and most references use the two terms interchangeably. There is actually a significantly thick wall between the two. Multi-level marketing (MLM) is a branch of network marketing, but it’s much more elaborate. In MLM, each sales agent is allowed to create and train their own team of distributors, thus creating tiers of sales personnel.

Examples of businesses that employ the network marketing model include:

  • Real estate companies
  • Insurance firms
  • Health clubs

It is often companies with products and services that are personal in nature that uses this business strategy. Financial services and insurance are two types of products that consumers tend to purchase through recommendations from friends and family.

How Network Marketing Works

Multilevel marketing (MLM), cellular marketing, affiliate marketing, consumer-direct marketing, referral marketing, and home-based business franchising are examples of network marketing.

Instead of paying a sales force with salary, manufacturers pay distributors in the form of bonuses and commissions. This setup allows companies to save a lot of money that other companies would have spent on advertising and operating expenses.

On the salesperson’s end, products and services don’t have to be marketed through traditional advertising channels. Goods are promoted to a network of friends, acquaintances, relatives, neighbors, colleagues, and even strangers who might be interested in the offerings. The distributors’ job is to recommend products to target customers, and if prospects decide to buy, the distributors get paid.

Advantages and Disadvantages of Network Marketing

Overall, network marketing is a win-win for all the parties involved. Manufacturers save money from the reduced overhead costs and risks; independent sales agents have a source of income from the sales they make; consumers acquire products with the value that have been recommended to them without highly decorated advertising.

There is, however, some stigma associated with network marketing, especially for multi-tiered companies, since the top salespeople make impressive amounts on commissions from the salespeople below them. There will be a significant difference in earnings for those in the lower tiers. In order to make money, the company sells expensive starter kits to new recruits.

With a modest investment and a lot of energy, anyone can start a profitable network marketing business.

Generally speaking, the Federal Trade Commission (FTC) advises against multi-tier schemes in which people make money based on the number of distributors they recruit. Compensation based on actual sales to actual customers tends to be more reliable.

Should You Join Network Marketing?

Network Marketing is not for everyone. At the end of the day, 97% of Network Marketers fail.  Unless you’re willing to be in the 3%, network marketing isn’t for you.

In contrast to a job in which you earn respect from society, it is unlikely that people will respect you building a Network Marketing business.

In order to get that signup, you’re highly likely to find it stressful to chase your friends and family, unless you switch from Desperation Marketing to Attraction Marketing. 

90% to 97% of those you share your business with will reject you, some will ridicule you, and some will lose your friendship. If you talk to 100 people and only 3 say yes, how would you feel?

As for the people who say yes to you, they won’t take the business seriously. It will be a big burden for your business to deal with them.

Can You Make Money With Network Marketing?

It’s not likely that you can make money with network marketing. A Network Marketer will sponsor 2.2 reps over the course of their career, which is 93 days on average. It is highly likely that you won’t last more than 93 days. The average weekly income of a network marketer is less than $10. You’ll make less than $10/week unless you join the 10%.

Those who make money in the Network Marketing profession are Leaders. Warriors, they are. Action-oriented people. You have a very small chance of making it in this profession unless you join the leadership club.

As opposed to a job where you earn wages, Network Marketing pays you based on how much money your company makes. Your 30 hours of advertising and promotion will mean nothing if they don’t buy your products.

It is not the case in Network Marketing companies where you feel secure getting your income every month/week no matter how much money they make. It is possible to earn $600 this month and not receive any money next month.

Examples of Network Marketing Programs

Tupperware

Tupperware Brands Corporation, formerly Tupperware Corporation, is an American multinational multi-level marketing company. Its main focus is a kitchen and household products, and it is particularly known for its line of plastic containers for food storage and preparation.

Avon

Avon is a global beauty company that celebrates innovation, honesty, inclusion, and beauty. The company is one of the largest multilevel marketing companies in the world. Natura & Co, a cosmetics company that also owns The Body Shop, purchased Avon Products, Inc. in early 2020.

Herbalife

Herbalife Nutrition Ltd. is a global multi-level marketing corporation that develops and sells dietary supplements. In 1980, Mark R. Hughes founded the company, which employs approximately 9,900 people worldwide.

Amway

Amway is an American multi-level marketing company that sells health, beauty and home care products. The company was founded in 1959 by Jay Van Andel and Richard DeVos and is headquartered in Ada, Michigan. Amway and its sister companies under Alticor had sales of $8.4 billion in 2019.

Is Network Marketing a Pyramid Scheme?

There are some important differences between network marketing and multi-level marketing programs. It is true that those who are able to recruit more members into the program are often able to benefit from greater residual commissions, but network marketing is a legitimate and legal business model that provides real products and services.

On the other hand, pyramid schemes are scams. The products they sell can resemble legitimate MLM business opportunities and may even be ones you are already familiar with. Pyramid schemes can, however, cost you and your recruits a great deal of time and money that you will never get back if you become distributors.

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