What is Network Marketing?
Network marketing (also known as multi-level marketing) is often wrongfully associated with the pyramid structured schemes but its functionality is a little different from pyramid structure organizations.
It is a direct selling method where the company’s products and services are sold by the group of independent salespeople, these people create and manage a link or chain by recruiting and training others. It means every time a sale is made, all the upper-level chain members get their commission out of it. The interesting thing is that those sale people aren’t employed on a salary basis; sale personals earn money
- Either by direct selling or sale made by other members
- Or recruitment of new members & making the chain bigger, the longer the chain is, the more money you’ll earn.
How Network Marketing Works?
There are many names for network marketing; for instance, affiliated marketing, cellular marketing, direct-customer marketing, referral marketing, home-based business franchise or multi-level marketing.
Mostly networking marketing business model creates different types of tiers such as, single tier, two-tier and multi-level marketing.
Now, we’ll discuss types of network marketing with examples.
Single-Tier Network Marketing
Single-tier network marketing is very simple, you sign up for the program, then you start selling the company’s products or services and get your commission based on your sales. However, it doesn’t require you to recruit other sales agent to do the work for you. You just have to focus on your sales and customer relationship building.
Betterware, Kleeneze, Avon, beauty cream company follows this single-tier marketing. Some online platforms also follow the single level marketing where you drive traffic into their website and get paid like pay-per-click (PPC), or pay-per-lead (PPL).
Two-Tier Network Marketing
Double-tier or Two-tier network marketing requires from its members to recruit others. In this model, you get paid both ways; direct sale of product or service (or bringing traffic into their website) and recruitment of other members to work under you. Ken Evoy Site sell is a very good example of two-tier network marketing.
As the name implies multi-level marketing (MLM) involves two or more tiers and it’s based on the distribution marketing based network. MLM allows its members to earn money when the tier is five or more times deep and there some other incentive for recruitment. It has two other types of network strategies like name-driven network marketing and market-driven network marketing.
Characteristics of Network Marketing
Some of the important characteristics of network marketing are as follows;
Even though we’re living in the 21st century, the age of information & technology, still the cost for starting, running and managing a business is very high like taxation, registration of a new business, monthly overhead, documentation, administrative expenses and so on.
On the other hand, the initial cost for network marketing business is very low as compared to the other regular type of businesses. Even starting a business with a very low budget through this model, you can compete with the other global multibillion-dollar businesses like McDonalds. Amazing, isn’t it?
Time flexibility is the most important feature of the multi-level marketing business. It starts with the part-time business while you keep focusing on your full-time job. Time flexibility provides you an opportunity to learn and grow while keeping your financial side secure until your business is fully established.
A team comes when you’re in a position to quit your full-time job. People with families and having no business experience use this approach. They become very successful businessmen with the passage of time.
Having said earlier that network marketing is a non-salaried based business, which means the more you contribute, the more you’d earn. It’s a platform that trains people to be self-accountable of their own performances.
Like many other business, product goes through a chain of distribution and then finally reaches the consumer.
Through this model of network marketing, there’s no channel involved, sellers are non-employed people who receive their commission when the product is sold over time.
The hierarchy of network marketing is very systematic. Like you’d only receive your commission when you recruit a new member who will work under you. However, the new member would only get his commission, the same way when he would also recruit other people. That’s how a link or chain is established and system of hierarchy is developed.
The functionality, hierarch, and channel of distribution of every business is different, which takes so much time to learn and set up your business.
The system, plan and everything of network marketing model is laid out; you just have to focus on the marketing part of selling product. The better marketing strategy you adopt, the more you’ll learn.
Even better than that there are network marketing companies that help you to start your business, however, they also provide you the guideline and leadership every step of the way. Initially every business needs such help what they provide to move in the right direction; which consequently minimizes the risk to a great extent.
Examples of Network Marketing
Amway is a short form of ‘American Way,’ a global American company; it’s been in the direct selling and MLM business for the past 60 years with the estimated revenue of 8.8 billion US dollars. Its products are beauty creams and cosmetics, medicines and home care. Amway hires and works with affiliated companies to conduct its operations and it’s been doing it in more than a hundred countries.
Amway calls its distributors independent business owner (IBO), these IBOs get their commission through personal sales and the retails mark up given by the company, plus performance bonuses on achieving the company’s targets. Harvard Business School calls Amway as one of the most successful direct selling and MLM companies in the world.
Avon is also a direct selling and multi-level marketing company with estimated annual revenue of 5.5 billion US dollars worldwide. It is 133 years old and it sells products in the category of personal care, beauty, and household items.
Avon recruits its sale personals and trains them for door to door direct selling; the sale members are called ‘Avon ladies’ and ‘Avon men.’ According to an estimate, Avon sales members are 500 to 600 million people across the world in more than 100 countries.
Image by Pete Linforth