Network marketing, also known as multi-level marketing, is a business model which involves a pyramid structured network of people who sell a company’s products. The participants in this network are usually remunerated on a commission basis. That is, people in this network get commission every time they perform the specified task, like –
- Make a sale of a product.
- Their recruits make a sale of the product.
In simple words, this model involves a pyramid structure of non-salaried participants who get paid whenever they or a person below them in the pyramid makes a sale.
In this system, consumers are the participants. Their family and friends are their customers, and this cycle goes on.
Characteristics Of Network Marketing
Network marketing organizations sell their product directly don’t make use of any well-defined channel of trade. The responsibility to sell the products is transferred to the non-employed individuals (the participants) who get the commission everytime they make a sale.
Independent Business Owners (IBO)
The participants are called IBO as they work as if they are promoting their own business.
This model involves participants to use the selling philosophy of marketing. The main focus is on recruiting and selling as much as you can to earn more commission. No relationships are built. People may even trick you to buy the products or to join them.
System Of Hierarchy
Suppose a person ‘A’ has a person ‘B’ under him. Now ‘A’ will get the commission whenever he makes a sale and also a part of commission when ‘B’ makes a sale. Now, to earn more money, ‘B’ will also try to recruit a person ’C’ under him and so on. This makes the system a big hierarchy.
Less Or No Advertising
Dependency on direct sales helps the organization to rely less on advertising as personalized contact have more convincing power than advertisements.
No Fixed Salaries
This is a commission based network where participants (not employees) are paid commissions to perform the specific task.
Everyone is accountable only to himself. The more he sells, the more he earns.
Benefits To The Participants
Participants are also the consumers of the network. Hence, they also get discounts and other attractive offers to when they join the network.
Examples of Network Marketing
Amway – been in business for around 57 years now, this company is one of the biggest example of a successful MLM/network marketing company.
Other companies that use network marketing model include – Tupperware, Nu skin, Juice Plus, etc.
Difference Between A Pyramid Structure And Network Marketing
Pyramid structure is said to exist when you get paid to get a new recruit and there is no involvement of any product. It’s an ill-practice which makes a person earn money by taking advantage of his friends and family. Companies having a pyramid structure model tend to deceive people while making them believe that they’ll earn in future (which they do by deceiving more people). For e.g. a person will be asked to pay $100 to be a part of the company with a promise that he’ll get 25% of every new recruit’s admission fees who he refers. This is a money making strategy of the company where the participants are at a loss.
Whereas network marketing involves multiplying efforts by selling of products. This is a win-win situation where the users get what they want and participants earn a commission.