What Is Network Marketing?
Network marketing, also called multi-level marketing, is a business model that includes a pyramid network of people who sell the company’s products.
In this network, participants are usually paid on a commission basis. That is, people in this network receive a commission each time they perform a specific task, such as selling a product or their recruiters sell the product.
Simply put, this model is based on pyramid structure. Unpaid participants are paid whenever someone sells under them in the pyramid.
Structure Of Network Marketing
First, manufacturers need several distributors, sub-distributors, and dealers to create a referral marketing structure. Secondly, these distributors buy goods from the manufacturers themselves at wholesale prices.
They can either use them personally or sell them to other distributors for a profit. This process is still going on. Distributors, thus, will eliminate marketing materials until they reach their customers, otherwise, they can become end-users themselves.
Also, these distributors have the opportunity to make some profit from this marketing network. They can get some commission from the manufacturers based on the total quantity of goods they buy and sell. Therefore, the work of these distributors is similar to that of insurance agents.
How do Network Marketing works?
In network marketing, companies first recruit a group of salespeople who are passionate about their products. Instead of paying them a salary, the companies offer to sell the product at a discounted price and encourage them to sell it to others throughout the market.
Whatever they do with these sales goes straight into their pockets. Many of these sellers or distributors recalculate their earnings to buy more products, and they sell to more people, thus increasing their revenue.
In addition to encouraging companies to go out and sell products, companies also encourage their distributors to hire new distributors themselves. As a result, they will receive a small percentage of each of their recruits’ sales.
Network marketing is also known as referral marketing because these recruitments are referred to the company through primary distributors.
It doesn’t stop there because recruiters are also encouraged to recruit “online“. Finally, all distributors are also actively encouraged to convert, especially enthusiastic customers.
Therefore, an independent distributor working in network marketing generates an income from a combination of their sales and the salespeople they recruit. Meanwhile, the company is making a profit by selling its growing distributor network and spending less money on marketing.
Advantages of Network Marketing
- Exactly on the size of the referral marketing structure there are no limits. This is because companies can contract with countless people to become distributors. Also, distributors can set up co with other sub-distributors to increase the company’s sales.
- Because of a reliable and strong distribution network that engages consumers directly, companies do not have to rely on advertising to market their products.
- The distributor structure also reduces retailers’ profit margins, which companies see as an expense. Distributors also get a part of this margin. As a result companies do not have to bear the burden.
- Another advantage is that companies do not have to spend a lot of money on storage and distribution. This is because the distributors bear the cost themselves.
- Finally, this structure allows distributors to earn unlimited revenue from their dealings with the company. They can earn profits as well as commissions.
Disadvantages of Network Marketing
- Because manufacturers rely on distributors to determine consumer demand, it can be difficult to predict production targets. They can store under or under their products.
- In this form of business, they are primarily distributors who facilitate the delivery of goods to end-users. Manufacturers have a limited role to play. In this way, it is difficult for manufacturers to control distribution and sales.
Types of Network Marketing models
There are three types of networking models. Let’s discuss these types one by one.
Single-level referral marketing is very simple, you sign up for the program, then you start selling the company’s products or services and earn your commission based on your sales. However, you do not need to hire another sales agent to work for you. All you have to do is focus on your sales and customer relationship building.
Double-tier or two-tier network marketing requires recruiting others from your members. In this model, you get paid both ways. Either you directly sell products or services, drive traffic to your website, and recruit other members.
3. Multi-Level Marketing
As the name suggests, Multilevel Marketing (MLM) involves two or more levels and is based on a distributed marketing network. MLM allows its members to earn money when the rank is five or more times deeper and recruits.
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