Network marketing means a business model of face-to-face selling by independent representatives, frequently working in the remote mode. A strategy may contemplate establishing a network of close associates or salesmen, who assist in a lead generation and deal’s completion.
There are lots of approved network marketing procedures. Anyway, some of these operations have become recognized as Ponzi schemes. These financial pyramids focus on hiring vendors and claim for an anticipation payment.
Operating principle of Network Marketing
A network marketing has alternate names, for instance, multilevel (MLM), cellular or affiliate marketing. Enterprises, using the network marketing approach, establish a grading system of sales managers. Higher personnel generate commission for their own vends and at the expense of invited participants. As time goes by, the number of levels can multiply, bringing top and middle workers more profit.
In other words, the income of employees is conditional on sales and hiring other participants. Those who joined earlier, earn more profit.
Of course, a network marketing has its own key points. The main aims are:
- Improving the profit distribution of the manufacturing company.
- Improving the product delivery system.
- Providing customers with quality, genuine products.
- Pricing optimization.
Note: according to the FCC, a single-level network marketing shows more performance than multilevel systems, where the profit is derived from the number of distributors.
Pros and cons of Network Marketing
A network marketing as a type of business has been developing quite rapidly. Indeed, to carry out these activities, a store isn’t needed, and goods are sold by agents, who are actively engaged in product retail sales.
Let’s consider the positive sides of network marketing:
- Absence of restrictions on making profit. Earnings in a network marketing completely depend on the agent's activity and desire. The more the person attracts new members and customers and makes sales, the higher the income.
- Gaining financial freedom. Those who are engaged in a network marketing are not dependent on the employer. A person decides the pace of work and the strategy.
- No need for initial capital. There is no necessity in financial resources to start a successful business. At the same time, the risk of failure is minimal as a responsibility lies on the shoulders of the whole team.
- Receiving recurring revenue. As time goes by, a network marketing provides an opportunity for passive income. Of course, it can’t be put into practice without developing a distribution network. Then, a person is able to receive well-deserved dividends.
Despite the numerous positive characteristics, a network marketing is not complete without negative aspects. The main disadvantages are:
- Unstable earnings. In the beginning, entering the business contemplates little income. Usually, networkers with leadership skills achieve success.
- Taking responsibility. A network marketing assumes that the participant must take assistants and organize their training. So that moral responsibility for results and experiences is entailed.
- Buying products. Often, the network enterprise sets conditions for the participants, where they are obliged to buy the goods at their own expense. These expenses may sometimes outweigh the income, especially at the initial stage.
- High level of competition. A network marketing presents a variety of distributors, so finding customers is becoming more and more difficult.
Network Marketing as a pyramid scheme
Although a network marketing is blamed for being similar to Ponzi schemes, there exists several critical differences.
The working principle of the financial pyramid is to constantly receive funds from its participants. The main distinction between a network marketing and a pyramid scheme is that the first one is based on a specific product that needs to be promoted, while the second focuses on the participants' money.
Network Marketing in real life
The main components of a network marketing are sourcing potential customers, tracking inquiries from interested parties, and selling products to potential customers. In this case, independent agents act as distributors. The enterprise encourages retailers to build and manage their own agency network by searching, attracting and training other independent partners.
A case in study for this type of business can be the following companies: Amway, Avon, Oriflame, Mary Kay, Tupperware, Herbalife, etc.
Prospects of Network Marketing
Today, a network marketing is considered one of the most progressive and effective ways to sell goods and services. Experts claim that enterprises practicing the principles of a network marketing will have a huge success.
The prospects of this direction are quite large. Anyway, the development of a network marketing on the Internet deserves special attention. The implementation of this approach online gives a wide audience coverage and allows networkers to function directly with interested parties. An important advantage is the automated work. At the same time, there is high turnover and competition.
In general, it is fair to say that a network marketing opens up prospects not only for product sale, but also for the earnings of the manufacturers and agents.