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What is Network Marketing? It's Pros, Cons With Examples

Shalom Solomon

In the business sector, there is the pivotal pillar of marketing. Marketing is a component of business that is determined by the type of the business, it's target audience, it's goals and objectives.
There are various models or strategies of marketing, which can be used alone or in conjunction with other compatible marketing strategies. It is best practice to adopt as many marketing strategies as you can afford. Key word is to adopt those that you can afford both financially and with human capital too. 

Examples of marketing strategies include:
  • Digital marketing
  • Authority marketing
  • Content marketing
  • Network marketing
  • Affiliate marketing, and so many more.
The above listed strategies have proven over time to be effective marketing strategies. Though, our focus would be Network Marketing.

What is Network Marketing?

I'm sure you've probably heard about network marketing, worked for one or bought products from one.
Network marketing is a multilevel marketing strategy where a company recruits an independent workforce of passionate sales personnel. The recruits are known as distributors and are not payed salaries. The distributors sell the company's products through direct sales and in some cases are allowed to recruit their own distributors known as down lines.

How it Works

Basically, in Network marketing there are tiers or levels on a pyramid. At the top of the pyramid is the company or business owner. The next level is the first tier which constitutes the top distributors who have other (tiers) distributors under them (downlines)

How Do You Earn Money?
A distributor for a network marketing company earns money via two ways:
1. From the direct sale of products
2. From commissions gotten from recruits

Types of Network Marketing

1. Single Tier Network Marketing
This model of network marketing has only one level of distributors. They buy the company's products at a discounted price and sell directly to others. 
Most single tier companies train their distributors before giving them products to sell. This form of network marketing is a bit similar to affiliate marketing. 
An example of a single tier marketing company is Mary Kay Inc.

2. Two Tier Network Marketing

The two Tier model has only two levels. The top distributors are the only ones allowed to recruit downlines. 
They earn from making direct sales and from commissions from their downline sales.

3. Multi-level Tier Network Marketing

This model of network marketing, the network has as many as three or more levels. Each level can and is encouraged to recruit more distributors who become downlines
Every distributor can therefore start their own network and earn commisions from their downlines.

The Pros and Cons of Network Marketing
Network marketing like every venture has its pros and cons. Both for the business owner and the distributors.

The Pros

1. Good Profit
Does network marketing yeild good Profit? Yes, but mostly for the business owner and top distributors. As a distributor, if you have a large enough network (downlines), you can make millions off a network marketing business. 
A lot of people have made millions of dollars off network marketing, currently, the top earner from network marketing globally is Igor Alberts & Andreea Cimbala under DagCoin - Success Factory. With an estimated annual income of $21,600,000.

2. Independence

This particular feature is one of the major selling points of network marketing companies. Distributors have total Monopoly over the sales process and are not bound by salaries. 
They earn when they sell products or through commissions from downlines. Also, there is flexibility of work hours, you decide when you want to work or not.

3. Bonuses and Commissions

While you recieve commissions from the sales of your downline, there is also the benefit of bonuses.
Multi-level marketing companies award bonuses to distributors who have reached certain requirements. 
It might be amount of products sold, amount spent on buying inventory, number of recruits, and so on. The requirements for bonuses vary from company to company. 
The bonuses might be higher discount or commission percentage, gifts, cash gifts, cars, paid trips, etc.

The Cons

1. Low Profit Margin
Yes, network marketing yeilds profit but it yeilds profit majorly for the business owner and top distributors. 
The bottom level tiers especially for multi -level network marketing work for a tiny profit margin that may not even cover for the investment and expenses made by the distributor. 

2. Pyramid Scheme

Though most network marketing businesses start out as reputable businesses with products that sell. 
Some, might end up as pyramid schemes where income is generated solely from recruiting new members. 
Which is definitely bound to crash once there are no new recruits. And the people that lose the most would be those at the lower levels.

3. Registration and Training Fee

Almost every network marketing company would require new members to pay a certain amount either for training, or buy a certain amount of products. 
Mary Kay for instance requires their new members to buy a starter kit worth $69 for instructional purposes, which means they can't even sell the products.

4. Competition

Network marketing encourages distributors to recruit new members or downlines and expand their network. 
While this is good, as the bigger the network of a distributer, the higher the commission payed. But, when everyone around you becomes a distributor;
"who will buy the products?"

Examples of Network Marketing Businesses

Some very popular and good (though some have been sued a number of times) examples of Network marketing businesses include:

1. Amway
Amway is one example of a network marketing business that has been sued more than once for a myriad of legal issues, mostly fraud. 
Amway is a network marketing company founded by Jay Can Arnold and Richard DeVis in 1959. It primarily sells health, beauty and home are products through its distributors. It is head quartered in Ada, Michigan.

2. Mary Kay Inc.

Mary Kay is a popular networking company if not for it's network then, for it's beauty products. It is considered the sixth largest marketing business in the world.
Mary Kay was founded by Mary Kay Ash in 1963. It mainly sells beauty and skin care products through its distributors who they refer to as Beauty Consultants.

3. Oriflame

Oriflame is quite popular in Nigeria and online too. It was founded by two brothers, Jonas and Jochnick, Robert af Jochnick and Bengt Hellsten.
The company's primary products are mainly beauty and personal care products such as deodorants, perfumes, body creams and lotions, etc. It is head quaretd in Switzerland.

Finally,

These are just a few among many examples of Network marketing companies such as Longrich, Tasly and so many others. 
While basically, Network marketing is a viable and legitimate business model, it is often used as a cover for pyramid and ponzi schemes. 
As a result of this, this model of marketing and business is banned in some places such as China and Dubai. Some companies have found a way around the ban by connecting to distributors and recruits online. 
So, before joining or signing up for any network marketing business, do proper research and confirm that it isn't a Pyramid scheme so you don't lose out on the end.

Thanks for reading :-)

Comments

Jhon Doe

- 20 October, 2018

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Jhon Doe

- 20 October, 2018

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