A business model which emphasizes peer-to-peer transactions by autonomous agents, usually operating from their homes. A network marketing corporation might expect you to develop a system of trade allies or associates to support lead creation and concluding transactions.
There are a number of legitimate web retail services, but many have been branded as pyramid schemes which makes them unreliable in the eyes of a layman. A pyramid scheme is also a type of network marketing; however, it concentrates more on getting more sales agents than actually selling. This means that pyramid schemes focus on the recruitment of salesmen for recording a greater number of transactions rather than on direct selling. This may require agents to pay certain agency fees or make an upfront payment. In many cases, the agent may also be asked to buy expensive starter kits.
Salient Features of Network Marketing
Network marketing solicits energetic and driven persons who possess sound selling and marketing skills. By getting such people on board, it is possible for companies to build a lucrative business even with a small investment.
A network marketing company may be a one-tier model, in which all products are sold or a multi-tier model where additional people are recruited in each team. It is important to be wary of network marketing companies that have several tiers of sales representatives. certain network marketing companies also ask applicants to buy costly merchandise or tutoring material to start with. It is important to thoroughly research such companies before entering into business with them.
How Does Network Marketing Work?
Network marketing is identified by a number of titles, comprising names such as:
- a) Multi Level marketing (MLM)
- b) Cellular marketing
- c) Affiliate marketing
- d) Consumer-direct marketing
- e) Referral marketing and also
- f) Home-based business marketing
Companies that employ such network marketing models frequently build multiple layers of salesmen in which the sellers are prompted to establish their own networks by recruiting more salespeople under them. In this model, the agents are paid a commission on recruiting new people as well as on the sales made by them. It is also interesting to note that in this type of marketing, the salespersons also earn a commission on the sales made by the persons recruited by them. In course of time people recruited by them may recruit more people under them, who further may recruit more people, therefore helping them earn a commission on every sale made by people in these tiers under them. This is the high profit-making characteristic of network marketing. Thus, the profits of sellers are influenced by recruitment as well as merchandise sales. Representatives who were the first few to join often made the maximum profit.
The Downside to the Network Marketing System
The biggest problem of the network marketing system is that because the profit distribution and commission paid to the representatives depends partially on the seniority of the representative and on the layers of sellers under him, many sellers earn a hefty amount even without making a single sale whereas other newly recruited agents may manage to make only a modest profit. Therefore, many financial agencies have warned people against such multi-level marketing companies.
It is also a fact that most dishonest and quick money-making schemes floated by individuals with dishonest individuals have been launched under the garb of multi-level marketing schemes. Single-tier network marketing operations have a better reputation when it comes to network marketing opportunities.
What Is Network Marketing; The Advantages and Disadvantages of Network Marketing
Over the years, due to several Ponzi schemes have launched under the name of network marketing, there is an obvious the stigma associated with networking marketing.
This is also especially true for businesses with multiple layers. these schemes are often characterized as pyramid schemes. Therefore, in these schemes, the salespeople are able to earn a considerable amount of commissions simply from the layers of agents below them. The people in the lower layers have much less earning potential. Therefore, these schemes are regarded by many to be absolutely unfair and non-transparent.
After understanding what network marketing is, it is only natural to be extremely wary of such business models that have several layers of agents. Apart from being unfair and prejudicial, these business models are also characterized by a severe lack of transparency and accountability. Often the system of receiving payments can also take a long time due to the pyramid structure of the networking companies. It is important to understand that profit made from a sale will first be paid to the ones on top of the pyramid and then to the agents who are at the bottom of the pyramid. This can take a long time. For this reason, there is usually a huge attrition rate in companies that employ this marketing system.
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