Network marketing relies on individual distributors who market and sell a product to their network of friends, relatives, and people they know or meet. The distributors make money through commissions on the products they sell. Often, they\’re not employees of the company. But rather independent contractors. It most times, also involves recruiting other individual distributors and earning commissions through their registration.
The Network Marketing Business Model is a model that relies on a network of distributors to grow a business. there are many known types of network marketing but the most popular of the types is multi-level network marketing.
Key factors in network marketing
Companies that follow the network marketing model often create tiers of salespeople—that is, salespeople are encouraged to recruit their networks of salespeople. The creators of a new tier (or \”upline\”) earn commission on their sales and on sales made by the people in the tier they created (the \”downline\”). In time, a new tier can sprout yet another tier, which contributes more commission to the person in the top tier as well as the middle tier.
The second major factor identifiable in the Network marketing business model is the lead generation characteristics. Lead generation is the ability to search out and identify new customers who may be interested in the company\’s product. There is no business that thrives without lead generation. These leads are generated and managed into becoming customers in the long term. No business in the global sphere survives without lead generation and making sales.
Characteristics of Network Marketing
Direct Sales:- This system bypasses the procedure of looking for distributors or promoters of a company\’s products. These direct-selling agents reach deeper destinations while getting paid commissions.
Selling Philosophy:- Distributors\’ main aim is to sell an idea or product as much and as many as possible because their earning power depends on that. It\’s a motivator.
Hierarchy System:- To increase profits, distributors frequently have sub-distributors reporting to them. It enables them to receive a commission from the producers as well as profit when the sub-distributor makes a sale. Furthermore, sub-distributors can have sub-distributors beneath them to earn in the same manner, creating a tiered structure.
Advantages and Disadvantages of Network Marketing Model for companies
1. The network marketing structure has no limitations in terms of numbers. It provides an opportunity for the reduction of unemployment.
2. It reduces the possibility of the company\’s excessive expenditure. In the corporate world, companies most times overpay lazy employees but it is not so in network marketing.
3. Companies no longer need to rely on advertising to bring their products to market because of a constant and powerful distribution network that directly draws buyers.
4. There is no need for the corporation to invest heavily in distribution or storage. This is because distributors bear all of these costs on their own.
5. There is no limit to the income potential of the distributors. And they can have the freedom to venture into other business endeavors of their choice.
Disadvantages of The Network Marketing Model
1. Manufacturers are finding it harder to forecast production objectives. It\’s because they rely entirely on wholesalers to manage client demand. It may result in product overstocking or understocking.
2. If not managed properly, the company may lose the trust of the distributors who will influence customers. Because customers have access to the company through the distributors, they believe them more than the company which is different from the traditional business structure.
As seen above, the network marketing structure is the new system of business and every business should do well to adopt this business model.