What Is Network Marketing? Isn’t It A Scam?

Fear not, this is not going to blog post telling you how great my company is, my product is or why you should join under me. It’s going to be short, simple, informative post about network marketing.

A little history of it, I guess most of you guys have heard of Amway, the number one network marketing company in the world. They are the experts in selling household products, skin care and even health products.

I guess many people will start saying things like, “oh, it’s another pyramid scheme.” or “no, this is something bad, let me get out of here.” Feel free to leave. Or remain open minded and see why this model works.

Firstly, I don’t see it as an industry. Yes, there are many companies using this model and start out using this business model to succeed. I see it as another form of business marketing model. Let’s start off simple, without taking the Internet into the picture first.

A traditional business model will always start off from the raw material, the very first stage. After getting all the raw material required, it will be pass over to the manufacturer. Let’s make it simple, I’ll draw a simple process below.

Manufacturer
Producer
Wholesaler
Distributor
Retailer
End User

Basically, what happens is that the product is been priced up after passing on down the next line of distribution, when it finally reaches the end users which are the customers. So as the end users, we have to bear all the cost of transportation, production, packaging, research. From retailers to customers, especially, there is a large amount of funds being used in advertising.

What happens when the company which uses network marketing as its business model?

It will be able to eliminate or reduce advertising cost. And depending on the company, it may choose to bring in the final product or produce it from the R&D stage.

By eliminating or reduce the distribution line, the company will be able to distribute the products through its distributors or affiliates to the mass public at a lower cost. At the same time, the distributors or affiliates will be able to earn a higher commission.

Manufacturer
Producer
Wholesaler
Distributor
Retailer
End User

You may wonder why they are selling the same items, skin care, health products, household products, kitchenware. I believe the primary reason is that, they are smaller ticket items and they can be sold over and over again, thus giving recurring profits to these sales people, or what is called residual income.

Of course, when you are looking for a network marketing to join, always look at these 5 factors:

Industry. Like I say, network marketing is not an industry, it’s a business model that works something like a pyramid shape. But take a look around you, it’s the same. One boss, a handful of mangers and a large group of employees, yeah, they are doing pyramid scheme as well, just kidding.

If you are selling health products, then you are in health & fitness industry. So knowing what industry you are in will let you know the trend for it, the demand and whether is it profitable or not.

Company. How long has the company been around? Usually, around 97% of the businesses fail after the 5th year, and out of them, lesser will survive till the 10th year. So find a company that has a proven track record or if you are joining a new company, check out its business plan and the industry it is targeting. Do some research yourself before joining.

Product. What are they selling? How do they deliver the products to customers? Are they in demand? From a customer’s point of view, will you buy the product yourself? Are you able to sell it without a guilty conscience? Are you able to establish a strong marketing plan?

Compensation Plan. Do take note some companies are giving out amazing compensation plan that seems too good to be true. Are they re-investing back their profits into R&D or a larger portion of it goes to marketing and sales? Find one that you feel that you will be able to understand and able to share with others easily.

Support System. Customer service, back end, technical issue, all these have to support well. If not, you will get customers who only made one time purchase. What you want is to create is a long sustainable business with this company as well as your customers. That’s why it is also called relationship marketing.

What I’ve done is only a brief information about network marketing in its primary form. The world is changing so rapidly now and you know internet marketing is becoming a phenomenon as well.

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Hope you enjoy reading, don’t forget to leave some comments. =)

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