Network marketing is a business model by which a company distributes its products or services through a network of independent distributors using direct selling. The other terms for network marketing are multi level marketing or referral marketing. Network marketing is yet another form of sales and distribution.
How does it work?
Networking marketing works just like franchising. In a franchise, a business owner pays a company a sum of money and then he acquires the right to distribute that company’s products or services using the company’s name. The company in turn supports the business owner by providing the necessary training and marketing services. So while the name of the business belongs to the company, the business is privately owned by an individual.
In network marketing, a company distributes its products by the use of independent representatives who are paid a sales commission based on the volume of products or services that they sell. Network marketing makes use of independent representatives to reach potential customers that a company would not be able to reach with the traditional methods of marketing.
In networking you share information and develop contacts with people. You are then paid for sharing information which translates into product sales. Network marketing enables you to build your own networking business from your personal contacts. It also enables every one of your contacts to do the same. This results in the exponential growth of your network. You earn income from your hard work as well as the hard work of your network of business partners.
While in traditional companies there is one CEO at the top, in network marketing everyone is the CEO of his/her own independent networking business.
A network marketing company supplies products/services. They then partner with a network of independent representatives; each of them in business for themselves. The company takes care of the finer details like production, warehousing, packaging, quality control, administration, shipping, management, research and the payment of independent representatives’ sales commission cheques.
Why do companies have to use individuals like you and me to market their products?
Network marketing companies recruit individuals who become independent representatives of the company. It is these independent representatives who market and sell the company’s products for them, directly to consumers by means of relationship referrals and word of mouth marketing. When you become an independent representative, the company is able to access the people you can reach though you.
The main aim of a network marketing company is to make sales and increase its customer base. As opposed to traditional companies which sell to the general public and incur huge costs of advertising and distributing their products (through a middleman), network marketing companies instead bypass the middleman, and sell directly to the customer.
They use relationship referrals and a word-of-mouth approach to develop their customer base. As a result money that would be spent on the middleman and on advertising is used to pay independent representatives (distributors) for helping the company sell its products. Distributors are paid commissions for the products bought by people they refer to the company; they are also paid for products bought by people referred by the people they referred to the company. So whether people are referred directly or indirectly, the distributors gets paid.
Why is network marketing attractive? The company is able to get a wider customer base and customer awareness without having to spend on advertising and marketing. The company does not pay for sales and distribution until the sale is made and the product is delivered. This is unlike traditional marketing where a company has to spend lots of money on advertising and marketing before any product is sold. Consequently, network marketing companies replace traditional advertising and marketing costs with sales commissions which are paid to the independent representatives after the product is sold.
The independent representatives are able to create a source of residual income (passive income) by taking advantage of word-of-mouth marketing to build a network that represents the company’s products.
Network marketing is based on team work not competition. Unlike in traditional business, success in network marketing comes directly from helping to create success for the people that you introduce into the business opportunity. People get involved because they want to be paid for what their efforts are really worth and also because someone cared about them enough to show them the business opportunity.
Network marketing is the new way to financial success and freedom. You are less likely in the 21st century to create residual income and freedom from a traditional job. Even consultants are trading their time for money; meaning that if they are not seeing clients they are not getting paid. The kind income you get from a traditional job is limited; implying that if you stopped working for 2 or 3 months your income would diminish or stop completely. In network marketing you can stop trading your time for money. Once you develop a solid network of independent sales representatives, you will create ongoing residual income.
As Robert Kiyosaki (author of Rich Dad Poor Dad Series) puts it in his book entitled;
‘ The Business of The 21st Century’
“This particular business model creates passive income but requires relatively little cash investment to start up. It has very low overhead, and can be operated on a flexible part time basis until it generates enough cash flow for the entrepreneur to transition out of his current full time job.”