For decades business owners have noticed that word-of-mouth advertising is one of the most powerful methods of advertising. Companies who distribute their products in network marketing can experience exponential growth because of the viral effect. Everyday people can become distributors for your company and bring the products to their local market. This is based on the philosophy that people are willing to purchase products or services more readily from people they know and trust, rather than from a sales rep.
Compensation is performance-based as there is often a pay grid in place for satisfying certain quotas. Having this kind of pay structure in place reduces the risk for the business owner for if a new distributor does not perform, the financial burden of obtaining the new distributor/ associate is minimized. Customers are loyal to both the Independent Distributor representing the company and the products. Products are usually consumable which creates repeat orders therefore increasing sales from one quarter to the next is common.
As business owners we will want to cover the weaknesses as part of our SWOT analysis of the Network Marketing industry. The first and obvious weakness is that the growth of the company becomes dependent on the strength of your distributors. This is not completely out of a business owners' control but can be difficult to influence. The compensation is the main motivating factor for distributors. Retention of distributors is a problem right across the industry. As it is easy for a distributor to join a company, it is just as easy to leave. This model of distribution works best for products or services that are consumable. This creates repeat orders which ideally can be set up on a monthly cycle. Works best for products between $30 and $180 which makes it...