What is Network Marketing?
Multi-level marketing (MLM), also known as Network Marketing, is a business-distribution model that allows a parent company to market its products directly to consumers by means of relationship referrals and direct selling. Independent, unsalaried salespeople of multi-level marketing, referred to as distributors (or associates, independent business owners, franchise owners, sales consultants, consultants, independent agents, etc.), represent the parent company and are awarded a commission based upon the volume of product sold through each of their independent businesses (organizations). Independent distributors develop their organizations by either building an active customer base, who buy direct from the parent company, or by recruiting a downline of independent distributors who also build a customer base, thereby expanding the overall organization. Additionally, distributors can also earn a profit by retailing products they purchased from the parent company at wholesale price. Distributors earn a commission based on the sales efforts of their organization, which includes their independent sale efforts as well as the leveraged sales efforts of their downline. This arrangement is similar to franchise arrangements where royalties are paid from the sales of individual franchise operations to the franchisor as well as to an area or region manager. Commissions are paid to multi-level marketing distributors according to the company’s compensation plan. There can be multiple levels of people receiving royalties from one person's sales. THIS IS A VERY BRIEF OVERVIEW OF NETWORK MARKETING.
Network marketing is, in short, a "business in a box". For a nominal fee, you can register with a certain company in order to build up an organisation based around their products or services. You are classed as an independent business owner: registered with, but not employed by, the parent company.
Over our lives, we have all recommended goods or services to those we know. Think back to the last time you went to see a film in the cinema (or, if this doesn't help, think about the last time you ate out at a fine restaurant or listened to some music.) If you saw a film that you really enjoyed, the chances are you would have recommended it to people you know. Why? Because you wanted them to be able to enjoy the same experience that you had been fortunate enough to find.
So let's say that you told six friends, and all six of them went to see the same film on your recommendation. They probably bought some popcorn with their film, and maybe a drink. Perhaps they paid some money to park in the cinema car park. All told, they might have spent at least forty pounds together. That's forty pounds that the cinema got thanks to your efforts. But how much did you get paid for doing them such a favour? Not a penny! The cinemas and the film-makers spend all of their money on hugely expensive advertising campaigns and rely on these to encourage people to see the movies. Except that there are two problems: Firstly, millions of dollars are spent advertising to people who have already seen the movie, or have no intention of ever doing so; Secondly, have you ever been to see a movie because it looked good from the commercials, but actually it was terrible?!
So network marketing came about to solve these problems. Network marketing companies sell practically everything you could ever think of, but very few of them ever advertise. They rely on 'referral marketing' to spread the word about their products. That is to say, they make sure that they have an exceptionally good product, and then rely on people to spread the word for them. In thanks for doing this, they pay those people for each sale made as a result of their efforts. This is much more efficient than blanket advertising, because the company is only paying for sales made, so it saves a huge amount of money which can be funneled into producing better, cheaper products, and...
Please join StudyMode to read the full document