Network marketing is one of the ways to sell product of a firm. Network marketing is not widely used by all producers. There are few players who are selling their product exclusively through network marketing model.
What is network marketing
Traditionally, products flow from manufacturer to distributor then to retailer and finally to consumer. In network marketing, the product flow to a warehouse then to consumer. It runs on a sophisticated software which automatically track distributor activities, sales generated and eligible earnings. The stock record, sales order, delivery are also executed through this software.
In network marketing the consumer also acts as distributor by bring in more consumer/distributor. Consumer/distributors are compensated with discount, commission and loyalty bonus.
Network marketing is a sales and distribution concept that some companies adopt to sale and distributes its product. It has three fundamental elements – lead generation, finding new distributor and building a sales team.
Terms related to Network Marketing
Direct Sales: Network marketing is also some time referred to as direct sales since companies promote and sell their products directly to customers, rather than through a well-defined distribution channel.
Distributor: Network marketing companies give its customer an option to distribute its product. Therefore, they are referred to as distributor.
Independent Business Owner (IBO): The distributors are also referred to as IBOs since they act as if they are running their own company.
Downline: Distributors are allowed to bring in new distributors and connect to his or her distributorship. The new distributor is referred to as downline.
Upline: All distributors in the hierarchy above a distributor are referred as upline.
Sales and marketing plan: Companies adopting network marketing need to have a sales and marketing plan (SMP). It defines how the distributors will be linked to each other and compensation will be paid.
Sponsor: A person who brings in a new distributor to the company is called sponsor.
Types of Network Marketing
Network marketing can be divided into three categories
- Single-tier
- Two-tier
- Multi-level
Single-tier Network Marketing
In this type a person joins a company as a distributor to refer the products to a wider range of consumers. A percentage of profit is shared with the distributor. He or she is not required to bring in new distributor.
It is similar to affiliate marketing which is part of digital platforms. where commission is pay-per-click (PPC) and pay-per-lead (PPL) affiliate schemes.
Two-tier Network Marketing
In two-tier network marketing, the distributor has the option to bring in new distributor but his compensation is not dependent on it.
Multi-level Network Marketing
This is the most common form of network marketing also known as Multi- Level Marketing (MLM). The distributor under this form is encouraged to bring in more distributor to boast up sales and thereby earnings.
How does Network Marketing work?
Different network marketing companies follow different process. The common process is to engage individuals as distributor. These distributor in turn brings in consumers as well as new distributor. The new distributor replicates the process.
The customer and distributor buy the product directly from the company at a discount. The distributor earns three ways
- By retailing the product bought at discount from the company
- Commission based on sales volume created by self and the team of distributor or downline created.
- Cash bonus on achieving certain milestone sales.
The commission structure is different for different companies. It increases as the threshold sales volume increase. Amway is one of the top network marketing companies in India. Its sales commission structure is as below.
| Sales volume (₹’000) |
17 |
51 | 102 | 204 | 340 | 595 | 850 |
|
Commission percentage (%) |
3 | 6 | 9 | 12 | 15 | 18 |
21 |
Features of network marketing.
- It will have one or two or multiple products.
- A consumer can buy only through a registered distributor
- Purchase can be made either from companies office-cum-store or website.
- The volume of purchase of the distributor along with purchase by distributors brought by him is considered as his total sales.
- The company provide training on its business model, product and selling skill.
- The sales volume is considered on monthly basis for the purpose of calculating commission.
Advantage and disadvantage of network marketing
Advantages
- It can be started by any one above 18 years
- It requires nil or very low investment
- It can be done from anywhere at anytime.
- It has huge potential for expansion.
- There is a large support system from the company as well as distributors.
Disadvantage
- Success depends purely on the effort and commitment of the distributor.
- It takes time to get significant success.
- There is negative impression about the model amongst the public.
- There are many unethical players in the market.
How to succeed in network marketing.
Though it holds high potential for earning, many of the distributor fails to earn a significant income. The best way to succeed in network marketing is as given below:
- Have a strong desire to succeed.
- Get knowledge about the company and its products.
- Serve at least 10 customers every month for retail earning.
- Share the business plan everyday with atleast 2 person.
- Bring atleast 2 new distributor every month.
- Stay focussed for 2 years.
- Maintain energy, excitement and enthusiasm on daily basis.
The success depends on finding a person aspiring for more in life and inspiring him or her to work towards it. It is not a get rich quick scheme.
Best network marketing companies in India
Amway – It’s a USA based company which started its operation way back in 1959. Currently it is present in more than 100 countries. Its product range include nutrition, personal care and homecare through 140 plus products. In India it started business in 1998. Presently Amway has around 7lakh distributors in India.
Avon – it’s an American-British multinational company founded in 1886. Avon is specialised in cosmetic products. In India it started business in 1995. It employs single-tier networking marketing where representative sell directly to consumers not through distributor network.
Herbalife – It is a USA based company that develops and sell dietary supplements. Herbalife was founded in 1980. Its operating in more than 90 countries and in India for last 21 years.
Oriflame – It is a Swedish company operating since 1967 and specialised in beauty products. It is operating in more than 60 countries including India since 1996. Oriflame also operate under single-tier networking marketing model.
Vestige – It is an Indian company launched in 2004. Vestige currently operating in 6 countries apart from India. It is main focus is health and wellness, though it has other range of products in personal care, homecare category.
Conclusion
There are many players in the market. All are not equally credible. Some have adopted a model which is akin to Ponzi scheme and it is illegal. Therefore, check the background and their business model before getting sponsored. Also check whether it comply Consumer Protection (Direct Selling) Rules 2021 or is a member of Indian Direct Sellers Association (IDSA). Members of IDSA are having a legal business model.
There are different opinion about network marketing companies. Some are good and some are bed. Since it is open for all, many fail to put required effort and get dejected. Many in an effort to get result make false promises. Factually it is a genuine business model. Success depends on clear understanding of the model and doing the right things at right time. It requires an entrepreneurial mind, consistency and persistence effort. It is definitely a way to make Extra income or even to make a full time career.