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What is Network Marketing and How Does it Work?

  • Vrinda Mathur
  • Feb 25, 2022
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Marketing simply refers to the practice of attracting prospective consumers or customers to your products and services. "Process" is the important word in this definition. Marketing includes doing research, advertising, selling, and distributing your goods or services. 


Marketing as a discipline encompasses all of the actions that a corporation does to attract and retain consumers. Networking with future or previous clients is also a component of the job, and may entail writing thank you notes, playing golf with prospective clients, promptly responding to phone calls and emails, and meeting with clients for coffee or a meal.


Marketing, at its most basic, aims to connect a company's products and services to people who desire access to those items. Ultimately, matching items to customers assures profitability.Network marketing is basically a medium that marketers use to expand their sales. Let us understand the same in detail.


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What is Network Marketing?


Network marketing is a business concept that relies on one-on-one sales by independent salespeople, many of whom work from home. A network marketing firm may necessitate the formation of a network of business partners or salespeople to aid with lead generation and sales closing.


Network marketing is a type of marketing that manufacturers employ to increase their sales. Manufacturers utilize them when they have to deal with several distributors to get their items to market. These distributors may have sub-distributors at times. As a result, a "network" of distributors operating at various levels of the distribution chain emerges.


Manufacturers promote their products to clients at various levels through this huge network of wholesalers. This allows them to indirectly reach out to even more clients.


As a result, these distributors and dealers serve as the company's independent agents. As a consequence, the corporation may sell its items more extensively without spending more money on traditional marketing strategies such as advertising.


The development of network marketing and improved technologies have dramatically altered the way businesses are conducted. The new business marketing strategies assist several organizations in attracting potential clients to their offerings. 


Furthermore, network marketing aids in the reduction of expenditures that company industries face while using traditional marketing methods.


Network marketing is a type of marketing that many business owners utilize to grow their enterprises. Manufacturers frequently employ such a powerful medium to communicate with a large number of distributors in order to increase company productivity. 


Other sub-distributors lead to a large network of distributors. They work at various levels of the distribution chain to achieve good sales. Network Marketing offers an advantage for producers to leverage it to advertise their products to customers at many levels. It allows them to reach out to potential consumers in an indirect manner.


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Structure of Network Marketing 


To begin, in order to develop a network marketing structure, manufacturers require a number of distributors, sub-distributors, and dealers. Second, these distributors obtain items at wholesale costs from the producers themselves.


They may either utilize them themselves or sell them to other distributors for a profit. This chain goes on and on. As a result, distributors will either promote items until they reach customers or become ultimate customers themselves.


Furthermore, these distributors will be able to profit from this marketing network. Manufacturers may pay them a commission based on the total volume of items they buy and sell. As a result, the operation of these distributors is similar to that of insurance brokers.



How Network Marketing Works?


Multilevel Marketing (MLM), cellular marketing, affiliate marketing, consumer-direct marketing, referral marketing, and home-based business franchising are all terms for network marketing.


Companies that use the network marketing model frequently construct levels of salespeople, which incentivize salespeople to recruit their own networks of salespeople. The producers of a new tier (or "upline") receive commission on their own sales as well as the sales of others in the tier they established (the "downline"). 


With time, a new tier might develop, which gives additional commission to both the top and middle tiers. Network marketing is commonly used by manufacturers in company models that necessitate multi-level marketing. This is due to the fact that such business strategies entail a broad network of distributors and sub-distributors.


It is also beneficial to distributors since it allows them to earn money. Most firms, such as Amway and Tupperware, have agreements with people who work part-time for this. Many women in India become distributors and deal directly with producers.


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Characteristics of Network Marketing


Some of the salient characteristics of Network Marketing  are:-

Characteristics of Network Marketing are:- 1. Direct Sales 2. Selling Philosophy 3. Hierarchy System

Characteristics of Network Marketing 

  • Direct Sales:- Several firms promote and sell their products directly, bypassing the distribution route. Non-employed persons are assigned the job of selling produced items and are paid a commission for each sale.


  • Selling Philosophy:- Participants in the network marketing model operate on the marketing selling philosophy. Distributors' primary goal is to sell as much as possible in order to earn a big commission.


  • Hierarchy System:- To increase profits, distributors frequently have sub-distributors reporting to them. It enables them to receive a commission from the producers as well as profit when the sub-distributor makes a sale. Furthermore, sub-distributors can have sub-distributors beneath them to earn the same manner, creating a tiered structure.


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Advantages and Disadvantages of Network Marketing


We've discussed the advantages and disadvantages of Network Marketing below : 


Advantages of Network Marketing


  1. The network marketing system has no size restrictions, allowing various organizations to partner with a large number of people to become distributors. Furthermore, distributors might earn by collaborating with other sub-distributors.


  1. Companies no longer need to rely on advertising to bring their products to market because of a constant and powerful distribution network that directly draws buyers.


  1. One of the most significant advantages is that it reduces retailer profit margins, which are viewed as an expenditure by businesses. Companies are not required to bear the burden of such expenditures because the margins are immediately passed on to distributors.


  1. There is no need for the corporation to invest heavily in distribution or storage. This is due to the fact that distributors bear all of these costs on their own.


  1. Due to the general nature of network marketing, distributors may earn a lot of money from their contacts with manufacturers. They have a fantastic opportunity to earn commissions in addition to their own income.


Disadvantages of Network Marketing


  1. Manufacturers are finding it harder to forecast production objectives. It's because they rely entirely on wholesalers to manage client demand. It may result in product overstocking or understocking.


  1. Distributors play an important role in facilitating the supply of goods and services to ultimate customers. Because manufacturers are less worried about this, it may be difficult for them to manage sales or distribution.


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Emerging marketing techniques have totally altered the way business is performed. These new ways of marketing assist businesses in attracting a huge number of clients. They even help businesses cut costs associated with traditional marketing methods. Network marketing is one such innovative concept. 

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