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What is Network Marketing? Types, Working & Examples

  • Utsav Mishra
  • Jun 19, 2021
  • Marketing
What is Network Marketing? Types, Working & Examples title banner

Marketing, the word itself has several images floating with it. When we hear this word, we think about shops, big businesses, everything. We start thinking from the smallest grocery shop in our area and end up at the IT firms providing services and manufacturing new software to internet marketing. All the things that come in between these thousands of thoughts come under marketing.

 

Like all the other things, marketing too with time has evolved a lot. It's not just limited to buyers, sellers, salesmen, and businessmen. It has transformed rapidly with time. New types of marketing have evolved, new ways have come up, expanding the territory of marketing. 

 

One such type of marketing is Network Marketing. In this blog, we are going to focus on the same.

 

 

Network Marketing

 

Network marketing is a business concept that grows a company by relying on a network of distributors. To create money usually entails the use of three fundamental types of systematic strategies: lead generation, hiring, and building and management. Network marketing is divided into three categories: single-tier, two-tier, and multi-level.

 

Simply speaking, Network marketing is a business concept that relies on independent agents selling to other people, generally from their homes. You may need to develop a network of business partners or salespeople to help you generate leads and close sales if you start a network marketing firm. 

 

Read more about effective marketing techniques through the link.

 

Terms related to Network Marketing

 

  1. Direct Sales: Network marketing companies promote and sell their products directly to customers, rather than through a well-defined distribution channel. The participants are given the job of selling the items, and they are paid a commission for each sale they make.

  2. Entrepreneurs that are self-employed (IBO): The participants are referred to as IBOs since they act as if they are running their own company.

  3. Distributor: Most multi-level marketing companies refer to their members as distributors rather than salespeople.

  4. Downline: Members recruited by the distributor or fresh recruits registered by these members make up the distributor's downline. All distributors profit from their downline sales.

  5. Upline: All distributors in the hierarchy above a member's personal sponsor. All the way up to the Head of Sales is the upline. On sales made by downline partners, all distributors in the upline get a commission.

  6. Plan: It Makes a list of all the many methods salespeople may earn money. The plan also demonstrates how pay varies based on sales volume and the number of partners recruited. For their staff, reputable organizations make the strategy as open as feasible.

  7. Sponsorship: A person who brings in a new employee to the company.

  8. Recruit or collaborate: An individual who is brought into the company by a sponsor. The sponsor is compensated for the sales of the partner.

 

(Similar blog: What is Service Marketing?)

 

 

What are the Types of Network Marketing?

 

Network marketing functions on different tiers. This makes three types of it-

 

  • Single-tier Network Marketing

  • Two-tier Network Marketing

  • Multi-level Network Marketing

 

 

  1. Single-tier Network Marketing

 

You join a company's affiliate program to sell its products or services through single-tier network marketing. You don't need to recruit other distributors, and direct sales are your only source of income. Avon, a well-known cosmetics firm, employs single-tier networking marketing.

 

Some internet affiliate schemes pay you for driving traffic to the affiliate's website. Single-tier networking also includes pay-per-click (PPC) and pay-per-lead (PPL) affiliate schemes.

 

 

  1. Two-tier Network Marketing

 

Two-tier network marketing, unlike single-tier network marketing, requires some recruitment, but your compensation isn't entirely dependent on it. You get compensated for direct sales (or traffic driven to a website) as well as direct sales or recommended traffic generated by affiliates or distributors you choose to work for you.

 

 

  1. Multi-level Network Marketing

 

Some direct sales organizations employ multi-level marketing (MLM) to encourage existing distributors to recruit new distributors in exchange for a portion of their recruits' sales. The recruits are the "downline" of the distributor. Distributors also profit from direct product sales to clients. 

 

Amway, a well-known multilevel marketing organization that offers health, beauty, and home care items, is an example of a well-known direct sales organization.


 

How does Network Marketing work?

 

Multi-Level Marketing (MLM), cellular marketing, affiliate marketing, consumer-direct marketing, referral marketing, and home-based business franchising are all terms used to describe network marketing.

 

Network marketing companies frequently construct layers of salespeople, in which salespeople are incentivized to recruit their own networks of salespeople. 

 

  • The persons who start a new tier (or "upline") get paid commission on their own sales as well as the sales of the individuals in the tier they started (the "downline"). 

  • With time, a new tier may emerge, providing additional commission to the top tier as well as the intermediate tier.

  • The earning of a member of network marketing depends on the sale of the product as well as on the recruiting.

 

Any person joining the network marketing team goes through two processes: the first one is training and the other one is sales.

 

  1. Training 

 

The first step after joining is to become the distributor of the company i.e. you will be the one selling the products from now. 

 

Because the business entails selling and recruiting distributors, the firm you are joining or your sponsor will offer you comprehensive product and sales training.

 

To assist you in getting started with the company, the Company supplies you with thorough product information as well as promotional items such as advertising materials and Marcom tools. 

 

You'll learn about the intricacies of your company's product line, the quality and safety requirements that they satisfy, how they compare to the competition, what inquiries to expect from customers, and solutions to commonly asked inquiries, among other things.

 

Most of the companies provide sales training along with the training to recruit new people, generally they organize a short workshop for that.

 

 

  1. Sales

 

You are ready to begin working when the Company has instructed you on selling, product knowledge, and equipped you with the necessary tools and supplies, as well as a startup package. Your sponsor will be available during your training and will also assist you in getting started with the business. 

 

Prospecting or making a list of prospects, qualifying the prospects, making an appointment with the prospects, meeting them and making a presentation of the MLM business proposal, answering questions and assisting them in making a decision to join the network, and following up with them on a regular basis for a positive decision will now be part of your sales process. 

 

The process continues with them signing up as distributors, receiving product training, selling, and supplying them with tools, marketing materials, and a beginning kit, as well as inspiring and working with them to help them grow their network.

 

You'll strive to increase retail sales in addition to hiring and developing your distributor network. Making a list of prospects for retail sales includes your family, friends, neighbors, and the local community, as well as your coworkers, your firm, and other firms with which you have known contacts. This is how a simple Network Marketing business model functions.

 

(Also read: Basics of Product Positioning)

 

 

Examples (Case studies) of Network Marketing

 

  1. Tupperware

 

It is one of the most well-known multi-level marketing organizations in the world. The brand, which was founded in the United States in 1938, has become associated with its whole product category – plastic food storage containers – to a degree only equaled by firms with traditional distribution methods like Scotch tape or Hoover vacuum cleaners. Every minute, approximately 40 Tupperware parties are held throughout the world.

 

  1. Avon

 

It is a cosmetics company with millions of sale agents and a $3.63 billion yearly revenue in 2020. It is one of the world's largest multi-level marketing firms. Avon Products, Inc. was purchased by Natura & Co, a cosmetics company that also owns The Body Shop, in early 2020.

 

  1. Herbalife

 

It is a multi-level marketing company that sells dietary supplements. It was founded in 1980 in California and today has about millions independent distributors globally.

 

  1. Amway

 

Amway is the world's largest network marketing corporation, with about $8.5 billion revenue in the year 2020. Since its founding in Michigan in 1959, the company has grown to over 3 million representatives selling health, beauty, and home care products in over 100 countries.

 

(Related blog: Factors Influencing Consumer Behavior)

 

 

Advantages of Network marketing

 

  1. There are no restrictions on the size of a network marketing organization. This occurs because businesses may form partnerships with a large number of people to become distributors. Distributors can also work together with other sub-distributors to increase the company's sales.

  2. Companies do not need to rely on advertising to advertise their products since they have a solid and powerful distribution network that engages customers directly.

 

(Must read: B2C Marketing Strategies)

 

  1. Distributor structure also affects retailer profit margins, which are considered an expenditure by firms. These profit margins are passed on to distributors, and the corporations are relieved of their financial load.

  2. Another benefit is that corporations do not have to spend as much money on storage and delivery as they once did. This is due to the fact that distributors are responsible for these costs.

  3. Distributors can make an endless amount of money from their business transactions with the organization because of this framework. They can make money from both their own earnings and commissions.

 

(Also read: B2B Marketing Strategies)

 

To sum up, Network Marketing is one of its kind marketing techniques. People involved in it find it unique and believe that the market is expanding at an amazing pace. In the near future, we might be able to witness some drastic expansions of the network marketing world. Till then, we can witness a happy growth of it.

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