Posted in Marketing and Strategy Terms, Total Reads: 390
Definition: Network Marketing
It is a form of direct selling marketing strategy. Independent individuals (non-salaried) are given the authorized job of distributing the company’s products, these are referred to as distributors or agents. These distributors are then encouraged in building and managing a sales force of their own, through recruitment and training of other agents. This second line of sales force is referred to as the “downline” participants.
The compensation of the sales force depends not only on their own sales, but also on the sales generated by the downline sales force under them. The independent agents receive their entitled profit through sales of goods to the customer along with a commission from the company based on the amount of products sold by themselves and by their downline sales force. Since the compensation consists of multiple levels, this technique is also called as multilevel marketing or pyramid selling.
Many large consumer product firms in America like Mary Kay, Tupperware and Amway follow the network marketing strategy. Participation as an agent in such a network involves low starting investment (for the product sample kit) and usually involves selling products to known customers like friends or family. The agents do not have to keep inventory and can combine orders to directly order from the company once. It is suitable for people looking towards part time business opportunities.
Over dependence on the downline for reaping profits is a major disadvantage of network marketing. If independent agents spend most of their time recruiting, rather than selling, the agents will not be able to make any profits, since the ones below them are also doing the same. Network marketing is banned in certain countries due to its susceptibility to become a means of consumer fraud.