What is Network Marketing?

Network marketing businesses function by recruiting salespeople (also called Distributors, Agents, Independent Affiliates, Independent Associates, Independent Business Owners, IBOs, Franchise Owners, Sales Consultants, Beauty Consultants, Consultants, etc.) to sell a product/service and offer additional sales commissions based on the sales of people recruited into their downline, an organisation of people that includes direct recruits, recruits' recruits, etc. 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, but in some MLM programs, there can be seven or more levels of people receiving royalties from one person's sales.

Over $100 Billion worth of goods and services are distributed by over 30 million distributors in 120 countries around the world who are involved in network marketing (Mutli Level Marketing). The network marketing industry had created many millionaire distributors who have completely transformed their lives within a short few years of becoming involved.

The Pyramid Selling Myth

Sometimes people mistakenly confuse network marketing with a pyramid scheme. A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme where there is no product or service being delivered.

The unethical behaviour of some network marketing companies has added to the misunderstanding and scepticism towards network marketing. This is why it is very important that people do their due diligence in checking out a network marketing business opportunity.

Some very well known fortune 500 mutli-billion dollar global companies have chosen network marketing as a way to distribute their goods and services. These include Virgin, Tiscali, Avon, Anne Summers, Herbalife, Coca Cola, Motorola and Xerox.

In 2007 global soccer icon David Beckham signed for LA Galaxy whose main sponsor is Herbalife, a multi billion dollar global nutrition network marketing company.

Naturally these global giants would not want to harm their brand names in anyway by involving themselves in a product distribution model which would do that. Network Marketing is not a pyramid scheme, it is a business model for distributing products and services.

The Direct Selling Association forecasts that by 2010 networking companies will produce over $700 billion in revenue with a major growth in the industry resulting from the explosive growth of the internet (1.3 Billion users in 2007). With 21st century digital marketing, a network marketing company can now distribute its products or services to the whole globe within 2-3 years if their product or service is an info product or an online subscription internet service. Previously it would have taken 20-30 years to distribute tangible products such as nutrition or skincare products.

Why do companies choose Network Marketing to distribute their products or services?

Below the 2 diagrams show the standard and network marketing models for distribution of goods and services. 

Diagram 1

As you can see in diagram 1 the company can get the product to the consumer faster and with less costs.
They save on the conventional costs of Marketing, Advertising, PR & Distribution.

Diagram 2

As you can see in diagram 2 through standard distribution, there will be a mark-up in price at the Wholesale Distribution stage, again at the Regional Distribution stage and again at the Retail Distribution stage. This must happen in order for all these functions to operate profitably. The result is a higher price for the consumer and less profit for the company.

How do you choose the right Network Marketing company?