Network Marketing (also know as relationship marketing, word of mouth marketing and multilevel marketing) is a distribution model used by Direct sales organisations to promote and distribute their goods and services. In general, the company will be responsible for manufacturing, packaging and distributing the product and the Independent Distributor is responsible for promoting and advertising. The role of the Independent Distributor is to find new customers for the company, in exchange for commissions. The reason it is called Network Marketing is because the Independent Associate will traditionally market the goods and services through social networks including family, friends, church, clubs, work colleagues, etc.
As well as marketing the products, an Associate may recognise the benefits of promoting the business opportunity, finding new distributors for the company. When an existing Associate personally introduces someone new to the company, they become the new Associate's Sponsor or mentor. That new person will also be an Independent Distributor for the company and will be placed in their Sponsor's team. Both of them will receive a commission based on the customers that the new Associate introduces to the products. For some people the number of potential customers that are personally known to them may be limited, hence there are huge benefits to building a group of business builders to promote the products alongside them, reaching more potential consumers and opening new distribution channels.
This process can then be repeated for any Distributor. Associates are able to build a customer base of their own and receive commissions on the orders placed by any new and repeat personal customers, as well as the customers of the Associates in their team. The original mentor will receive commissions from any sales generated within their organisation. The structure and commissions will vary from company to company and pay plan to pay plan, but the principle is the same.
The Network Marketing business model offers Individuals the opportunity to create wealth like an Entrepreneur. What I mean by this is that income is not calculated by the number of hours personally invsted. Payment is made based on the volume of products sold by the individual's organisation. The income they earn is based on the productivity of everyone in their organisation. Therefore, if you are able to show your downline to be more productive then you will earn more money! You have true leverage in your business when your downline members are fully trained and are able to find new customers and Distributors without your personal involvement. This requires a good understanding of your company and strong leadership skills, but the pay-offs are more than worth it!
In retail distribution, the goods are manufactured and is purchased by the wholesaler. The wholesaler supplies the products to various retailers, who sell the product to the consumer.
As a customer / consumer, you will typically be charged around 2 to 3 times more for a product than the wholesaler paid the manufacturer for them. Say for example a product cost $10 to produce, the wholesaler may then pay $15 for each unit and the retailer then purchases them for $20 from the wholesaler. The retailer will then sell the product to you for $45 to offset their expenses for staffing, utilities, advertising, etc. and still make a profit. Therefore you are paying $45 for something that the manufacturer sells for $15, because everyone in the distribution chain must make a profit on your purchase.
In the Network Marketing model you buy directly from the manufacturer. Therefore, less of your money goes to the middleman. The products you actually get are generally a higher quality than retail products, due to the company's emphasis on research and development of the product. Network Marketers may be paid up to 30% on the sale of a product, but the customer will still pay significantly less for a better quality product.
Network Marketing businesses are usually managed from home, often on a part time basis and advertising is traditionally done via word of mouth marketing. Hence, overhead costs are lower. Also, people are generally more likely to trust the recommendations of a friend, family member or work colleague than any other form of advertising. In addition, customers have much closer contact with the company through the independent representative who introduced them to the company.
The purpose of both distribution models is to find new product consumers, whilst serving existing customers. However, incentives and commissions are awarded differently in the two methods. In retail, the owners and managers of the wholesale and retail companies are rewarded on the productivity of their staff and in Network Marketing, the Distributors earn commission based on sales generated by their organisation.
About the Author:
Andrew Smith is an Independent Affiliate for Usana, who manufacture world leading nutritional supplements. To read an extensive Usana business review please visit http://www.mlmsummittraining.com/index.php/mlms-team/.
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