By: Prapanna Lahiri
Network marketing, also called Multilevel Marketing, is a strategy that some direct sales companies use to encourage their existing distributors to recruit new distributors by paying the existing distributors a percentage of their recruits’ sales. The recruits are known as a distributor’s “down line.” All distributors also make money through direct sales of products to customers1. It is a model of business that is very popular with people looking for part-time remunerative engagement and flexible business opportunities.
Way back in 1930s a man called Carl Rehnborg started distributing diet supplement products in America by his company, Nutralite. In doing so he pioneered a strategy called Multi Level Marketing (MLM) to boost his sales. The power of this strategy giving exponential growth to sales was unearthed by two distributors of the Nutralite products, Jay Van Andel and Rich DeVos, who later founded another MLM company called Amway which eventually took over the business of Nutralite. Today, Amway is one of the largest companies.
Network Marketing has become a fast growing phenomenon and some analysts have called it the Business of the 21st Century. Various reasons, why it shows a noticeable growth spurt in popularity today, are analysed below:
1. Unemployment: Historically, popularity trends of network marketing have shown a direct relationship to prevailing unemployment rates. Therefore, during recessions, this direct selling industry proves to be rather resilient.
2. Job security no longer exists. The job market is shrinking with the global population explosion. Taking for granted a ‘job for life’ and the ‘security’ from working for a large corporation, are disappearing fast.
3. Flexibility: This unique business opportunity is very popular with people looking for part-time, flexible businesses that provide more money and more free time. MLM companies have traditionally presented an excellent opening to stay-at-home mothers and wives to earn a little side cash to empower themselves.
4. Self employment Network Marketing: the new age mantra for Marketing: MLM offers job seekers the prospect of working from home and ‘earning an income’ for themselves rather than having ‘job’ and working for someone else.
5. Low Investment: Network marketing schemes feature a low upfront investment ― an investment good enough for the purchase of a product sample kit, lending the opportunity to sell a product line directly to friends, family and other personal contacts. Thus it is a “Low Cost Franchise business”.
6. ‘Downline’: In network marketing programmes participant distributors recruit and train their own sales representatives that constitute their ‘down line.’ Sales achieved by down line generate income for those above them in the programme chain.
7. Technological progress: Developments in Information technology has made automated record keeping, reward calculation, processing, electronic funds transfer, mailing etc very accessible, affordable and effective. Improved Communications technology like voice mail, email, internet telephony, video conference calls, auto-responders etc have helped eliminate serious obstacles relating to time, distance and cost ― essential to maintain the personal touch so vital in such kind of networking business.
8. Marketing strategy: It allows an ingenious new entrant to strategise marketing effort by being able to positively visualise increased earnings with recruitment of a larger network making use of social networking sites.
9. Attraction Marketing the New Mantra: Like in any other marketing strategy, knowing one’s products and communicating their benefits to the prospective customer is the key in MLM too. But the new mantra which many are calling ‘attraction marketing’ is the approach of “building relationship first, business second.” It envisages establishing a relationship with people that gradually over time will cause them to come to know you, like you, and trust you. Assuming identical product/ service offerings, a buyer would choose to buy from someone he/ she knew, liked, and trusted over someone who just rang the doorbell.
Network Marketing is the future of business. In corporate, capitalistic model, large companies profit from sales, and then distribute the surplus to externalised share holders while in MLM the shareholders are the internal, integrated, non-salaried distributors. Worldwide annual sales in the network marketing industry are approaching $90 billion with 150,000 network marketers joining the industry globally per week2. The growth potential of this industry is reflected in the words of Bill Gates, “If I would be given a chance to start all over again, I would choose NETWORK MAKETING.”