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What is Network Marketing or Direct Selling?

August 21, 2018

Source: One of the most common at-home business opportunities is the direct sales network marketing of products offered by a parent organization. Direct sales or network marketing has received a bad rap in the past, where advocates and adversaries share their pros and cons about this business model. We take a look at what networking marketing and direct selling opportunities are.

Network marketing/direct selling companies offer their products and/or services by employing a business model that includes a number of independent representatives or marketers who promote the parent company and its product line. The first method in which network marketers earn an income is based on sales commissions for product sales of the affiliated parent company. This applies to both single-level and multi-level marketing business models. Network marketers can then earn additional income from building an “organization” or “downline,” which consists of a network of other individuals they recruit to also sell the parent company’s products, making this the “multi-level” business model.

Multi-level marketing organizations have been pitched under a number of monikers. Some of the most common other names for multi-level marketing are network marketing, direct selling, community marketing, referral marketing, pyramid selling, person-to-person marketing, and relationship marketing. Network marketing or direct selling have been the most common terms dubbed since multi-level marketing has been associated with negative perception of the industry as a whole.

Some of the most successful and longest standing direct selling businesses include Avon, Amway, Primerica, May Kay Cosmetics, Legal Shield, and Shaklee. Within the past 40 years, the number of network marketing companies that offer products and services have exploded to an all-time high. There are well over 50 companies today that dominate the multi-level marketing landscape, and there are no signs of the industry slowing down.

Billions of dollars in product and service sales have been made for these companies as a result of this business model. In 2015, the industry posted $183.7 billion dollars in sales worldwide. Collectively, these companies claim that over $73.4 billion dollars (roughly 40 percent) of gross revenue was paid directly to “distributors,” who are the network marketers themselves. The majority of the industry’s sales were collected in the United States, with 20 to 30 percent of all sales having taken place stateside. The industry also did well in China, which is the industry’s second largest market, followed by South Korea, Germany and Japan.

So what makes the industry so attractive? Career marketers will tout there are multiple benefits to becoming involved in network marketing organizations. Network marketers claim the main reason for their decision to join network marketing is because of its unique business model and the flexibility the industry offers.

Network marketers can earn unlimited commissions with most multi-level marketing companies, as well as paid performance bonuses when sales goals are met. They are also paid a percentage on sales from their downline. A common claim of advantage in network marketing is the sense of owning a business without the hassle of a brick and mortar location, so very little financial investment is required in comparison to the capital necessary to start-up a traditional retail or service oriented business. Network marketers have the flexibility to create their own schedule, and are not limited to any one geographic location.

Other terms coined for the sales force of independent sales people who make up a direct selling organization include: distributors, marketing consultants, promoters, representatives, independent business owners, independent contractors, marketing directors, and relationship coordinators. Some of these terms have been viewed by former network marketers as misleading, because the network marketer does not directly own part of the parent company; and many of the network marketers do not operate their venture in an official business structure (such as a corporation or limited liability company). Instead, network marketers are encouraged to register a business name and obtain a tax identification number, so the parent multi-level marketing company can pay a business entity versus paying an individual. This is where the phrase “getting into the business” was developed.

Traditionally, network marketers would introduce the parent company’s products and/or services to potential consumers directly by word of mouth advertising. Some of the most popular forms of this word of mouth advertising would come in the form of “home parties,” where the network marketer would set an appointment to host a home party (or have a family member, friend or acquaintance host the party for product discounts or gifts), and invite guests to attend the party. At the home party, family and friends would gather to share in refreshments and would view the presentation made by the network marketer, who would also showcase the parent company’s product lines and take orders from the invited guests that attended. Once the product orders were available, the network marketer would deliver the products to their customers.

With the coming of the information age, the digital age, and the age of mobile devices, network marketing has become far more complex, with a host of new direct marketing tools and techniques. Individuals can now sell products and recruit members for their downline from anywhere in the world that the parent company is set up to do business with. Social media have given rise to the growing number of network marketers, where one may expect to see the latest pitch in their news feed or receive a private message from someone who is trying to share the multi-level product line or opportunity that they have chosen to partner with.

Just as the methods in reaching potential customers and recruits have advanced, so have the systems used by both single-level and multi-level marketing business models. Most of these companies now offer direct ship programs for their products, so the network marketer no longer has to hand deliver personal orders to customers. Multi-level marketing companies have also integrated back offices, online dashboards and apps, allowing for the network marketer to go paperless while managing their organization or downline. They have also made many of their tools available online to their network marketers, eliminating the need to purchase clunky marketing kits for personal use. They have become more transparent in recent years, providing financial reports, sales commission reports, and earnings in real-time for network marketers to review.

Even with the advancements in technology, marketing tools, training, and the many success stories throughout the network marketing industry, the multi-level marketing industry and business model is still viewed negatively by many. Some claim that network marketing companies are nothing more than pyramid schemes that prey on people who are hopeful and looking for a remedy for their financial duress or other personal challenges. It is important to note, however, that some of the most successful multi-level marketing companies are also those that have come under the most criticism.

Samuel K. Burlum is an investigative reporter who authors articles related to economic development, innovation, green technology, business strategy, and public policy concerns. Burlum is also a career entrepreneur who currently lends his expertise as a consultant to start-up companies, small businesses, and mid-size enterprises, providing advisement in several areas including strategic business planning, business development, supply chain management, and systems integration.

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