A business model in which a distributor network is needed to build the business. Usually, this term is also well versed as Multilevel Marketing in which payouts occur at more than one level.
Network Marketing is a mode of direct marketing by the manufacturer. It consists of recruiting independent business persons who act as distributors of the company’s products. Each distributor can further engage sub-distributors who can further add other distributors and so on.
Thus, a network of distributors is formed who operate at various levels.
Under network marketing, the product reaches customers from manufacturers via distributors.
No formal marketing infrastructure is required. The distributor’s compensation includes a percentage of sales of those engaged by the distributors as well as earnings on direct sales to customers.
Benefits of Network Marketing
Network marketing offers the following Benefits:
- The distribution network grows continuously. Direct selling method in which independent-agent serve as distributors of goods and services and are motivated to build and manage their own sales force by recruiting and training other distributors. Hence, it becomes easier to enter new markets through growing networks.
- In this, the distribution channel is at Zero Level where the firm is selling goods to distributors directly which reduces the additional overheads of the firm like advertisement expenditure and retailer margin. Hence, the network companies can maintain higher margins on their products.
- Lower overhead costs as no infrastructure are required under network marketing. Therefore, the distributor gets a chance to do business with the company without any heavy investment or liability.
- Having successful Networking business any distributor can get the opportunity to earn unlimited income in form of commission earned on his own sales revenue, as well as on the sales revenue of the sales force created by their agent or recruits.
Limitations of Network Marketing
The Limitations of network marketing are as under:
- Sales forecasting is difficult. This often results in under or overstocking of various product items. With this process networker usually need a huge down line to make good sales volume, which cannot be clearly predicted.
- Distributors often become the largest customers and hence take over the control of the company. It becomes difficult for the manufacturer to exercise effective control over his sales team.
- There is some risk concerned with becoming capitalist and joining these businesses, 95% of new MLM entrepreneur will fall short at their business within the initial three months as it is depending on marketing strategies which fizzle out when networker needs extra effort other than their core line work
Network marketing programs have an advantage of lot upfront investment-usually only a few hundred rupees for the purchase of a product sample kit and the opportunity to sell a product line directly to a friend, family and other personal contacts.
Most network marketing programs also ask participants to recruit other sales representatives like in the insurance sector.
Thus, now you know the Benefits and Limitations of Network Marketing.