Network marketing, also known as multi-level marketing (MLM) , cellular marketing, affiliate marketing, consumer-direct marketing, referral marketing, or home-based business franchising.It is a business model of direct selling that uses a network of people to sell a company’s product.
Participants of network marketing earn money either by directly selling products themselves or by recruiting others to sell products for them. Then those persons in turn recruit others to sell the same product, and so on and so forth, until there is a hierarchy of distributors who are selling and promoting that product, therefore it is also refers to multi-level marketing. Each distributor is an independent sales representative. Network marketers often earn bonuses for getting new distributors and customers and residual income on repeat business.
Advantages of Network Marketing
- No limits on the size of the network marketing structure because companies can tie-up with innumerable people to become distributors. Further, distributors can further co-ordinate with other sub-distributors to expand the company’s sales.
- Companies do not need to rely on advertising to market their goods due to a reliable and robust distribution network that engages customers directly.
- The structure of distributors also decreases the profit margins of retailers that companies consider as an expense. These margins get passed on to distributors and the companies do
not have to bear their burden.
- Companies do not need to spend a lot of money on storage and distribution because distributors end up bearing these expenses themselves.
Challenges in Network Marketing
- It can be difficult to predict production targets as manufacturers depend on distributors to determine consumer demand. Due to this they may end up under or over-stocking their products.
- In this form of business, it is basically the distributors who facilitate delivery of goods to final customers. Manufacturers have a limited role in this regard. So, they may find it difficult to control distribution and sales.
Characteristics of Network Marketing
- Direct Sales
- Independent Business Owners (IBO)
- Selling Philosophy
- System of Hierarchy
- Less or No Advertising
- No Fixed Salaries