Definition: Network marketing is a business strategy that involves a multilevel structure of interconnected individuals that generate money through direct sales or new member’s affiliations. It is a model that promotes the creation of networks of individuals or companies to grow the business.
What Does Network Marketing Mean?
There are many well-known companies whose business model is based on network marketing. A few examples are Avon, Amway, Herbalife and 4Life. These companies have different tiers or levels that are created each time a new member is added to the network. Depending on the number of levels these systems have they can be classified as single tier, two tier and multi-level. A single tier network is a company that recruits individuals that become direct affiliates and benefit from discounts and sales commissions. A two tier model can involve the creation of a new level below the first affiliate, established by members recruited by this individual.
Each person, under this model, is entitled to some benefits that come from the sales of this additional level of the network. Finally, there are multi-level schemes that work with many levels below the initial affiliate, entitling them to benefits coming from each stage below them. Some of these structures have been questioned in the past because of alleged false advertising, contract breaches and Ponzi schemes, nevertheless, many renowned companies are successful because of this marketing technique.
Example
LonHome Co. is a company that manufactures house cleaning products. They have a very extensive product line to serve different purposes like dishwashing solutions, floor waxes, shoe polishers, among many others. The founder of the company Stan Matthews deeply believes in network marketing as the future of sales. Since he started the company he developed a network of very well trained individuals that not only sell products directly but also recruit other representatives in many states across the country.
He started five years ago and now the company has more than 5,000 representatives located across the country and this first group of individuals are now very wealthy and serve like company’s marketing directors for different regions. The network marketing technique employed by Stan has been very successful and he sees more growth coming the next years.
