Reviewed by Aug 27, 2020| Updated on
Network marketing, which is also known as multi-level marketing, is a business model that includes a pyramid-structured network of individuals selling goods from a company. The participants in this network typically get commission-based remuneration.
Simply put, this model includes a pyramid system with non-salaried participants who are paying if they or an individual underneath them in the pyramid make a sale.
How it Works
Network marketing is a form of business opportunity very common with people who are looking for flexible, part-time businesses. Some of the most well-known companies, including Avon, Mary Kay Cosmetics, and Tupperware, fall under the umbrella of network marketing.
Network marketing services offer a small upfront investment to buy a product demo kit and a chance to sell a product line directly to colleagues, family, and other personal contacts. Most marketing services on the network often ask participants to hire additional sales representatives. The recruits are the "downline" of representatives and their sales generate revenue for those above them.
Network marketing is basically a marketing tool used by manufacturers to increase their sales. Manufacturers use them for getting their goods out when they have to negotiate with several distributors. These distributors may sometimes have sub-distributors. Consequently, this leads to a "network" of distributors working at different levels of the distribution chain.
Network marketing manufacturers use this large distribution network for marketing their products to clients at different levels. That helps them to attract even more customers indirectly. Therefore, such distributors and dealers serve as independent company members.
As a result, the company can sell its products extensively in this way without spending more money on traditional marketing strategies such as ads.
Things can get messy when network marketing is solely compensating members for hiring others instead of selling the company's products or services. A network marketing program could be called as an illegal pyramid scheme if most of the revenue comes from recruitment.
Since network marketing services are generally excluded from regulating business opportunities and are not classified as franchises under state and federal laws, people will have to make their own inquiry before they invest any money.