Why do some companies use network marketing or multi-level marketing (MLM) to market their products and services? Is there any secret? Do they want to take needless advantage of others? What do the facts show?
Network marketing is a marketing channel, just like advertising, direct mail, email and social media.
MLM is a way for a company to market its products to a segment of the population it might not reach through normal channels. It is way cheaper; they can market to a large group of people through this one person for a fraction of the cost that it would regularly take.
A traditional approach to get a product or service to the marketplace would be to spend tons of money on advertising, radio ads, TV commercials, Billboard ads, Direct Mail and more. The setback is that the company must spend a lot of money and continue to spend a lot of money because the audience does not always see the ad when it’s run. That’s why we see the commercials over and over and over again to eventually to catch our attention.
However, instead of sending their products to the malls and the shelves where they would incur larger costs paying for those services and costs of employing marketing agents, companies rather call for partners (independent distributors) who would take the business upon themselves, as their own and use word of mouth advertisement to market these products. The partners of the company behave like full time workers as they would get corresponding incentives as a result.
The entire purpose of MLM is to move a product. The theory behind MLM is that the larger the network of distributors, the more product the business will be able to sell.thebalancesmb.com
Clearly, the real advantage why companies choose network marketing as a marketing channel is the low cost in promoting and advertising a product, and because commissions are only paid after a sales person sells it, that means the cash flow is only flowing out after revenues come in, a nice low cost model over and above a traditional business where the overhead is constant before the sale, as in, you pay sales people, distribution, inventory, building lease, equipment costs, while in the network marketing arena all these costs are not required.
In a network marketing platform, the company is able to use the most powerful type of advertising – the power of recommendation or word of mouth.
Now, instead of spending money on advertising, the company rewards those who get the products and services to the market place by sharing. Those advertising dollars are distributed to the people who take advantage of this model. It’s a win-win because the company only pays when someone buys. This way there is no money wasted. The products and services are shared and sold and there company gladly pays that commission to the person who did the sharing.
Obviously, if word of mouth advertising is the most powerful form of advertising, should it not be the most rewarding?
This explains why many partners get huge sums of income and incentives. It is certainly understandable!