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What Is Network Marketing?

Posted on | November 26, 2008 |

What Is Network Marketing?

by Matt Hellstrom

Network Marketing is a business distribution model that
allows a company to market their products directly to
consumers by means of direct selling and referral, or
word-of-mouth advertising. It differs from most other types
of businesses in that there are no advertising, wholesale,
or retail costs involved (no middle men!).

What do you mean by “No Middle Man”?

When companies use “middle men” they spend money, and lots
of it, on things that don’t enhance the product. If they
don’t have these costs, they can spend more on research and
development. This means that they can produce a higher
quality, more unique offering.

The other main benefit of the Network Marketing business
model is the fact that some of the money spent on
advertising and the distribution channel (wholesalers,
retailers, etc.) can now go to the people who actually
promote the products by their word-of-mouth advertising.

This person is referred to as an associate, independent
agent, or distributor. He or she is a salesperson who has
their own business or distributorship. They create income by
building up a customer base that buys the products directly
from the parent company, or by recruiting other
entrepreneurs who in turn build their own customer base, or
usually a combination of both. This increases the size of
the overall organization.

Indepedent agents earn their money in at least two ways -
through the efforts of their downlines, and by purchasing
products from their company at wholesale prices then turning
around and selling them for a profit. Commissions are paid
based on what’s called a “compensation plan”, which
determines how many levels of people will be receiving
income from one person’s sales.

I’ve heard of multi-level marketing, or MLM. What’s the
difference between this and network marketing?

Basically, nothing! The two terms network marketing and
multi-level marketing refer to 2 different aspects of the
same business.

Network Marketing describes how the products are marketed,
through a network of people in communication with one
another.

Multi-level marketing is simply the means by which the
people in the network are paid for their efforts.
Commissions are paid to multiple levels of distributors,
which creates leverage.

And leverage is….

Leverage in this instance refers to being able to earn
income on someone else’s efforts.

The leverage concept is nothing new. It’s used by all
for-profit businesses that have employees. The company
charges money for something that the employee produces, then
only pays the employee part of that. The owner of the
company then keeps the rest, thereby leveraging the
employees hours to create income for himself.

Network Marketing compensation plans are similar in the
leverage aspect, but different in one major way: There are
no employees, or the associated costs and hassles. They are
leveraged off other independent associates instead. These
people are also going to work harder, because they own their
own business and are more motivated to succeed.

Is This What’s Called a “Pyramid Scheme”?

If distributors are paid primarily from money received from
new recruits, or if they’re required to buy more product
than they are likely to sell, then the company may be a
pyramid. Pyramids are illegal in all states and most
countries. Legitimate Network Marketing companies are not
only legal, but thrive in every state and in most countries.

There are illegal pyramid schemes that try to pass
themselves off as legitimate network marketing businesses.
If a company is legitimate, the distributor can only earn
commission from sales of the company’s products or services,
and not from recruiting sign-up fees alone.

Two Good Resources For Learning More About the Industry of
Network Marketing.

The two resources are The 45 Second Presentation That Will
Change Your Life by Don Faila, and Brilliant Compensation by
Tim Sales. These are both excellent third-party tools that
are not only informational, but extremely useful for showing
to prospects that are dubious.

Discover the new techniques of
(http://www.networkmarketing4today.com) social network
marketing today! Network marketing not for you? Then visit
our (http://www.onlinebusinessbuffet.com) online business
ideas blog for other money-making web-based businesses.

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Category: Network Marketing
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