In most of the countries in the 90s, selling products from Amway was not illegal. We are talking about that business model. Network marketing also known as multi-level marketing (MLM), is a special form of direct sales. In contrast to traditional direct sales, customers are encouraged not only to recruit other customers as independent sales partners but also to encourage them to become sales partners themselves to be able to benefit from a commission from their sales. Depending on how they are structured, network marketing systems can resemble an illegal Ponzi scheme or pass it off as network marketing.
Features of Network Marketing
Customers can act as independent consultants and resell the products at the same time. Since almost all network marketing companies lure their customers with bonuses for acquiring new customers, there is a proximity to prohibited Ponzi schemes. It depends on the exact design of the system whether the focus is on advertising new customers/members or selling products.
Another feature is the strictly vertical structure of the sales structure, the hierarchy of which visually corresponds to an upside-down, widely branched tree. This structure leads to a broadly branched distribution system.
The description of the organizational structure as a network is not correct insofar as the individual points in a network are connected horizontally, vertically and diagonally and interact with each other. Rather, the term “network” refers to the type of sales: sales take place on the one hand via referral marketing and on the other hand in the personal environment of the consultant. As the size of its structure increases, it builds up a larger social network to attract new consultants for itself or the company. The networking pattern is similar to the behaviour of users of social networks on the Internet, such as Facebook, XING, and LinkedIn. Potential members are “invited” by members to join the organization, paid or not.
Special form of direct sales
In classic direct sales, the company’s own, specialized sales representatives are usually used (in-house personnel). They sell directly to the customer, cutting out intermediaries. The employees in network marketing are a growing network of independent and self-responsible laymen (external personnel) who work full-time or part-time as resellers or intermediaries. In comparison, the number of sales representatives in direct sales is low, which is why the cost share of sales can be lower in direct sales.
Since the salespeople in traditional direct-selling companies are permanently employed, they are only partially remunerated on a performance-related basis. Employees in marketing networks, on the other hand, bear a much higher economic risk, as their remuneration depends exclusively on sales or recruitment success.
Difference from referral marketing
Referral marketing is a marketing measure that is partly actively promoted and desired, but not a controlled marketing measure. Steering is difficult because the passing on of recommendations is based on unexpected contacts from (satisfied) customers. The main goal is therefore not to persuade customers to acquire new customers, but to build a positive image through above-average customer satisfaction. In addition, referral marketing is only one measure among many for most companies.
Is Network Marketing Just a Scam?
The supporters of Network Marketing & MLM Schemes claim that their way is legitimate. We must first explain to you that network marketing isn’t a pyramid scheme. A pyramid scheme is completely illegal in many countries.
Making money via affiliate marketing does not require coercion or blackmailing. Making money from the internet has clean options such as reselling, dropshipping or just affiliate marketing.
If you want to become a distributor, then you can open a brick mortar shop. Thereafter you can sell via Amazon or your website.