Blog 27 Jan 2021 867

What is Network Marketing and how does it Work?

Network marketing is dynamic way of increasing the sales of a specific product, product range, or service. Companies resort to this method in order to raise their sales revenue within a stipulated time, meeting targets, and growing their impact in the market.

Selling to close contacts

The people, involved in the sales activities through network marketing, are not direct employees of the company. The objective is to sell more products, and earn a parallel source of income, adding to their existing earnings, as individuals.

On the other hand, the company gains from more sales. These people in a network usually sell to their close contacts, in order to increase the chances of getting more commissions from the activity. In the way, there are provisions for some of the people who perform promisingly, to recruit more people under them, and intensify the selling procedure, but this is unlike the pyramid structure of selling products.

Different from a pyramid scheme

The overall dynamics and fundamental features of network marketing are different from that of a pyramid scheme. The pyramid scheme prevalent focuses more on the recruitment process of people, helping the previously recruited people to earn commissions. But, the focus of network marketing, as has already been mentioned, is on sales. The gains come from more sales, and not from more recruitment. But in network marketing, too, there is a predominant hierarchy system.

MLM scheme

In order to understand the functioning of a network marketing venture, you need to know about the basic features of an MLM Scheme. MLM or Multi-level Marketing scheme is the skeletal structure of network marketing, through which a new product range is sold to a wider audience, without too much investment on advertisements and related aspects of logistics.

How does Network Marketing work?

If you want to know about the main cogs that function in rolling the wheels of Network Marketing, then it is better to get accustomed to its via an example. There are various phases through which a business based on network marketing develops and gradually grows, as explained in the following points.

Phase 1 – A company aiming to exploit a market recruit some participants, who are not direct employees of the company. These participants are known as “independent business owners (IBO)”. The company does not invest much in advertising their products.
Phase 2 – The Company trains the IBOs and teaches them about fundamental methods and concepts of selling a product, especially to an acquaintance. The training could last from a couple of days to a week.
Phase 3 – The IBOs use these newly acquired sales skills to sells the product to their near and dear ones, and to other acquaintances, earning commissions from each sale.
Phase 4 – As there is progress in business, the IBOs can recruit people, who act as downline sales representatives, and the cycle carries on, giving more earnings to the topmost batch of IBOs.