Network Marketing: what is it and how does it work?

Network Marketing, also known as Network Marketing, or Multilevel Marketing (MMN) is, in fact, a direct sales strategy in which independent sellers operate within a network that provides for commissions at different levels of performance.

Although its credibility has been severely undermined by historical fraud, based on a widespread disclosure of financial corruptions, promoted by large companies and organizations that disguised their illegal activities by labeling them as Network Marketing, it is a totally legitimate business model. .

If you want a year of prosperity, grow rice. If you want 10 years of prosperity, grow trees. If you want 100 years of prosperity, cultivate people.

What is Network Marketing?

As previously indicated, Network Marketing is, in short, a direct sales strategy in which salespeople are remunerated for the marketing of products and / or services and, indirectly, for the recruitment of new members.

This business model has the following characteristics:

  • direct sale: the basis of this strategy is found in the sale and in the relationship between distributors and customers;
  • direct distribution system;
  • recommendation and team building: salespeople act as independent “recruiters”, indicating new salespeople for the company;
  • network remuneration and performance: provides for referral / recruitment awards and sales commissions made by appointed distributors.
 

Of the aforementioned characteristics, the latter is the one that deserves the most attention. It is precisely this that classifies this system as being a "network". Watch:

Main challenges

It can be said that MMN has three weaknesses:

  • saturation: mathematically, at a given moment, the company will not be able to recruit new salespeople, which makes it impossible to expand;
  • sustainability: salespeople who are unable to recruit new representatives may feel “injured”, as they depend exclusively on their sales;
  • business honesty: it is still very common to have disparate organizations on the market with dubious speeches and practices, which presupposes an increase in the mistrust of future professionals and investors.
 

With regard to the first weakness presented, given the fact that most companies that work with Network Marketing do so with recurring products, there is no need to fear the possible freezing of the market. At most, the networks of vendors may slow down the pace of expansion.

Regarding the second point, we must not forget that we are dealing with a different type of salesperson. Their commissions are not free, since they have several responsibilities in the system, such as analyzing, managing and stimulating their sales team, which requires the organization of meetings, events and even internal incentive / motivation campaigns.

The real weakness of Network Marketing is undoubtedly based on companies that use it as a cover to promote illegal schemes. After several episodes, this area came to be frequently confused with scams and financial pyramids. As important as understanding what Network Marketing is, is knowing what it is not.

What is Network Marketing not?

Some characteristics of this business model are often confused with other systems, so it is advisable that both salespeople and companies that are interested in the area are attentive to small details that, in some cases, can even report illegal activities.

Network Marketing is not Direct Marketing

The concept of Direct Marketing is imperatively associated with communication strategies whose objective is to directly reach the public of a company. Examples of this type of marketing are telemarketing and e-mail marketing.

Network Marketing is not Monolevel Marketing

In Monolevel Marketing, all participants work at the same level and the seller is remunerated, solely and exclusively, for the sales of products / services made.

Network Marketing is not a pyramid scheme

We already know that Network Marketing can be dubbed in several ways (Network Marketing, Multilevel Marketing, Multi Level Marketing, MLM, MMN, MR and NM). However, there is something he definitely not: a financial pyramid.

The biggest difference between the two concepts is in the focus of their activities. While companies that perform their functions using the Network Marketing model have as main source of revenue the sale of their products / services, the financial pyramids are limited to the exhaustive recruitment of new members and in some cases, the products and services they claim to offer do not exist! As there is also no adequate sales flow, the salespeople work exclusively on recruiting new members who, in turn, must pay a pre-paid, unfounded amount, to join the group.

A pyramid scheme is unsustainable, even though its dismantling takes place long before any indication of saturation.

As can be seen from the diagram below, the sellers at the bottom of the pyramid never manage to recover their investments and the scammers at the top celebrate big profits on everyone involved.

Benefits of Network Marketing

Taking into account all the points exposed, it can be said that Network Marketing has numerous benefits, including:

  • simplification of the value chain: fewer intermediaries are needed to bring the “merchandise” to customers;
  • loyalty: creating links between salespeople and consumers, stimulating new sales and ensuring a sustainable billing rate;
  • scalability: the business has great potential for growth and productivity;
  • low investment: big investments are not necessary to start a business in this area;
  • rapid growth: with the structure already set up and consolidated in the market, the company will be able to assume an exponential growth rhythm, due to the work developed.
 

It's important make sure that any type of commercial activity is subject to scams and fraud, however, this fact should in no way characterize a market as a whole.

Network Marketing is probably the most promising business model today, and your success e your credibility depend, Clear, legitimate, transparent and effective management.

Filipe Martins

Founder and CEO of Filipengine - Sistemas de Informação. Specialist in Programming and Digital Marketing. Trainer and certified E-Trainer. Consultant and researcher. Aspiring to Computer Engineer (Universidade Lusófona do Porto), Professional Superior Technician in Programming of Information Systems (University of Aveiro) and Professional Technician of Management and Programming of Computer Systems, with experience as a team leader for more than 5 years.

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