How network marketing works
Network marketing has become one of the fastest-growing business sectors in recent decades. According to Zion Market Research, over 128 million people worldwide are involved in the MLM industry, with total sales exceeding $223 billion annually. However, network marketing continues to be misunderstood, as it is not traditional commerce as most people understand it.
What is network marketing and how does it work
Network marketing, also known as multi-level marketing (MLM) is a business model that involves promoting and selling a company's products or services through a network of independent sales partners. "Marketing" here refers to delivering the product from the manufacturer to the consumer, and "multi-level" describes the reward system for those involved in this delivery.
To better understand how MLM business works, let's consider the traditional product promotion scheme and promotion through a partner network:
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Traditional Business Model
A classic business is built on a hierarchical structure with clear role divisions and fixed salaries for each employee, which can limit team motivation. Products usually go through several intermediaries before reaching the end consumer. Initially, the manufacturer sells the product to wholesalers, then it goes to retailers, and only after that - to the buyer. Each intermediary adds their markup to the initial product cost, significantly increasing its final price.
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Network Business Model
The main goal of network marketing is to reach a wide audience and promote a company's products or services through personal recommendations. Thus, there is only one intermediary between the manufacturer and the end consumer, who attracts customers and makes sales.
The idea is simple: a consumer who likes the company's products becomes its so-called partner - a distributor and shares information about the products with their close ones or on their social networks. The distributor not only talks about the product but also shares their own experiences and results from using it, creating more trust among potential customers.
According to PowerReviews research, 59% of consumers claim that recommendations from family or friends influence their purchase decisions. Additionally, customers acquired through recommendations have a 37% higher retention rate.
Companies selling their products or services in the traditional way spend around 30% of their value on product advertising. In contrast, MLM businesses do not spend on traditional advertising; instead, they pay bonuses to their partners only for real actions:
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product sales - each distributor distributes the MLM company's products and attracts customers, earning commissions from their own sales;
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expanding the partner network - networkers promote the MLM project's business offer, attracting new members to the network and subsequently receiving bonuses from their sales;
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building a productive team - when distributors train newcomers, develop their structure, and increase its activity, they receive various additional bonuses and higher qualifications.
Thus, the basis of every MLM business is a well-thought-out reward system (marketing plan) that allows for easy attraction of participants into the partner network, retaining them, and motivating them to take active actions in sales and recruiting.
The well-known formula for success in network marketing consists of three rules: learn to work yourself, teach those you attract to the business to work, and teach them to educate the next generations of partners. It is precisely these actions of distributors that contribute to the continuous expansion of MLM companies, dynamic sales growth, and easy entry into new markets by attracting partners from different cities and even countries.
Summary
Network marketing - an innovative business model based on personal recommendations and building long-term relationships with customers. It opens up the opportunity for everyone to become not just a consumer, but a partner of the company, earning income that depends solely on their own activity. This MLM model allows anyone to achieve the desired financial independence, and network companies are successfully developing in different parts of the world, reaching multimillion-dollar profits.
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