[Commerce Class Notes] on Network Marketing Pdf for Exam

What is Network Marketing?

The advanced technology and introduction of network marketing have completely changed the way of conducting business. The new modes of marketing business help multiple companies to attract potential customers towards their services. In addition to it, network marketing helps in reducing expenses that business industries suffer in traditional modes of marketing. Here we will go through what is network marketing’s meaning, and some of its merits and demerits. 

What is Network Marketing?

Network marketing refers to a medium of marketing that numerous business owners use to expand their businesses. Manufacturers often use such a tremendous medium to deal with numerous distributors to enhance their business productivity. Other sub-distributors under them lead to a great network of distributors. They operate at different levels of the distribution chain and ensure good sales. 

One of the major benefits of network marketing is that manufacturers can use this medium for marketing their services to consumers at multiple levels. It enables them to reach out to potential customers indirectly. 

Structure of Network Marketing- How It Works?

To create a robust network marketing structure, manufacturers need numerous distributors, sub-distributors, and also dealers. All these distributors obtain goods and products from manufacturers at wholesale costs. They may use them personally or can sell to other distributors and gain profit. It forms a chain that continues until distributors reach customers. When the distributor or sub-distributor reaches customers or becomes final consumers themselves, network marketing ends.

Apart from it, these distributors get a tremendous opportunity to gain some returns from this network marketing. They can receive some commission from the manufacturers according to the number of products they buy and sell. 

The above picture shows how a manufacturing company plans and decides the number of distributors for selling their goods and products. 

Examples of Network Marketing

Generally, manufacturers use a network marketing model in certain business structures that involve multi-level marketing. It is because such business models comprise a large network of distributors as well as sub-distributors. Some common network marketing examples include affiliation between companies like Amway and Tupperware with people who work part-time for them. Additionally, there are a number of women in India becoming distributors to work enthusiastically with manufacturers on network marketing. 

Characteristics of Network Marketing

• Direct sales: Various companies market and sell their products directly without making any use of the distribution channel. The responsibility is given to non-employed individuals to sell the manufactured products and get a commission every time they make a sale.

• Selling philosophy: The network marketing model includes participants to work on the selling philosophy of marketing. The main focus of distributors is to sell as much as they can to gain high commission. 

• Hierarchy system: Distributors often have sub-distributors under them to earn more profit. It allows them to earn a commission from the manufacturers and profit whenever the sub-distributor makes a sale. Further, sub-distributors can have sub-distributors under them to earn in the same way and hence make a hierarchy system. 

The above picture shows that there can be multiple distributors connected together in network marketing. Further, there can be numerous sub-distributors under one distributor for earning high profit. 

Advantages and Disadvantages of Network Marketing

Advantages of Network Marketing

• There is no restriction on the network marketing structure’s size which enables several companies to tie-up with numerous people to become distributors. Additionally, distributors can coordinate with other sub-distributors to gain profit.

• Companies do not need to depend on advertising their goods to market due to a consistent and robust distribution network that attracts customers directly.

• One of the greatest advantages includes reducing the profit margins of retailers that companies consider as an expense. The companies don’t have to take the burden of such costs as these margins get directly passed on to distributors.

• There is no need for the company to spend a lot of money on distribution or storage. It’s because distributors handle all such expenses by themselves.

• The structure of network marketing enables distributors to earn well from their dealings with manufacturers. They have a great chance to earn commissions as well as their own profits. 

Disadvantages of Network Marketing

• It becomes difficult for manufacturers to predict production targets. It is because they depend completely on distributors to govern customer demand. It may lead to over-stocking or under-stocking of products.

• There is a major role of distributors to facilitate the delivery of goods and services to final consumers. As manufacturers are less concerned regarding this, they may find it tough to control sales or distribution.