Everybody knows network marketing is a highly, perceptually challenged business. In most emerging economies where the profession has been making a mark in the last few years, the general lack of awareness and understanding, and the absence of governing regulations or legislation, give rise to misconceptions, doubts, and general wariness about the business. Also, network marketing is word-of-mouth marketing, which means if there are 4 million people out there promoting this business, that’s 4 million opportunities for misrepresentation, if the business is not explained the right way!
Searching for the Truth
In today’s world of information overload, Google returns 146 million search results for the term “network marketing.” Each result offers yet another perspective on this much misunderstood, much debated, and much maligned business model.
The crowd-sourced collective wisdom of Wikipedia defines network marketing as:
… a marketing strategy in which the sales force is compensated not only for sales they generate, but also for the sales of the other salespeople that they recruit.
It’s as simple as that. Out of the 146 million search results on Google, about 50% talk about scams; how network marketing has caused the downfall of various economies; how “victims” have lost millions; and how people promoting direct selling or network marketing should be shunned.
The Pareto Principle
Unequal wealth distribution is what drives many prospective network marketers to explore the endless opportunities our business offers. In 1906 Italian economist Vilfredo Pareto created a mathematical formula that described the disparity of wealth in his country: 20% of people owned 80% of the wealth. The Pareto Principle, or the “80-20 rule” as it was later called, points out that most things in life, be it effort, reward, or output, are not distributed evenly, because some people contribute more than others.
The Pareto principle applied to network marketing simply means that 20% of the people make 80% of the money. The same is true in real estate, and in most other businesses. There is nothing wrong with that. That doesn’t mean its a scam.
What exactly sets the network marketing model apart from pyramid schemes and scams? Below are 8 distinct ways in which they are different.
- Legitimate companies deliver quality products or services.
Unlike pyramid schemes, where you get no legitimate products or services for your initial investment, legitimate network marketing companies spend millions on research and development to create exclusive, innovative, high-quality products tailored to meet the lifestyle needs of people across the globe.
- Network marketers don’t earn commissions through recruitment.
Network marketers don’t need to recruit new members to earn a commission, because legitimate organizations reward people mainly for promoting their products. Commissions for recruitment are not merely for the recruitment itself, but for products that are sold with every starter kit. In a pyramid scheme, the financial return is solely based on recruitment.
- Legitimate direct selling companies have restrictions in their compensation plan.
Most direct selling companies limit the number of people who can earn a commission on a sale, making it a level playing field for everyone. On the other hand, a typical example of a pyramid scheme is where the uplines make all the money, while the downlines lag behind hopelessly because they were recruited much later.
- Direct selling companies provide a return guarantee and don’t allow product overloading.
Legitimate companies offer distributors different methods of moving inventory and discourage “product overloading,” (buying more product than needed for personal consumption in order to benefit from increased commissions), in an effort to encourage distributors to grow a customer base through networking rather than buying excessive amounts of products.
- Network marketing isn’t a “get-rich” scheme.
Legitimate network marketing opportunities promise you results and financial freedom only if you work hard, think smart, and put in due effort to succeed. Any company that promises you an easy way to get rich is probably a scam.
- Network marketing opportunities are supported by business tools.
A legitimate direct selling company will help you keep track of your purchases, commission earnings, and product delivery status while offering full customer support. Distributors also receive regular product bulletins, marketing collateral, and promotional offers to help boost their business and income.
- Network marketing opportunities have a solid training system.
Legitimate companies give great importance to training their sales force and boast a large number of qualified trainers with knowledge and experience to help distributors better understand the business and products. Their compensation plans reward leaders to mentor and steer distributors in the direction of success.
- Direct selling companies have proper Policies and Procedures and ethical marketing codes.
A legitimate network marketing opportunity clearly states its business policies and procedures, binding every network marketer to strict regulations and agreements. The company will take action against any breach of its Policies and Procedures. Most direct selling companies believe in achieving strong long-term growth and stability by creating a culture of ethical marketing.
Knowledge is POWER. The next time someone gives you one reason why they think your network marketing business is a scam, give them 8 reasons why it isn’t!
Ramya Chandrasekaran is Digital Content Manager for Networking Times. She was the Chief Communications Officer for a leading Asian Direct Selling company in the Pacific Rim responsible for PR, branding, and customer communications in key markets in Asia, the Middle East, and North Africa. She is currently a communications consultant for clients in direct selling and network marketing.