We agree, 2015 has been a challenging year for network marketing. Have you ever wondered what causes the general public to be skeptical, the media to be negative, and governments to be suspicious?
To find some answers and solutions to the problem, network marketing millionaire and author Pat Petrini recently created a 7-part video series, explaining why network marketing has struggled since its inception and continues to struggle as a business model.
You may know Pat Petrini as the creator of the viral video (over 1.2 million views!) – I still think it’s a pyramid scheme
Pat believes there is something inherently unsustainable in the way network marketing has been practiced up until now, causing it to be under constant scrutiny by governments, as well as contributing to its tarnished reputation in the eyes of the public.
In watching this video series, you will realize Pat has an undying love and respect for the network marketing profession and deeply cares about the people it attracts—in the field as well as at the corporate level. The purpose of this series is to start a discussion to see how company founders, executives, and distributors can work together to reinvent the business model so it becomes more effective and competitive in today’s global marketplace.
Click below to watch the first video, an Introduction to the series.
In this introduction, Pat explains the root cause of the problem: many network marketing compensation plans reward the wrong activities by incentivizing the enrollment of distributors over the acquisition of customers. Pat says he knows no other businesses besides network marketing companies that have more salespeople than customers… How do we take network marketing to the next level?
“Simply start incentivizing the right activities,” says Pat.
Click below to see Pat’s next video:
Part 1 – What Happened to the Customer?
Here are the main points Pat makes in this video:
- Pat says the term “distributors” is inaccurate, because they don’t distribute the products, they market them. From here onward he uses the term “marketers.”
- He defines a customer as someone who purchases product and has zero interest in being a marketer.
- A problem plaguing all sales organizations is the high turnover of salespeople—and the cost associated with this attrition. To remedy this, (network marketing) companies created incentives in the form of residuals for salespeople, so they would have “too much to lose” to leave. In the process, these companies lost sight of the primary purpose of business, which is to acquire and keep customers.
- Network marketing has lost this purpose. Top earners almost always lead with the opportunity and neglect the acquisition of customers—the lifeblood of any business. The majority of network marketing companies get well over 50% of their volume from marketers, while only 30% or less is coming from customers (not counting “internal consumption”). In a healthy business, the customer base needs to be much bigger than the salesforce.
- Leading with the opportunity makes the entire business model unsustainable*. Once the model became marginalized, network marketing could no longer compete with other business sectors, which is why the people in it started calling it an “industry.”
* To test whether something is sustainable, ask yourself, “If everyone did it, would it work?” In most current network marketing models, the answer is no.
What do you think of Pat’s observations? Please let us know in the comments.
Coming up next (Part 2): The P-Word – Pyramid schemes…