Dr. Andrwe Smith

Direct selling and Network Marketing Overview – Usana’s business system

Network Marketing (also know as relationship marketing, word of mouth marketing and multilevel marketing) is a distribution model used by Direct sales organisations for the promotion and distribution of their products and services. 

Usually, the company will be responsible for producing, packaging and distributing the products and the Independent Distributor is responsible for promotion and advertising.  The role of the Independent Distributor is to identify new customers for the company, in exchange for commissions.  The reason it is called Network Marketing is because the Independent Associate will traditionally promote the goods through social networks including family, friends, church, clubs, work colleagues, etc.

As well as marketing the products, an Associate may decide to promote the business opportunity, finding new team members for the company.  When an existing Associate personally introduces someone new to the business, they become the new Associate’s Sponsor or mentor.  That new person will also be an Independent Distributor for the company and will be placed in their Sponsor’s team. Both of them will receive a commission based on the customers that the new Associate introduces to the products.  For some people the number of potential customers that are personally known to them may be limited, hence there are vast benefits to developing a group of business builders to promote the products alongside them, reaching more potential consumers and opening new distribution avenues.

This process can then duplicate for any business partner.  Distributors are able to build a customer base of thier own and receive commissions on the orders placed by any new and repeat personal customers, as well as the customers of the Distributors in their team.  The original Sponsor will receive commissions from any sales generated within their organisation.  The structure and commissions will differ from company to company and pay plan to pay plan, but the principle is the same.

The Network Marketing business model offers Individuals the opportunity to earn income like an Entrepreneur.  What I mean by this is that income is not determined by the number of hours personally committed.  Payment is made based on the quantity of products sold by the individual's team.  The money they earn is based on the productivity of everyone in their organisation.  Therefore, if you are able to teach your downline to be more productive then you will make more money!  You have true leverage in your business when your team members are fully trained and are able to find new customers and Associates without your own involvement.  This requires a good understanding of your business and strong leadership ability, but the benefits are more than worth it!

In retail distribution, the goods are produced and is purchased by the wholesaler.  The wholesaler supplies the products to various retailers, who sell the product to the customer.

As a customer / consumer, you will typically pay around 2 to 3 times more for a product than the wholesaler paid the manufacturer for them.  Say for example an item cost £10 to produce, the wholesaler may then pay £15 for each unit and the retailer then purchases them for £20 from the wholesaler.  The retailer will then sell the product to you for £45 to account for their expenses for staffing, utilities, advertising, etc. and still make a profit.  Therefore you are paying £45 for an item that the manufacturer sells for £15, because everyone in the distribution chain must make a profit on your purchase.

In the Network Marketing model you purchase directly from the manufacturer.  Therefore, less of your money goes to the middleman.  The products you actually get are generally a higher quality than retail products, due to the company’s emphasis on research and development of the product.  Network Marketers may be paid up to 30% on the sale of a product, but the customer will still pay proportionally less for a superior quality product.
 
Network Marketing businesses are typically run from home, often on a part time basis and promotion is generally done via word of mouth marketing.  Hence, overhead costs are lower.  Also, people are generally more likely to trust the recommendations of a friend, family member or work colleague than any other form of advertising.  In addition, consumers have much closer contact with the company through the independent representative who introduced them to the company.

The purpose of both distribution models is to reach new customers, whilst serving existing customers.  However, incentives and commissions are awarded differently in the two methods.  In retail, the owners and managers of the wholesale and retail companies are rewarded on the productivity of their staff and in Network Marketing, the Distributors earn commission based on sales generated by their organisation.  Learn more at http://www.usanainhealth.com/business

Article Tags: Network Marketing, Independent Distributor

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