The Truth about Network Marketing

Following the legalization of network marketing, also known as multi-level marketing in Singapore, it has become a force to be reckoned with. This article may seem to be a bit of a bitching session about this phenomenon, but more often than not, the facts are pointed out from an insider's point of view.

For the uninitiated, network marketing is a system that sells products by direct selling through distributors who more frequently than not tap into their own social network to sell the company's products. The company's structure is normally made up of many tiers of distributors who can advance to the next level once a certain quota has been fulfilled. Each distributor is attached to another distributor (often the distributor who recruited him). This recruiter shows him the ropes and is also entitled to a certain percentage of the profit of each product that the distributor of the lower level sells. I will now tell you some of the faults that I discovered by myself while being a distributor.

The oft-said refrain of distributors is that the products of these companies are cheaper. If you go for any of the companies' seminars, they will tell you that most products of the traditional business system need to go through many channels. Having taken some business modules myself, I know this to be true. Ordinarily, a product will need to go through multiple channels which include the wholesaler, the agent and the retailer before finally reaching the consumer. Following this rationale of the profit maximization of a business, each channel the product goes through will add on to the cost of the product, making it extremely expensive by the time it reaches the consumer.

Many distributors have argued that in network marketing, this is avoided as the product goes directly from distributor to consumer, making the product less expensive and relatively cheaper. The argument that it is cheaper is the point that I seek to discount.

Although the products in network marketing do not need to go through the multiple channels of distribution, the incentives offered to distributors far exceed those of the salaries of the typical retail assistant in traditional business models. In the company that I was working for, for instance, top distributors are given a car and a fund for car maintenance. In addition, normal profit margins of the typical distributor are higher, high enough to add on to the cost of the product. In addition, in some network marketing companies, top distributors also get to have a cut of their companies' profits.

Thus, it is not true that the products of network marketing companies are cheaper. If one really breaks down the budget, the prices as compared to traditional business companies are comparable.

Following this train of thought, perhaps you are thinking that you should go into the business now, since it is so lucrative. Since the company treats you well, why not? Well, think again. Have you ever wondered why these network marketing companies carry out recruitment exercises all the time? This is because they have nothing to lose and everything to gain. Let me explain why.

When you enter a normal company as an employee, you are given some benefits. For instance, health benefits, discounted gym membership and payment of your mobile phone bills. At the very least, you have a pantry where there is at least water, coffee and tea given to you free-of-charge.

Well, in network marketing companies, you are not given any of these benefits. In fact, you are typically given nothing unless you make it to the very top. In fact, in place of a pantry, what greets you is a vending machine. At the company that I used to work for, I even had to purchase some of the publicity pamphlets to show my clients!

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Besides this, most, (not all) network marketing companies require you to purchase one or more of their products before you become an official distributor. The rationale is that in order to sell the product, you must first believe in the product. This is not a bad rationale in itself. However, think about it from the job-seeker's point of view. He or she came to the company to earn money. Yet the person has to fork out money first. Does this make sense to the job seeker? I mean, if the company was really sincere, it should give out samples of the product to the interested job-seeker to fulfill this rationale. In fact, to me, it smacks of exploitation, a measure used to gain more customers and consumers. That is also another peeve I have with network marketing companies.

If you look at the advertisements of the typical network marketing companies, they will read "residual income guaranteed". I will now explain what residual income is.

As mentioned earlier, the distributor of the higher level will stand to gain a percentage of the profits made by the distributor of a level below him. This system stretches from the lowest to the highest tier. In a nutshell, the person at the top gets money from what the lowest level does.

This is what attracts so many people into the business as well. The residual income. Often network marketing companies will promote this by saying that you can get money without doing anything. I am going to paint two scenarios now- When the person at the top does get the residual income and when he doesn't.

First scenario: The person at the top gets the residual income.

 
Now if it was just one level difference and the distributor of a higher level was showing the other distributor the ropes, I have no complaints. The distributor is getting his rewards from grooming the distributor directly below him. Fair enough. Yet, what has the distributor of two levels or more above done to deserve the profit? Is it because he has already groomed the now-groomer? Is it fair? The answer is perhaps subjective. Some people would argue it is fair as the distributor of the highest level did in fact groom people to carry on the job. However, from a psychological point of view, the average person would expect the person of a level above him to get higher pay either because of higher qualifications or more contributions made to the company they are both working for. In typical companies, in order to earn further income, the person does need to continue working and making contributions towards the company. It is true that in practice it does not always hold water. Yet, from another perspective, it is more unjustified in the system of network marketing as compared to the typical business model. One might argue that the distributor below can work his way up and also gain residual income. Yet, this is not guaranteed as not everybody makes it to the top.

 
Second scenario: The person at the top does not get the residual income.

This typically happens when the network of the said distributor collapses. This occurs when many people within the network pull out of the company. In fact, the turnover rate in network companies is extremely high. This shows an inherent flaw in the structure and system of network marketing companies and also explains why these companies are constantly recruiting people.

That said, it might be of your interest to know why network marketing is here to stay. It is indeed a lucrative business once you get to the very top. I have seen pay checks of six-figure sums of the top distributors.

If you can accept the flaws that I have mentioned and you want money, network marketing is the place to go. In order to get a more balanced view of network marketing that promotes network marketing, there is a bestseller entitled "Rich Dad, Poor Dad"that you may consult.

Having read one perspective in the affirmative and another in the negative, it is then up to you yourself to decide what you think about the issue I am writing on today- network marketing. However, one thing is for sure, it is here to stay. For now.

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