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Network Marketing
- A Business for the Future

by
Ralph Marston

Welcome to the future. We're on the threshold of a new millennium, and the world is changing at an incredibly rapid pace.

Satellites are beaming 150 television channels directly into homes worldwide. Cell phones and pagers are keeping people constantly in touch. Financial markets around the world are interconnected, providing 24-hour trading opportunities. The global marketplace is a reality, with products and services being traded across the globe as easily as across the street. E-mail keeps everyone instantly in touch -- from school students to corporate executives. The World Wide Web is a gigantic, planetwide library, shopping mall and town square.

Change and diversity are the watchwords of the day. Large, bureaucratic institutions are collapsing, governments are privatizing services. Home-based businesses are flourishing, offering everything from specialty food products to business services. Small entrepreneurs are competing aggressively with large, established marketers. Markets are becoming fragmented as companies and media target narrower niches. New niche marketing opportunities are being created by tools such as satellite television, direct mail, cable, telemarketing, interactive media and other advances in communications.

The opportunities in such a world are exciting. Yet there are many difficult challenges.

Businesses face many challenges in this new world. How do you compete in a global marketplace with limited capital? How do you keep on top of trends when the market changes on a daily basis? How do you advertise effectively when there are 150 television channels going into the home? How do you become more productive and efficient when you've already cut expenses to the bone? How do you educate your market about products which are increasingly complex? How do you build and maintain brand loyalty in the face of a daily assault of new products from your competition? How do you improve customer service without significantly increasing payroll? How do you quickly bring products to market?

Individuals also face challenges. As an individual, how do you build financial security when there is no such thing as job security? How do you keep your skills up to date when knowledge is exploding? How do you earn an adequate living and still have quality time to spend with your family? How do you build for the future in a flat organization where there is no path for advancement? How do you survive when your company and industry have downsized and suddenly there are three times as many qualified people looking for one third the number of available jobs? How do you handle the stress when your employer cuts your staff and you're suddenly doing the work of five people? How do you find work that is personally rewarding when you're lucky just to have a job? How do you get a job in the first place when your skills are out of date?

Incredible technology, free markets, and globalization have brought many opportunities and challenges. Companies face global competition, trying to do more with fewer people. Individuals must find a way to survive in a world where the traditional job is a thing of the past.

What is the answer?

We are deeply into the information age, and are not entering the age of the individual. Powerful tools, such as computers and access to widespread communication networks, are giving individuals the ability to expand their influence. People are connecting with other people in ways that have never before been possible. Individuals are conducting business on a person-to-person basis, cutting out the corporate middlemen. Individuals now have the ability to define and build their own large network of contacts.

In such an environment, companies and individuals are turning to network marketing as a business that is ideally suited for the information age. Network marketing provides an elegant solution to many of the challenges faced by companies and individuals.

What is network marketing?

Network marketing, also called multi-level marketing or MLM, is a marketing and distribution method that uses word of mouth recommendations. One person recommends products to another, who recommends them to another and so on. Products are sold directly from the manufacturer to the consumer.

In conventional marketing, products must pass through several levels -- from the manufacturer to a distributor to a wholesaler to a local jobber to a retail outlet and finally to the consumer.

In network marketing, products are distributed directly from the manufacturer to the consumer.

Network marketing addresses a key problem for business, which is -- how to advertise effectively. Advertising is so prevalent -- on television, billboards, newspapers, radio, in the mail -- that it is difficult for individual advertisements to get any attention. On top of that, we don't usually believe what we see in advertisements.

But we do believe our friends when they recommend products, and many businesses capitalize on this fact. Books, motion pictures, and restaurants, for example, rely heavily on personal recommendation for their success. Most of you have no doubt eaten in a restaurant that was recommended to you by someone you knew.

Network marketing takes the power of word of mouth advertising and adds to it by actually paying people to recommend products and services to the people they know. This can create very loyal customers, who are happy to recommend products to other people. But network marketing does not stop there. The real power in network marketing, both for the company and the independent distributor, is in the potential for exponential growth.

Network marketing companies pay commissions for referrals many levels deep. As a result, network marketing companies can motivate people not only to recommend products, but also to build large networks of customers. Independent distributors earn commissions on their own efforts, plus the efforts of people they bring into the business.

Network marketing is a win-win situation. Individual distributors get paid to recommend products. Companies get a powerful way to reach the market. Let's take a closer look at some of the benefits. First, we will look at the benefits to the network marketing company.

Network marketing is a very fast way to introduce products. When people are pleased with a product or service, they will naturally recommend it to others. Add the extra incentive of pay, plus training and the tools to build large networks, and you can quickly create a large, effective sales force.

Network marketing reduces advertising costs. Mass advertising is replaced by personal recommendation, which is often more effective.

With network marketing, the company doesn't pay for marketing expenses until products are actually sold. This dramatically reduces the company's fixed expenses.

Because of the possibility that each new customer may eventually lead to hundreds, or even thousands of customers, distributors provide a high level of customer service, even on small sales.

Network marketing keeps the company in touch with the marketplace. When a company's customers and salespeople are the same people, the company can know what the marketplace wants on a daily basis. Network marketing companies are able to quickly find out about and adjust to fast-changing market conditions. It is like having a large, permanent focus group that provides daily updates.

So there are many benefits enjoyed by the network marketing company. That is why thousands of companies are marketing their products this way. Worldwide, network marketing is a $70 billion annual business, and growing.

Let's look at the benefits for the individual distributor.

Most people in traditional jobs earn linear income. They get paid a certain amount of money for working a certain number of hours. Highly skilled people, corporate attorneys and brain surgeons for example, get paid very well for their time. Yet their earning potential is limited by the number of hours in the day. Plus, their income is based on their showing up for work every day. If they were to stop working for any substantial length of time, the income would stop.

By contrast, network marketing provides the opportunity to earn residual, exponential income. Exponential income means that there is virtually no limit to the amount that can be earned. Income does not depend on the amount of hours worked, but rather on teaching others to duplicate your efforts. Residual income means that after you have built up a good income in network marketing, it is possible to stop working and still have the income continue. That is very attractive to many people.

Network marketing, as a business opportunity for the independent distributor, is very easy to get started in. It doesn't require a major investment, and no special skills are needed.

One major benefit of network marketing to the distributor is the ability to purchase quality products at discount prices. That's the reason many, many people get into the business. I know that's what got me into the business. People really like using a particular line of products, and join the company just to buy the products at a discount.

Network marketing also gives distributors an opportunity for personal development. Networking is a people to people business, and those who are most successful are those who help the most other people to succeed. So the business encourages personal development, personal responsibility, and cooperation. This benefits not only the independent distributor and network marketing company, but also society as a whole.

Just about consumer product that you can imagine is sold by network marketing. Of course some products are better suited than others for distribution by network marketing. The most successful companies sell products or services that are consumable. These are things that customers use month after month. There are many companies that also market non-consumable products, with varying degrees of success. It helps if the non-consumable product has a consumable component to it. For example, a monthly subscription fee associated with the one-time sale of a digital satellite system.

So what strategies do successful network marketing companies use?

First, a great line of products. As just mentioned, it's best if they're consumable or have some consumable component. Network marketing is a relationship business, and it is much easier to build relationships with continuing, month after month sales. The products must be of the highest quality and offer good value. Otherwise, people will be reluctant to recommend them. It is best if the product has a good story behind it -- network marketing is a story-telling business. Ideally, the product should be unique -- something that people cannot get anywhere else.

Another essential strategy for success is a marketing and compensation plan that motivates distributors to use the products or services themselves, recommend them to others, sign up their customers as distributors, train their distributors, help their downline people to build a business. There are a variety of compensation plans. Most pay commissions on retail sales, and overrides on the sales and purchases of downline for 3 to 20 levels.

The network marketing company must be well capitalized, and have the resources to handle growth. In network marketing, sales volume can grow very fast. Companies must be prepared to meet fast-growing demand for their products. Financial, manufacturing, management, logistical and data processing resources must be available to meet this growth. The number one reason for the failure of network marketing companies is the inability to keep up with the growth that is generated by an enthusiastic, highly-motivated sales force.

The system

A critical strategy in network marketing is a, well-conceived and maintained, easily duplicated system for success. Network marketing is NOT mass marketing. Network marketing depends on one person, talking to another, talking to another, and so on. In order for this to happen, the company must have a promotional system that every distributor can easily access.

The job of the distributor is not to SELL the products or opportunity. Rather, the job of the distributor is to plug his prospects into the system, and let the system do the selling. A well-planned success system ensures that the same message is repeated by each distributor and that every distributor knows exactly what to do to build his or her business.

There are many possible components to a successful network marketing system. Different companies use different approaches. The important thing is to provide the independent distributors with the tools needed to be successful.

Here are some of the building blocks of an effective network marketing system for success:

What are the pitfalls and how do you avoid them?

There are some problems and pitfalls that are unique to network marketing. Already mentioned is the need for adequate capitalization and resources. In addition, there are many false perceptions about network marketing, including:

These false perceptions are a result of people not knowing all the details of the business. The best way to overcome these is to fully explain the network marketing business to people and to always act in a professional, reliable manner. It does not help to try and conceal any aspect of network marketing, or to try and make the business something that it is not. Successful network marketing companies, and their distributors, are completely up-front about the business.

Attrition, or turnover, can also be a problem in network marketing. Because the business is so easy and inexpensive for independent distributors to get into, many people fail to treat it as a serious business opportunity. When it doesn't work for them (because they've put no effort into it), they give up, just as easily as they got started.

Also, many people see the small investment, and the large potential return, and think of network marketing as a way to get rich quick. Occasionally, someone will come into the business and build a large income very quickly. This, however, is the exception rather than the rule. It does make a good story, which gets told and re-told, and conveys the impression that such an experience is typical of network marketing. The vast majority of successful people in the network marketing business built their businesses over a period of several years, and worked very hard at it. Network marketing is not a get-rich-quick opportunity, but rather an opportunity to reliably and methodically build wealth. Successful network marketers realize this, and work to build their business for the long term.

Another potential problem in network marketing is the tendency for false claims, regarding both the products and the opportunity, to be circulated. Because distributors are independent, it is impossible for the company to completely control what is being said about its products or opportunity. However, network marketing companies must take precautions to avoid misleading claims on the part of their independent distributors. By supplying distributors with adequate sales materials and training, many false claims can be avoided.

On the whole, network marketing is a very positive business. Network marketing is very well suited for the fast-changing world in which we now live. For networking companies, it provides fast, powerful and effective way to reach the market. For individuals, it provides an opportunity to take control of their future, work hard and achieve financial independence.

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Copyright (c) 1996 Ralph S. Marston, Jr. All rights reserved. Re-printed by permission of the author. This article includes the text of a presentation by Ralph Marston at Promovendas '96 on November 6, 1996 in Sao Paulo, Brazil. To read additional articles by Ralph Marston, visit http://www.greatday.com/


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