What is Network Marketing and how does it work – Part 1

Network Marketing is one of the fastest growing business models in the world. Today, more than 100 million people worldwide are part of the network marketing industry which sells more than 178 billion US$ per year in over 130 countries.

In the First Part of the post: What is Network Marketing and how does it work? I will explain “What Network Marketing is”. In Part 2 of this post, which I will publish soon, I will outline “How network marketing works”.

There are many names for it, describing the same – Network Marketing, Multi-Level Marketing, Direct Selling, Affiliate Marketing …
Also for the people working in Network Marketing there are different names. They are called distributors, consultants, promoters, independent representatives or associates, independent business owners, partners etc. Let’s have a look at …

What is Network Marketing and how did it evolve?

What is Network Marketing and how does it workIn the 20th century, also called the “Industrial-Age”, the main business model were big corporate companies like Henry Ford or General Motors in America, Krupp in West Germany, Peugeot in France or FIAT´s Giovanni Agnelli in Italy with their huge steel and car companies, which dominated the business world. The people who owned the factories controlled the wealth. They all had in common, a centralized headquarter that controlled all their activities.
In the 1950s a new business type appeared, called Franchise. Not as before a single central office controlled the business activities; responsibilities were spread out in a Network. In this business network multiple business owners used the same blueprint and also the same values. The most famous franchise company is the food chain McDonald´s.
Later on, in the 1970s and 80s, instead of a franchise of businesses a “people franchise” system was developed and Network Marketing was born. The first Direct Selling companies were companies like Tupperware, Amway, Avon …

Today we are in the Digital-Age

Since the mid-1990s, the Internet had a revolutionary impact on culture and technology, which includes email, messaging, video communication and communication and information in general.
Latest with the beginning of the 21st century, the Information-Age, also known as the Computer-Age or Digital-Age began.
The Information-Age is the shift from a traditional industry that the Industrial Revolution brought through industrialization, to an economy based on information technology.
As Robert Kiyosaki´s describes it in his book “The Business of the 21st Century”: “Network Marketing businesses are genuine Information-Age businesses, because they deal not with land and materials, factories and employees, but with pure information.”

What is Network Marketing?

Network marketing is a business model in which a partner or distributor is needed to build the business; their own business.
It utilizes a different marketing approach to reach potential customers that a company otherwise wouldn’t reach with traditional online or offline marketing methods.

With traditional marketing methods companies are spending millions of Euros each year to market their products and services. Take George Clooney and Nespresso as an example. Clooney earned 40 million US$ for being Nespresso’s brand ambassador.
Network Marketing companies know that the “word-of-mouth marketing” is a very powerful and effective marketing method and they are happy to pay the independent partner to communicate with their network of friends, family and other personal contacts.
There is one big misbelieve amongst the people that don’t know much about network marketing but it´s very important to understand that this marketing method is not about hounding your friends and family.
It is more about your ability and skill-set to determine from the people within your circles who of them would be interested in the products or services that your company has to offer.

Network Marketing companies are looking to access everyone’s private network, which is the network of friends, family and other contacts of the business partner.
Products and services that are marketed include Health & Wellness products, Nutritional Products, Weight Loss Programs, Communication Services, Internet Access, Water Filter Systems, Financial Programs, Electrical Power, Solar Power and a lot more.

The majority of people in network marketing are people that are looking for a part-time or a time flexible business. Of course there are also network marketers who are making a career out of it.
Network Marketing is a popular home business opportunity for people looking to create additional income.
It’s interesting to know that there are more female than male network marketers in the industry. A lot of mums who want to have a little pocket money on their own or want to put some extra income toward the family earnings can be found in direct sales.

People can join network marketing programs with a very low upfront investment – usually only a few hundred to about 1.000 Euros for the purchase of a product sample kit. The independent partners or distributers (networkers) sell the products or services directly to friends, family and other personal contacts. Usually Network Marketers also recruit other sales representatives to grow their network.

The distributors are compensated not only by the sale of products and services to customers, but also for the sales made by other sales people whom they recruit. As a distributor recruits other distributors, they earn a percentage of their distributor’s sales.

Many people confuse network marketing with a pyramid scheme and believe that this is the same. Let’s clarify this …

Is Network Marketing a Pyramid Scheme or a Scam?

Is Network Marketing a Pyramid Scheme or a ScamThe difference between Network Marketing and a Pyramid Scheme is the purpose of the business. Pyramid Schemes are illegal and based on taking advantage of people. While the purpose of a pyramid scheme is to only get your money and then use you to recruit people to become distributors; the purpose of Network Marketing is to sell products. In a pyramid scheme most of the times there is no product sale involved.

Network Marketing is a legitimate business. It is fully legal and well controlled. All reputable network marketing companies are member of a controlling association, like the Direct Selling Association (DSA). Network Marketing is based on providing people with real products which they need and are offered at a fair price.

A pyramid scheme typically starts with one person. This person recruits a second who is required to buy a product sample kit. In order to get their investment back, the new recruit must recruit more people who also have to buy a product start kit. A pyramid is only a money game and has no real base of a business. Therefore a scheme cannot go on forever; it will die off after a few cycles.

In summary some benefits of being part of network marketing:

• Low Start-up cost
• Accessible for everyone
• Work from Home
• Part-time work
• Flexible working hours
• A potential for Tax-Savings
• Unlimited income potential


Stay tuned and also read Part 2 where I explain How Network Marketing works!
 Access it here!



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