The Choice Distribution Model
How familiar are you with an increasingly more popular distribution model that has proved to be very cost effective and efficient? In broad terms, the traditional model consists of manufacturer, wholesalers, retailers and customers. The advent of the internet and social media has given impetus to network marketing as an exceptionally profitable business alternative.
Initially the infrastructure costs associated with brick and mortar retailers was removed. And then, especially in the case of digital products that can be downloaded, the wholesale element was taken out of the business equation. Additionally, traditional media advertising costs were significantly reduced.
Flipping the numbers in the marketing budget makes network marketing even more appealing by drastically reducing personnel costs: ordinarily, to achieve sales of say $1,000,000 per month, a company hires a sales force of 100 people who each have to sell $10,000 pm of products and/or services. Whereas, in networking, 10,000 distributors can generate $1 million pm by each selling an
average of $100 pm and, more to the point, they are paid only for their individual sales - no salaries, benefits, etc.
The resultant savings add significantly to a network marketing company's bottom line whilst allowing them to generously reward their independent distributors who, as a group, prove to be a better means of advertising by achieving greater exposure for the company because most independent marketers use social media and digital facilities as well as word of mouth referrals and recommendations to directly engage customers.
The simplicity of direct marketing largely protects not only the network
marketing company but also consumers from price wars that are inherent in the traditional producer, wholesaler and retailer model. Competing retailers discount prices in order to attract more customers; wholesalers bypass retailers in order to increase their sales volumes by offering consumers cheaper prices than their retailers can; then, because of the broken link in the supply chain, producers also start selling directly to consumers. The complexities involved in each party
in the channel protecting their own financial interests, especially when sales fall, can be largely avoided when a network marketing company manufactures, warehouses, and fulfills its distributors’ orders. The control and management companies exercise over the flow of their products not only preserves the integrity of their networked organizations but also protects their customers and their loyalty to their distributors.
Network marketers work for themselves, where and when they want to. Low entry costs and tax deductions are also reasons why they do so. Most often they are not involved with stocking products or delivery because their company does that for them. They are also provided with a distributor website with various back office facilities to help them manage their individual network of customers and distributors on whose purchases and business networks they receive overriding commissions.
Relationships are the foundation of success. And when a critical mass of regular customers and functioning distributors in one's personal network is reached, residual earnings no longer equate to the effort one expends but it increases exponentially. In some instances there are additional incentives like bonuses and global profit sharing pools. Depending on a company's network structure/matrix and their compensation plan, income can be earned infinitely, i.e. there is no limit on compensation in terms of the width or depth of the network.
Total Global Sales For 2013
The NFL $9.5 billion
Music Industry $15 billion
Video Gaming $76 billion
Movie Industry $88 billion
Natural Food Industry $90 billion
Network Marketing $178 billion
If you know these facts, I regret having taken you over familiar ground but this brief overview is intended to explain a generally misunderstood but nevertheless a very successful business model.
The network marketing industry is still maligned because of scams but it is maturing and, with the introduction of regulations and the recognition and support it is receiving from a growing number of high profile politicians, investors, businessmen, entrepreneurs and authors – Bill Clinton, Warren Buffett, Donald Trump, Robert Kiyosaki, Brian Tracy, etc. - it has become a highly profitable business category.