Emerging trends in marketing have completely changed the way business is conducted. These new modes of marketing help companies attract a large number of customers. They even reduce expenses that companies incur in traditional modes of marketing. One such revolutionary trend is network marketing.
Network marketing is basically a medium of marketing that manufacturers use to expand their sales. Manufacturers use them when they have to deal with several distributors to push out their products. Sometimes, these distributors might have sub-distributors. As a result, this leads to a “network” of distributors that operate at various levels of the distribution chain.
Manufacturers use this vast network of distributors to market their products to customers at various levels. This enables them to reach out to even more customers indirectly.
These distributors and dealers, therefore, act as independent representatives of the company. As a result, this way the company can market their goods widely without spending more money on traditional methods of marketing, like advertising.
Structure of Network Marketing
Firstly, manufacturers require several distributors, sub-distributors and dealers in order to create a network marketing structure. Secondly, These distributors procure goods from manufacturers themselves at wholesale prices.
They may either use them personally or they may sell them to other distributors for a profit. This chain continues further. The distributors, thus, will end up marketing goods until they reach customers or else they may become final customers themselves.
Furthermore, these distributors get an opportunity to make some profits from this marketing network. They can receive some commission from manufacturers on the basis of the total volume of goods they buy and sell. Hence, the functioning of these distributors is similar to that of insurance agents.
Use of Network Marketing
Manufacturers generally use network marketing in business structures that require multi-level marketing. This is because such business models involve a large network of distributors and sub-distributors.
It is also of great use for distributors themselves because they can make an earning from it. Most companies like Amway and Tupperware tie-up with people who put in part-time work for this. Many women in India also become distributors and actively work with manufacturers directly.
Advantages of Network Marketing
- There are absolutely no limits on the size of the network marketing structure. This happens because companies can tie-up with innumerable people to become distributors. Further, distributors can further c0-ordinate with other sub-distributors to expand the company’s sales.
- Due to a reliable and robust distribution network that engages customers directly, companies do not need to rely on advertising to market their goods.
- The structure of distributors also reduces the profit margins of retailers that companies consider as an expense. These margins get passed on to distributors and the companies do not have to bear their burden.
- Another advantage is that companies do not need to spend a lot of money on storage and distribution. This is because distributors end up bearing these expenses themselves.
- Finally, this structure allows distributors to earn an unlimited income from their dealings with the company. They can earn an income from their own profits as well as commissions.
Disadvantages of Network Marketing
- Since manufacturers depend on distributors to determine consumer demand, it can be difficult to predict production targets. They may end up under or over-stocking their products.
- In this form of business, it is basically the distributors who facilitate delivery of goods to final customers. Manufacturers have a limited role in this regard. As a result, they may find it difficult to control distribution and sales.
Solve Question on Network Marketing
Mention the missing words from the following sentences.
1. __________ and __________ are big companies that use network marketing actively in India.
2. Distributors make an income through __________ and __________.
3. Network marketing helps in reducing expenses on other modes of marketing like __________.
1. Amway and Tupperware
2. Commission and profits