Author: Lydia Werner - professional networker
What is network marketing?
The 1 x 1 of network marketing:
Network marketing is the new independence or, as bestselling author and businessman Robert Kiyosaki calls it, "the business model of the 21st century." But what exactly is network marketing? In this series of articles I deal with the network marketing business model and at the same time clarify all the lies, myths and untruths that unfortunately still circulate about network marketing.
Network marketing (American "multi-level marketing - short form MLM") is a special form of direct sales, more precisely, a modern form of recommendation marketing.
Unfortunately, the term network marketing is still too often associated with rip-offs or illegal money-making and is equated with the dubious and illegal pyramid scheme.
I also had my views, like so many people, about this system. But as an entrepreneur I have learned:
Question what you reject prematurely and get a comprehensive picture for yourself. I have been working in network marketing for 18 years now and it is my personal concern to show network marketing as socially respected, economically interesting and full of perspectives and to eliminate the errors, myths, untruths and lies that circulate about network marketing.
But before we examine the fallacies, myths and lies, let's take a closer look at the term.
"Given a chance to start all over again, I would chooseNetwork Marketing." Bill Gates
Network Marketing got its start in the USA. During the economic crisis of the 1930s and 1940s, business people looked for new business models to slowly and surely rebuild the economy. The observations showed that recommendations have a very large influence on a customer's purchasing decisions. This laid the basis for multi-level marketing. Companies hired self-employed employees, made them familiar with their products and they in turn were supposed to bring the products to the customers via their network. One of the first structure distribution systems in MLM is the cosmetics company Avon Production Inc with an annual turnover of US$ 5.7 billion worldwide. (1)
Even today, 81% of people in Germany trust the recommendation of family and friends when purchasing a product or service. 61% of people buy online based on online product reviews. (2) The key benefit of referral marketing is credibility. If a friend recommends a product to you, you are more likely to buy it if the performance is right than an advertised product. If you are satisfied with the product, you are also happy to tell your friends and acquaintances about it.
The phenomenon of recommendation can also be found in online retail. People buy products based on positive customer reviews. In short, referral marketing ensures free new customer acquisition, increased sales from existing customers and greater customer loyalty. (3)
"You get all the benefits of a business owner without all the headaches. And without the same level of risk. So I think Network Marketing is amazing." Tony Robbins
When I tell you this, you're probably wondering where the bad reputation of network marketing comes from. Many companies have taken advantage of the marketing system to unfairly get a quick buck, in short, it has not been implemented properly and has given the system its bad reputation. A very well known system is the so-called snowball system. Which brings us to my first case. The pyramid scheme is very similar to the MLM system at first sight, almost identical if we look at the graph (see below).
The first and most important difference between MLM and a Ponzi scheme is thata Ponzi scheme illegalandMLM is legalt.
The legal basis for multi-level marketing in the German Code of Laws is § 3 Para. 3 UWG No. 14: Business operations must not solely or primarily serve to attract new employees. The legal MLM company does not lure its customers with high bonuses for attracting new salespeople. The focus of his work is product sales.
The sale of products is not the focus of the snowball system. Only those who have been there from the beginning earn money here, of course at the expense of many others in the downline. The whole thing works like this: The prices of a product are not always the same, ie the product becomes more and more expensive within the structure. Partner 1 buys a product for 20 euros, partner 1 recruits partner 2 and she buys partner 1's product for 40 euros. This generates a profit. Partner 2 can resell the product or recruit a partner 3. Partner 3 buys the product for 60 euros, etc. This is an endless loop. The sales partner in the lowest downline no longer earns anything or is mostly stuck with his product.
These systems cannot function permanently and therefore collapse, as in the well-known example of Eurokings, an association without a business model. Between 1991 and 1994, bona fide investors put 2 billion Deutschmarks into the “pyramid scheme” founded by Damara Bertges. In September 1994, their business model was exposed. (4)
In network marketing, on the other hand, it takes place via so-called direct sales between the company and the partner, which is why MLM is often referred to as direct sales. In short: there is no intermediary. The sale is between company and partner and the price is the same in all structures.
There is no clear line between MLM and a Ponzi scheme. Nevertheless, there are some characteristics to recognize a reputable company from a dubious one.
Here are some features:
CONCLUSION: What is network marketing? How do I recognize a reputable company?
I hope I was able to give you a better understanding of the term network marketing and explain how you can recognize a professional MLM company from a pyramid scheme or a dubious business model. If you are still not sure, then visit the website of theFederal Association for Network Marketingfor Germany or the side ofAustrian Chamber of Commerce. On both pages you will find all information about network marketing and a list of all reputable MLM companies.
Sources:
(1) Online article:Ionos: Digital Guide: Network Marketing
(2) Online articles:MIT: Purchase decision: recommendation instead of advertising
(3) Online articles:Zenloop: Recommendation marketing - the best advertising is done by the customer
(4) Online articles:FAZ NET: Queen of investment scammers
More resources: