Network marketing is a business model that involves direct selling of a product from an individual to other individuals. Usually within one’s own network – hence the name.
Several companies use this model to sell their products. They may do this exclusively or in addition to other marketing efforts.
The individuals who take part in network marketing essentially form a salesforce, though business exchanges typically exist in an informal environment such as at social gatherings or working from home.
Is Network Marketing a Pyramid Scheme?
The answer is, sometimes, but not necessarily.
Network Marketing turns into a pyramid scheme when the sellers are rewarded more for recruiting others into the program than for actually making sales. This creates an illegal form of multi-level marketing scheme that can become unsustainable as profits are reserved for those at the top.
Single-tier network marketing programs do exist, and revenue is based purely on sales. Making sure the model is single-tier and does not require hiring is a good way to avoid pyramid schemes.
Is it the same as Affiliate Marketing?
Network marketing and affiliate marketing are terms that can be conflated because they both leverage a network, and involve selling an external product or brand.
However, there are not the same!
Affiliate marketing typically focuses on those with a large following and involves selling to strangers as well. Network marketing in general focuses more on selling to individuals within one’s social network. Of course, the lines here are blurred and influencers with large followings can also take part in network marketing.
Another point to note – network marketing usually requires the individual to make a purchase or initial investment in the product before reselling it. The company offers the product at a wholesale price and has a recommended selling price for resellers. The commission is earned through the difference between cost and final sale price.
With affiliate marketing, on the other hand, the purchase frequently occurs via a link or is associated with the affiliate through a referral code. Hence, affiliates do not themselves have to buy a stock of the product first. Instead, they are compensated for each sale or action made at an agreed-upon rate.