What is Network Marketing?

What is Network Marketing?

Network marketing, also known as multilevel selling and MLM, for multi level marketing in English, relies on word of mouth. This practice, popularized in France by the Tupperware brand in 1946, uses a specific business model: the company sells its products through a network of non-professional and non-salaried distributors, paid on commission or margin. Distributors are individuals called ambassadors, advisers or facilitators, and generally work as VDI, for Independent Home Seller, with buyer-reseller, agent or broker status. The MLM sale is controversial, because the risk of drifts towards the illegal system of pyramid sale is notorious.

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But the technique, when it is supervised, is successful: in France, the Vorwerk company markets its flagship product via its Thermomix advisers.

What is Network Marketing?

Network marketing is for the company to sell its products through particular resellers. The individual communicates on the product and invites his contacts to participate in demonstration workshops at home. On each sale, the individual receives a commission or makes a margin.

What are the characteristics of network marketing?

Network marketing, or MLM (Multi Level Marketing), refers to both the marketing technique and the business model. Note that the company uses it exclusively or in a complementary way.

Network marketing as a marketing technique

MLM relies on word of mouth to communicate the product. Instead of or in addition to investing in a social media marketing strategy, in SEO and SEA or in traditional advertising campaigns such as billboards or TV spots, the company transforms its customers into brand ambassadors.

Network marketing as a business model

In MLM, sales are made by individuals. Instead of or in addition to employing sales representatives, opening physical stores or even selling online on an e-commerce site, the company goes through non-professional and independent resellers, who traditionally sell from their own homes. , with the network that they constitute themselves.

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influencer marketing

With the evolution of technologies and mores, a new form of network marketing is emerging: influence marketing is the modern and digitized form of network marketing. Influencer marketing uses word of mouth to promote products and redirect subscribers from the social network to the company’s e-commerce site. The influencer is remunerated by the company for its services of promoting the brand’s products.

Network Marketing and Legal Status

From a legal point of view, network marketing puts a company in contact with a non-professional, who chooses an independent status and becomes an individual entrepreneur or manager of EURL, possibly under the micro-enterprise regime. When the sales are made at his home, the individual reseller can then practice as a VDI. Two distinct assemblies coexist:

  • The company is based on a distribution contract, in the form of a mandate or a brokerage contract: in this case, the individual does not buy stock, he is content to invest time. The brand makes the product available to him for demonstration, and the reseller receives a commission proportional to the turnover he generates on behalf of the brand.
  • The individual buys the products from the company and then resells them: in this case, his income is made up of the margin he makes.

It should be noted that network marketing also includes the notion of sponsorship: the individual himself sponsors new resellers, and is remunerated in the form of a commission on the sales made by his own recruits. This scheme, which looks like a pyramid system, is strictly supervised, to avoid drifts towards an illegal practice.

Advantages and Disadvantages of Network Marketing

Network marketing offers certain benefits: the company saves on salaries and reduces its communication expenses, insofar as this position is transferred to independent resellers. For the reseller, network marketing is advantageous because it allows him to generate additional income, while leaving him the freedom to organize his work schedule. In addition, network marketing makes it possible to create a strong proximity with the prospect, like direct marketing. However, network marketing has its limits. Since the resellers are not professionals, the company cannot rely on a competent sales force. Furthermore, in the absence of a relationship of subordination, the company’s level of control over its brand image is lower.

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How to succeed in network marketing?

Network Marketing Operating Conditions

Network marketing works under the following conditions:

  • The product to be marketed is reliable.
  • Resellers are efficient: the individual has a dense network and knows how to sell.
  • The remuneration is interesting, to motivate the efforts of the resellers.
  • The reseller is not paid for recruitment, at the risk of the practice being reclassified as a so-called “snowball” process.

Under these conditions, network marketing is effective, and particularly suitable for companies that are launching with limited financial resources, particularly in the household appliances and beauty and well-being sectors.

Tips for Network Marketing Success

To be successful in network marketing, the company must pay attention to the following aspects:

  • Attracting high-performing facilitators : the distributor represents the brand with its network. The company therefore has every interest in selecting suitable profiles. To attract the best animators, the company, like the product, must be reliable. Note that for this purpose, the company can join the FVD, Fédération de la Vente Directe, which represents and oversees door-to-door sales in France.
  • Train your distributors : as non-professionals, they should benefit from free marketing and sales training to prepare an effective pitch. The company also takes the opportunity to deliver key information on the brand, so as to preserve its image.
  • Choose the legal structure : the company more easily attracts brand ambassadors on the model of mandate or brokerage. This is also the legal arrangement chosen to market the Thermomix, as well as Tupperware products. In this context, the distributor does not invest any money, the risk at his expense is nil.
  • Remunerate and motivate advisors : the more the distributor sells, the more the turnover of the company increases. To this end, the company must offer a sufficiently attractive commission, and regularly offer meetings with brand advisors to maintain their motivation.
  • Consider influencer marketing : in the digital age, door-to-door sales may seem obsolete. The company also has an interest in taking advantage of the virality of social media to communicate on a large scale and at a lower cost. Using influencers is an effective marketing strategy, a modern alternative to network marketing.
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What is the difference between network marketing and a pyramid scheme?

Network marketing is not to be confused with the pyramid scheme, or Ponzi scheme. The pyramid sale is an illicit assembly, prohibited by law as a snowball sale, which consists in remunerating the distributors of the brand by the sums of money paid by their own recruits under a right of Entrance.

Illustration of the Ponzi scheme: a dealer recruits and trains a second dealer, in return for the payment of a sum of money; the second dealer recruits and in turn trains a third, with the same consideration; the second reseller pays a percentage of the amount received to the first reseller. This chain continues until a reseller cannot find anyone to recruit and is unable to pay the previous reseller. This system is strictly prohibited and heavily sanctioned, not to mention that it quickly collapses with significant financial losses borne by the participants.

  • Illustration of a pyramid scheme:

pyramid scheme

  • Illustration of network marketing:

network marketing

Because network marketing differs from the pyramid scheme, the practice is legal. To avoid confusion, the contractual framework must be strictly defined: the brand ambassador is paid on his own sales and on the sales made by the referrals he sponsors, but never on the recruitment of his referrals.

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