Why Corporations Fear Network Marketing

Traditional major corporations like Wal-Mart, Proctor and Gamble, and Johnson and Johnson are getting worried.  They are finding that the hundreds of millions of dollars they are spending on advertising each year are not generating the returns that they once did.

The introduction of the DVR (which allows people to skip commercials) has dramatically reduced the impact of their advertising dollars.  As people turn to non-traditional information channels like the internet, corporations are scrambling to catch up.  Consumers, more informed than ever, are calling out the corporations for anti-consumer practices such as irresponsible products, price gouging, and monopolizing the marketplace.

Recently, some corporations have felt such pressure they have resorted to hiring Hollywood agents to connect them with stars and movies.  This kind of desperation illustrates the panic companies are feeling while trying to keep up in the digital age.

Word-of-Mouth

The power of word-of-mouth has always been the best form of advertising, but recently it has begun to overtake traditional advertising.  Skeptical of the intentions of the major corporations, people are increasingly more likely to trust their friends and family for product recommendations than listen to traditional media.

Highly respected companies such as AT&T, Direct TV, Gap, Amazon.com, Google, Apple Computer, Macy’s, Nordstrom, Travelocity, and tons more have started to recognize this trend and implemented a plan to reward their own consumers for recommending their products.  One example is affiliate programs.

How many times have you recommended a great restaurant or movie to someone?  How many times have you told someone where you bought a great pair of jeans?  Think about how much advertising you have done for other companies.  Have they ever rewarded you for the referral? Besides a token gift like a coupon, have you ever been fairly compensated?

As more and more companies are realizing the power of word-of-mouth advertising, it’s clear that the future of marketing will be centered around networking and rewarding the consumer.  Is this a new concept?

The network marketing industry has been operating on this idea for over fifty years.  The principle behind the industry is to give the average consumer a chance to get ahead by sharing in the revenue of the company for marketing its products.  Although this principle has always been noble, its execution has been clumsy at best until recently.

What is Network Marketing?

Network marketing is a business model that replaces large marketing budgets with a compensation plan for entrepreneurial consumers who choose to assume the advertising role.  By avoiding complicated distribution chains, the company can ship directly to the consumer.  Without an advertising budget, the company relies on its own customers to spread the word and increase the customer base.  The money that is saved without advertising or distribution chains is redirected to the consumer in the form of commissions and bonuses.

This industry evokes a lot of emotion in people.  Its reputation has been tarnished by scams and bad business models.  Many people have written off the entire industry.  I was one of those people until I noticed that many of the popular wealth gurus were speaking favorably of it.  Was there something that I was missing?

Robert Kiyosaki, the author of “Rich Dad Poor Dad,” suggested that network marketing might be “the perfect business” in a CD interview.  Robert Allen calls it “the ultimate money making machine” in his book, “Multiple Streams of Income.”  These guys carried enough weight to catch my ear.

“Wave Three”

After some investigation I realized that network marketing was making a huge comeback.  Richard Poe, in his book, “Wave Three: The New Era in Network Marketing,” describes new, more evolved companies without the hang-ups of the ones that gave the industry a bad name.

“Wave three” companies are making good on the original promise of the industry: to give the average consumer a chance to get ahead.  While no business is a utopia, there are several good reasons to consider adding network marketing to your streams of income.

1) Low Initial Investment
Most business models cost thousands of dollars to start.  Even a franchise like Subway costs at least $100,000.  It is almost shocking how inexpensive it is to start a network marketing business.  The good companies cost less than $500 to start, but it gets better than that!

If you can find a company with products you are buying anyway and just switch your purchases, you can start a business virtually for free.  This eliminates all the risk associated with business.  If you are not spending more money than you were before you started the business, then the first dollar you make is profit.  Now that’s a nice business model.

2) No Inventory
“Wave three” companies have disposed of the broken model requiring marketers to inventory products.  This eliminates the risk involved with not being able to get rid of inventory, and the hassle of continually bugging people to buy it.

In the new model, the company ships the products directly to the customer’s door.  This frees the marketer from buying more products than they need.  Most people don’t like to sell things.  “Wave three” marketers don’t sell anything, they just refer.

3) Creative Redistribution of Wealth
Think of the amount of money that accumulates at the top of traditional marketing models.  Stockholders and corporate executives make a ridiculous amount of money from the purchases we make every day.  While I believe in free enterprise, I have always wished for an enterprise that would offer a level playing ground for everyone.  Network marketing might be the answer.

Whenever you purchase a product from a network marketing company, a portion of your product cost (sometimes as much as half) goes back to several other hard working customers just like you.  I feel much better about helping out fellow customers than mindlessly giving my money to enormous corporations.

4) Passive Income
Since the sales and inventory has been taken out of network marketing, a passive income component has emerged.  After you do the work of referring someone, you get a commission on their purchases for as long as they remain a customer.  I like the idea of getting paid over and over for work done once, but it gets even better:

5) The Power of Leverage
Most companies will not only compensate you for your own referrals, but the referrals of your referrals, for several generations.  This means that it is possible to get paid on referrals that you have never even met.  This also means that your earnings are virtually unlimited.  There are some people who are making millions of dollars a year in network marketing businesses.

6) You Don’t Have to Bug your Friends
The part of network marketing that turns most people off is bugging their friends and family.  Even if you have the greatest company in the world, some people will not want to listen to you.  The products could be free and cure cancer, but for some reason these people will still remain skeptical.

I have a hard time understanding why people will blindly trust an enormous corporation with their health and checkbook, but at the same time ignore their own friends and family.  Although this is changing, it still happens every day.  Maybe it’s leftover skepticism from the scams and bad business models of the past. Maybe people don’t like to see their peers making money off of them.

Either way, until network marketing emerges as the premier marketing model there is one saving grace: the internet.  The internet allows network marketers to connect with people who are actually looking to start a business from home.  Equipped with an informative website and auto responders, it is possible to have people asking you to join your company instead of the other way around.

How to Pick a Network Marketing Company

I think it’s smart to diversify your streams of income, so that if one stream goes down, the others can make up for it.  If this article has sparked your interest, you might consider adding network marketing as one of your income streams.

Remember that successful people think outside the box.  It’s a good time to explore this possibility while the industry is gaining momentum but has not yet saturated the market.

If you are trying to pay off debt, but your job doesn’t pay you enough; you might consider keeping your job, but adding network marketing to your nights and weekends.  You could then use the extra income you make to pay off your debt.  If you are trying to get into real estate investing, maybe you could use your network marketing income to save up for down payments.

Be a leader. Be someone who is ahead of the curve even in the face of resistance.  Don’t wait until the trend has passed and the potential market has dried up.

Before you choose, remember that even though the industry has evolved, there are still a lot of bad models and scams out there.  Make sure the company you choose fits these criteria:

1) Reasonably Priced Products
One of the major differences between the good and bad models is the price point of the products.  If you have to pay more for the products than you would at your local store, then the model is fundamentally flawed.

To compensate for your overpriced products, you will have to recruit others to buy overpriced products to help you pay for them before you can make a profit.  If the products were reasonably priced, it wouldn’t matter if you were recruiting or not.

This takes the pressure off of everyone and makes it much more attractive to potential customers.  It allows you to dabble in the company to test the products without committing to the business.

2) Free or Inexpensive Training
Another sign of a bad model is overpriced training.  In the earlier companies, selling training was one of the major sources of income for marketers.  If a company has to overcharge for training then they must be compensating for poor quality products.  Look for a product centered company with free or inexpensive training.

3) Wide Market Appeal
Some companies focus on very narrow product categories like nutritional supplements or cosmetics.  The problem with choosing these companies is that your potential market will be limited to consumers interested in those products.

While the company might argue that everyone in the world should be on their supplements, reality says that supplements are luxury items for most.  Look for a company with a wide variety of products so that your market is as large as possible.

4) Low Monthly Minimum
Most network marketing companies require you to make a purchase every month to remain a member.  While this seems like a catch at first, it is actually a good thing.  Consistent product orders are how you create steady, reliable, passive income.

Just make sure that your monthly requirement is low enough that you don’t have to buy anything you don’t want.  This is also another reason to join a company with a wide range of products.  The more products they offer, the less chance you will have to overload yourself on one particular item.

I would suggest looking for a company who’s minimum order is less than $100 a month.  Most people spend several hundred dollars a month on the types of things that network marketing companies offer, but this will make certain you can meet your requirement without going into debt.

5) Open-Book Policy
It is important to find a company that is completely honest about not only their product claims, but the income potential.  Ask someone to see their business report.  If they refuse, this should be your first clue that there is something to hide.

6) Fair Compensation Plan
A good compensation plan will have a nice balance between passive income and production income.  While it doesn’t seem fair to make someone else rich while they do nothing just because they recruited you, it also isn’t fair to potentially loose a recruit because they out-perform you.  Look for a plan that balances these issues.

7) High Retention
It is important to find a company that has a high rate of customer retention.  This will save you from having to continually recruit to maintain your status quo.  While some attrition is inevitable, try to find the best rate you can find.

What to Expect

It’s a Business
The opportunity that network marketing provides is exciting, but it is important to understand that it is a business, and running a business isn’t always easy.  If it were, then everyone would be a business owner.

Just like in conventional business, a small percentage of network marketers make most of the money.  This makes it even more important to find a company with reasonably priced products.  You want to make sure your downside is protected.

Marketing
The thing that separates entrepreneurs from the rest of the world is that they are willing to do the things that other people aren’t.  One of those things is marketing.  The reason most people are not successful in network marketing is that they don’t want to market.

They either don’t have the courage to ask someone else to take a look, or they don’t want to expend the resources needed to market in other channels.  Business owners have to either market or pay someone to market.  The only place to avoid it is a job working for someone else.

Skepticism
The biggest resistance that you will face in this business is skepticism.  Until this paradigm shifts, it will be an issue.  People tend to make a bigger deal of network marketing than it is.  For “third wave” companies, the business is really as simple as referring people to a product that you like.  If there were no stigmas attached to this industry, the profit potential would be amazing.  I think that it would give everyone a chance to make a decent living.

Until then, it is important to know that it’s a numbers game.  Only a percentage of the people you call will answer, only a percentage that answer will listen, only a percentage that listen will be interested, and only a percentage that are interested will sign up.  If you can learn what these ratios are, you will know exactly how what you have to do to be successful.  You will know how many calls you need to make a month to reach your goal.

Where to Look
Almost every ad that you see on the internet for a “home based business” is a network marketing company.  The advertising is simply everywhere.  Remember those ads stapled to phone poles on street corners that say “Make Money From Home?” You guessed it: network marketing.  If you shop around a few of these ads, it shouldn’t be hard to find something.

Exponential Growth
Your network marketing business will behave very much like any other investment.  The greatest energy will be spent at the beginning.  This means that you may not see much in terms of results right off the bat.  It will take persistence and delayed gratification to make it through the slow times.  Once you have overcome the initial gravity of the learning curve and creating a base to work from, things will start to move much faster.  Because of this, I recommend that you don’t rely on your network marketing income at first, at least until you have built it up.

The Future

While network marketing is not for everyone, I do believe that it will be the advertising model of choice in the future.  The fact that so many highly respected companies are already borrowing from network marketing tells me that we aren’t far away from acceptance.

I wouldn’t be surprised if major corporations start to see losses of market share to these kinds of companies.  It might already be happening.  It would be hard to know because the news is sponsored by big companies.  Since network marketing companies don’t advertise, it is much harder to know what is going on in the industry.

If you decide to look for a company, make sure you follow my suggestions closely for how to choose a good one.  The wrong business model will spoil your view forever of this industry.  Make sure that you join a company that has eliminated all possible downsides to the business.

For more about network marketing read this article.

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