My friend told me a little about Network Marketing a few years ago and while I did do some research on it then, my gains were pretty limited. However, now that I’m taking a Networks class, I figured this might just be the right time to re-explore network marketing and see if concepts we had touched on in class could be applied here. While browsing through websites, I chanced upon this article: http://www.homeworking.com/library/mlm.htm which gives a little overview and insight on Network Marketing.

Network Marketing, or Multi-level Marketing (MLM) is basically an alternative method of distributing products to the public, to via wholesalers and retailers. These businesses are essentially a form of personal franchising, making use of networks of people to distribute goods to a huge group of customers, and at the same time introducing more people as business partners. Profit margins increase as distributors deal directly with the consumers, bypassing wholesalers and retailers, and as your network increases in size and you introduce more people to the business as fellow distributors, you stand to earn a bigger share of the profits. MLM makes use of one of the most powerful distribution tools available to all of us — the human networks that we have already built up in our everyday lives. MLM distributors introduce the product and the business to others in their social network, and those who end up joining the network reach out to individuals in their network. This makes for a very effective method of distribution and has the potential of growing into a very large network, much like the concept of the six degrees of freedom.

While it may seem that MLM is a great marketing and retail idea, many people have raised numerous concerns about it. Many claim that MLM is a scam as many companies concentrate too heavily on recruiting fellow distributors rather, while neglecting the retail half of the business. Since new distributors have to pay a fee of some sort, this allows them to make a quick buck, but the inherent backbone of the network — consumers — are sorely lacking and it makes the network unstable as no one actually uses the product. This is also known as ‘pyramid-building’, and is unfortunately one of the most common reasons why MLM companies fail, and why many have a bad impression of what MLM really is.

While I feel that MLM does seem like a fresh and possibly effective business idea, one main concern that I have is whether the network would quickly get saturated. MLM involves finding both consumers and distributors and it would mean that the number of distributors of the product is huge — would profit sharing ensure that there is decent money to be made by everyone?

It looks certain that MLM will continue to grow and more companies adopt this marketing strategy to reach out to a greater group of consumers. However, it is important that these companies take care to avoid going down the path of pyramid-building, as that would most certainly lead to failure.