Pyramid Structure Marketing Vs. Network Marketing

What is Network Marketing?

Network marketing is a common option for those seeking flexible work schedules and a low initial investment. Network marketing includes some of the most well-known American brands, such as Avon, Mary Kay, and Tupperware.

With network marketing, you may sell a product line to friends, family, and acquaintances with little to no overhead costs (often only a few hundred dollars for the purchase of a product sample kit) and a high potential for personal profit. Participants in most network marketing schemes are also expected to find and attract new salespeople to join the network. A salesperson's "downline" consists of the new people they bring into the business, and their sales are a direct source of commission for their superiors.

When a network marketing organisation pays its affiliates more for bringing in new members than for actually selling items or services, things may become sticky. A network marketing programme where the main source of income is new members' recruiting might be labelled a pyramid scam. Network marketing programmes are often not regulated as business opportunities and are not considered franchises under state or federal franchise rules; thus, you should conduct your own research before committing any funds.

Key Characteristics Of Network Marketing

Multilevel Marketing (MLM), Cellular Marketing, Affiliate Marketing, Consumer-Direct Marketing, Referral Marketing, and home-based business franchising are all names for the same thing: connecting consumers with businesses that may be run from the comfort of their own homes.

Businesses that adopt a network marketing strategy typically structure their sales teams in levels, with each sales rep being encouraged to build their own team of reps. Upline builders are compensated not just for their own sales but also for the sales of others they recruit into their "upline" (the "downline"). Eventually, a new tier can sprout yet another tier, increasing the commission for both the top and middle tiers.

Therefore, a salesperson's salary is contingent not just on product sales, but also on their ability to bring in new customers. Those at the top of the food chain who got there first benefit the most.

Different Types of Network Marketing

Network marketing may be broken down into three distinct types depending on the approach taken

• Single-tier marketing systems like direct marketing have only one intermediary. Individuals will sign up for the system and offer their wares to consumers. Therefore, with direct marketing, distributor recruitment is unnecessary. Individuals that engage in direct sales might expect to reap financial rewards.

• Affiliate marketing is currently quite fashionable. It's a sort of marketing in which digital content providers work with businesses to promote those brands on their own websites and channels. They are paid when people buy something after clicking on their links. A brief disclaimer regarding the items may be added to any article, blog, or video by the producers.

• As a type of network marketing focused on distribution, multi-level marketing incorporates both direct sales and distributors. Misconceptions about MLM flourish when people confuse it with pyramid scams. However, MLM relies on the credibility of its distributors to sell its products, whereas a pyramid scheme lures individuals in with false promises of financial gain.

Benefits of Network Marketing

One major perk of this type of advertising is that anyone with even average sales abilities may turn a healthy return on a very small outlay of capital. The Federal Trade Commission (FTC) has said that direct sales to consumers are more lucrative than multi-level marketing schemes in which participants must recruit new participants in order to earn a profit.

Negative aspects of Network Marketing

Multi-level marketing has a bad reputation since it is often misunderstood and labelled as a pyramid scam. Under addition, in such a setup, the middle- and upper-tier earners receive a commission on sales while the lower-tier earners make relatively little.

Pyramid Structure Vs. Network Marketing

There is a widespread misunderstanding that MLM sales are pyramid schemes. It's possible (even probable) that individuals may react negatively if you try to recruit them into your Network marketing business. Therefore, it is crucial that you have a firm grasp of the distinctions between Multi-Level Marketing (MLM) and Pyramid Selling (Pyramid selling), as well as the legality and ethics of both systems, to better explain the difference and clear the uncertainty of your prospects.

In the same way as Network Marketing relies on new members to grow its business, so too does the pyramid marketing scam. Promoters of pyramid schemes generate income by convincing potential participants that they will gain money in the future if they join the plan and recruit others. No actual goods or services are sold in these schemes; rather, participants pay an up-front fee in exchange for the possibility of earning money in the future.

The "Chain of Letters" scam is a type of international fraud that has gained widespread notoriety. It takes some time for people to figure out that they won't be making any money and that the only people who will benefit are the promoters. Products, treatments, magazine/catalogue/training subscriptions, etc., that seem too good to be true sometimes feature prominently in pyramid scams. All of them together don't add up to a significant quantity of business for concrete goods. They are putting pressure on distributors to do all of their business electronically rather than in person.

You can tell the difference between a Pyramid Selling scheme and a Multi-Level Marketing scheme by taking a hard look at each and learning all the ins and outs of each.

Multi-Level Marketing (MLM)	Pyramid selling Marketing
Distributorship in an MLM scheme, together with related contractual duties for inventory holding, training, sales, etc., follows a lawful procedure defined by laws and regulations.	Pyramid selling operates on a set of shakily created, nebulous norms, promises devoid of any legal or contractual duties, and, most significantly, a lack of any major product selection.
MLM companies are more concerned with expanding their distribution networks in order to increase product sales.	Pyramid selling schemes seek to quickly profit off of the network itself.
In most multilevel marketing (MLM) schemes, the most money you'll have to spend is on a starter kit, marketing materials, or a distributor fee, all of which are negligible in order to generate revenue.	Pyramid selling networks rely on tactics such as charging distributors for joining the network and pressuring them to acquire and stockpile paper items rather than genuine inventories. Each investor in the plan contributes money that will ultimately benefit the promoters financially rather than themselves, in exchange for the possibility of a future profit from the sale of their investment. There is never any clear strategy for making money in a pyramid sale, and instead there is always an emphasis on stockpiling products.

Conclusion

Overall, pyramid selling has tarnished the reputation of direct selling and MLM. The public has an unfavourable impression of both Pyramid selling and Multi-Level Marketing due to a lack of education about the distinctions between the two. You, as a Multi-Level Marketing Distributor, benefit from knowing about the pyramid scheme and the aforementioned information since it equips you to deal with the sceptical people you meet and alter their minds about your business.