The following is useful theory to understand how Network Marketing fits in the world
There are basically two methods of distributing consumer products [products are physical goods, such as beauty products, and services, such as insurance]. Retail, when the customer goes to the shop, or Direct, when the shop goes to the customer.
Direct distribution has two types differentiated by how the customer is acquired. Direct Selling is when a person acquires the customer and Direct Marketing when the customer is acquired through a media such as TV, Internet or mail order.
A customer acquired by Direct Selling may then be sold to directly from the main company where the customer purchases online or through telephone ordering.
In countries, companies using the different customer acquisition strategy will normally join the trade association based on their strategy thus there are Direct Selling Associations [DSA] and Direct Marketing Associations [DMA].
Direct Selling is split into two sections; Single Level Marketing [SLM] and Multi-Level Marketing [MLM]. In both forms the customer is ‘sold to’ by a person. In both forms, all ‘direct sellers’ will sell to the customer. Depending on the company, they will be called terms such as consultant, representative, associate, executive, partner or IBO. A general term in MLM is Retailer – the person will employ the skill of Retail to sell to the customers. This a commission-only income opportunity based purely on customer sales.
The difference between the two methods is based on how the sales force is recruited, trained and supported, often referred to the ‘Leadership Programme’. This programme determines the growth of an organisation.
SLM is the traditional form of Direct Sales and the Leadership Programme is controlled by the Direct Sales company. Normally areas are allocated and often the ‘Managers’ are on some form of salary.
In MLM, the responsibility for the development of the sales network is offered to Networkers in the form of a Business Opportunity. They earn a commission on the purchases made by the Networkers and their customers. Because the expansion opportunity is larger, Networkers are able to earn significantly larger incomes than in MLM which is why MLM is now the dominant form of Direct Sales in the world.
Thus a Network Marketing company offers two opportunities: a Retail income opportunity [Retailer] and a Network business opportunity [Networker].
Whilst MLM is the official name, this name has gained a poor public reputation in the English speaking world and thus most professionals now use the terms Network Marketing.
Some companies use term such as Team Marketing, Referral Marketing, for marketing reasons. Understandably, companies want to distance themselves from historical bad practices of the MLMers yet if a company uses a commission programme based on earning from multiple levels of business owners, then the programme is a Network Marketing business.
There is also a disconnect between companies and their field networks where the companies use terms like ‘Direct Sales’ and MLM and the networkers use ‘Network Marketing’. The reason is that only companies can join the DSA and must abide by DSA Code of Practice. Networkers are aware that the term Direct Sales has negative image in the public, often associated with sales practices such as door-knocking, which has very poor marketing image. One day, companies with either use Network Marketing or a newly emerging term call Network Sales.
The term Network Sales is based on the merging of ‘Sales’ for the Retail sales force and Network for the leadership programme. For the time being, Network Marketing is the best term.
The general terms used by the OSI are:
Direct Sales – general distribution channel
Network Marketing – the specific channel and business opportunity
Retailer – someone who only sells
Networker – someone who has joined for the Network business opportunity
Builder – a new networker who has not achieved a Leadership Rank on their commission plan
Leader – a networker who has achieved a Leadership Rank on their commission plan
