5 comments on Friday Podcast: What Is Wrong With Network Marketing and Is Affiliate Marketing Similar?

1. 

   Fergus

   October 5, 2007 at 6:38 pm (17 years ago)

   Hi Andrew,

   I am a network marketer and I’m sorry you had such an experience, and thus a perception, of network marketing.

   I totally agree on what you have mentioned on value creation. A quote that I’m reminded of, “The marketplace pays you not on how much you are worth, but how much value you can provide.”

   Anyway, just to address 2 issues, the multi tier compensation and the destruction of value.

   On the multi tier compensation, I would believe you probably already heard a little bit about it before. Lets say if a product has 20cents payable as compensation, then a direct selling scheme would probably have that 20cents paid to the person who brought in the sale. How network marketing differs is that, instead of paying that 20cents to a single person, its actually spread across the entire marketing chain, depending on how the compensation plan was crafted. Likewise, a 2 tier affiliate bonus could mean the direct referrer gets 15cents, and the secondary referrer gets 5 cents. And this can vary to as many tiers and again subject to how a compensation plan is crafted.

   On the part of value destruction, I believe this is actually a commonplace in ‘black sheeps’ which exists in all industries. Something like what you mentioned about selling $3 webhosting for $20+. Sometimes it doesn’t have to be network marketing thats part of that. One way of gauging is actually the pay out ratio. Most legit and ethical network marketing companies actually have a pay out ratio of 40-55%. This means for every dollar of sales revenue, 40 to 55cents is paid to the distributor network. Again, how this is distributed in the network, depends on the compensation plan. I won’t deny the existence of ‘black sheeps’ in the network marketing industry. I have heard of pay out ratios of 70% and even 90%.. Thats pretty ridiculous.

   I believe 40-55% is rather fair, especially if you were to compare with traditional marketing/manufacturing companies. I know, because I do stocks investments too, thus I have to read those crazy 300 page annual reports.

   In short, I believe the ideals that govern network marketing is good. (ie, paying distributors instead of celebrities/advertisement&promotion; starting a potential multi million marketing business with a low start up cost) but human nature can turn that around. (eg: get-rich-quick scams; low start up cost = any tom, dick and harry can join = low follow through effort as compared to someone who invested 100k into a business)

   Thanks for your time,
   Fergus

2. 

   James

   October 6, 2007 at 12:58 am (17 years ago)

   I think you are exactly right Andrew about the need for value in the product to the final customer. It does not matter what the means of marketing is or what the product is.
   It is a simple fact that a good part of the cost of any product is in distribution and marketing-this is true both in network marketing, brick and mortar companies, and it also shows in affiliate marketing (in which case it is partially given to an affiliate but this may not be the whole cost of marketing the product).
   You are also right that most networking companies (especially MLM types) do not provide value to the customer. Products are often expensive, poor quality, or in some cases, are even a relabeled brand available elsewhere.
   Unfortunately, this is also true of products sold in affiliate marketing. I am seeing some networking companies or distributors using affiliate marketing to sell the same products as sold by MLMs.
   Look for companies and products that provide value to the average consumer. It is not all that easy though.

3. 

   THE Online mlm Blog

   October 7, 2007 at 2:53 pm (17 years ago)

   bravo Fergus 🙂 and May the force be with the “Good” MLM Companies. Its true there are some “Sith” MLM Company operating on the Dark side But so does the rest of NON MLM Company.

   cheers
   the mlm Jedi

4. 

   Jeremy Page

   October 9, 2007 at 3:19 pm (17 years ago)

   Fergus, you set this one straight. I wont add anything that was said but my thoughts coincide with yours. Finding the right mlm company was the best thing that ever happened to me.

   Jeremy Page

5. 

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