Network marketing is a method of selling goods directly to consumers, often using demonstrations, through a network developed by independent distributors introducing further distributors. Income being generated by retail and wholesale profits is supplemented by incentives for recruiting further distributors.

Network marketing is a form of direct selling. Direct selling occurs where consumer goods and services are sold directly to consumers in their homes or the homes of friends, at their workplace and similar places away from shops. Direct selling can be wither through a network of distributors using their own method of selling, or by door-to-door selling by salesmen recruited directly by the company. Network marketing can further be classified into single-level or multi-level marketing. In single level network marketing, a distributor earns retail profits and is paid for recruiting further distributors. In multi-level marketing, in additions to those earnings, a distributor earns a percentage of the profits made by the group built by him.

To an uninitiated person, Network marketing distribution network looks essentially the same as a traditional network. However it is not so, the most obvious difference between them is that the wholesalers and retailers in a traditional network are replaced by individual independent distributors in the network marketing. The distributors in the later format are also the salespersons and consumers. Network marketing is premised on the belief that convinced users make convincing sellers. Every network distributor is introduced by an existing distributor. The organization can be represented as a network of distributors, each one joined with a line to the distributor who introduced him. The marketing, that is, the advertisement, promotion, demonstration and sale of goods, takes place at every point of the network; hence the name ‘network marketing’. There are many schemes, which purport to be network marketing. The basic concept is doing potentially powerful that it has been adapted in an almost infinite number of ways for as many different purposes.

Network marketing is also based on relationship philosophy. It relies on successful interactions between two individuals who enjoy what they are doing and who care about one another. People sell products/services to friends, family and neighbors with whom they have some relation. These friends, family or neighbors may further sell these products/services to their acquaintances. Consequently, there are lots of people selling a little each. People like it because of the flexibility, low risk involved, independence and the opportunity to make friends. A network marketing company does not have to spend any time or money on hiring sales people, and by pushing products directly to the consumers, the companies also save on advertising, promotional and infrastructure costs.

A person interested in becoming a distributor has to first be sponsored by an existing distributor who introduced him to the particular company. He then pays an initial fee to purchase the starter kit consisting of manuals, newsletters, order forms, business advice and may be product samples. He acts freely, using his own methods at his own pace and sells on a person-to-person basis giving product demonstration, based on trust, dependability, guaranteed satisfaction and warm relationships. With the advent of improved technology, the distributors now are able to order the products directly from the company and have them delivered straight to their home, or even directly to their customers. Increased discounts become available as monthly sales increase. A distributor recruits more distributors and develops the network. His efforts in building an organization for the company will be rewarded by discounts, bonuses, royalties and other incentives in direct proportion of the sales generated by his group. A distributor may now start working full time with his team, if he so wishes.

However, there is another side to network marketing. In a conventional business, accurate prediction of demand for a product is crucial to determine the production volumes and sales force size. In network marketing, there is no control on the size of the sales force, which goes on increasing, as distributors are given incentives toi recruit more salespeople, who in turn will then attempt to recruit even more salespeople. For example, most of the distributors of Amway India today seem to be concentrating on appointing other distributors, rather than selling the product to new customers. The result will be market over-saturation, with the people lower down in the organization making losses. In 1991, Forbes magazine wrote that the average Amway distributor earned $780 a month but brought $1,068 worth of goods herself, besides spending on running her business. Studies have shown that in network marketing, the real consumers of products are the distributors themselves. They account for 80 percent of the consumers.

Network marketing is often confused with pyramid schemes, which are illegal scams in which large numbers of people at the bottom of the pyramid pay money to a few people at the top. Each new participant pays for the chance to advance to the top and profit from payments of others who might join later. The principle is many losers pay a few winners. Legitimate network marketing differs in many ways. The joining fee is very less, the company buys back unsold inventory, the start-up cost is refunded if a person chooses to pull out, and the business focuses primarily on selling products to the consumers and establishing a market rather than on building a chain.

While network marketing promises big returns at low risk for many people, joining network marketing stains relationship in their circle of acquaintances. Life long friends now become ‘prospects’. The neighbourhood is now ‘a market’. Motives changes, suspicions arise and divisions form. Sales pressure is usually exerted by the situation pre-fabricated parties or home demonstrations and by the delicate relations that exist between buyers and sellers.

Evolution of Network marketing

Variations of network marketing have been practiced since the dawn of commerce. Before examining the development of network marketing, we must first consider direct selling from which it evolved. Direct selling began mainly as a by-product of industrial revolution, when traveling salesman reached far flung communities with mass produced goods. The concept of person to person selling became recognized as a successful and ethical way of doing business. In recent years, direct selling companies developed networks of professional salesman, working fulltime for one company and relying on formal hierarchy of field managers, district managers and regional managers. Independent distributors earn through retail and recruiting. In other form, it developed into multi-level marketing (MLM) wherein addition to the earning based on retail and recruiting; a distributor gets a share of the earnings made by his recruits and other recruits down the line.

The first direct sales organization to develop network marketing was Nutrilite in the United States in 1941. Network marketing as a business concept had a long, new, uphill journey over the last thirty years to build a reputation against suspicion and prejudice. However in recent years there has been a dramatic increase in interest in the distribution method by large established traditional companies. Today, customer information systems have become essential to appreciate the life time value of customers and establish lasting relationships with them. In the next decade, the biggest impact on network marketing would be of technology – the rapid developments in telecommunications and the internet.

The Practicing Organisations

In India, direct selling industry was at US $80 million with 1,25,000 people in 2001. It is still very nascent, with very few players. Some of them are Amway (home care and personal care), Modicare (home care and personal care), Oriflame (cosmetics), Avon (cosmetics), Aviance (cosmetics), Tupperware (kitchenware), Lotus Learning (encyclopedia and books), Time-Life books, LB Publishers and Distributors, DK Family Learning (book), Dianet (jewellery), and Unique (insurance) etc. In addition to the big players, there are about two hundred smaller regional players. Between them the top five players have pumped US $80-100 million into the country.   The major direct selling companies are all members of Indian Direct Selling Association, which is committed to protecting the consumer and laying down the code of conduct for these organizations.

Amway India Enterprises

Amway India, a wholly owned subsidiary of Amway Corporation was established in August 1995. It commenced commercial operations in May 1998. It has launched eight home care products and five personal care products. The company manufactures all its products locally through the third-party manufacturers. Within a year of the launch, Amway India has built a distributor base of over 20,00,000 through an aggressive product launch plan and a distribution network servicing more than 170 cities. Amway India has five Amway distribution centers in India’s five principal metropolitan cities of Delhi, Mumbai, Kolkata, Bangalore and Chennai.

The Amway sales and marketing plan offers distributors the opportunity to earn income in three ways: retail profit from their own product sales to customers, discounts on personal monthly purchase and commission based on sales by distributors within their business groups. To become a distributor, a person is sponsored by a current distributor. New distributors pay Rs.4200 to obtain a business kit, which contains a distributor application form, a selection of products, product and business administration information and business training literature. The company has a 100 percent product-buy-back policy and no inventory requirement, which ensures a very low risk when starting an Amway business.

Amway distributors in India initially found it difficult to sell the products because the Indian consumer was unfamiliar with them, and the products were far too expensive. The distributors ended up using the company’s product themselves. Now many months down the line, the company is adapting to Indian conditions. It is introducing smaller sized packs and products like shampoos.

Tupperware India

Tupperware India, a 100 percent subsidiary of Tupperware International, was set up in October 1996 and today has thirty four products and four thousand five hundred dealers. In the Tupperware party plan method of selling, a consultant organizes a home or office party for a group of ladies. Here she demonstrates the products but make sure those present have a good time, for example, by playing games and discussing recipes and exchanging household tips. At the end of the party, the dealer hopes to book orders for the company’s plastic food storage and serving containers, on which she gets about 25 per cent commission. The host of the party also gets a gift. One of the guests then opts to become a host in the next meeting where she invites her circle of friends. Tupperware gives recognition to its consultants at every step. Every Monday, there is an assembly where they are awarded for what they have achieved in that week.

Tupperware’s independent sales force structure operates on three levels. Distributors equivalent of wholesalers are independent entrepreneurs whose role is to recruit, train and motivate their sales people. Managers and dealers are equivalent of stores. Managers are successful sales professionals who in addition to selling Tupperware products themselves, recruit and train their dealers who arrange group demonstration of products.


Modicare, launched in 1996 by the House of Modis, has some 100000 distributors, the majority of them women. Their number is growing every year at 400 percent and sales at a whopping 500 percent. The company offers a wide range of affordable products from personal care, auto care, home care, laundry care, water purifier, and children’s books with a 100 percent satisfaction or money-back guarantee. The key advantage is that the products are good and moderately priced, therefore easier to sell. As a member, voluntary walk-out is permitted i.e. a person can return his/her membership within three months if not satisfied with the company and get a refund for the entire amount and minimum processing fees. An existing distributor sponsors a new recruit, who buys a starter’s kit for Rs. 1950 consisting of Modicare products and promotional materials like a Video Cassette, Catalogues, Forms etc. A distributor earns an attractive commission on his sale and the sale of others down the chain.

In government circles, these direct selling companies pose the concern of unregulated imports without adequate technology transfer. The Indian Government is of late reviewing all FIPB (Foreign Investment Promotion Board) approved direct selling companies, trying to track down the fund siphoning pyramid schemes

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