Network Marketing - Why Manufacturer Like This System ?
Network Marketing is a system where persons who are interested in flexible sources of income are paid according to efforts of himself & his team.This is also known as Direct Selling & Multi-Level Marketing.In this system independent distributors are paid for their personal sales as well as the Sales through persons he recruited & even recruitment done by his personally recriuted persons.
When i first heard about this system.A person comes to me & he expalined the concept of Passive income throgh the cash flow quadrant by Rober.T.Kiyosaki .It was really interesting to understand about the passive income but the question arises in mind that creator of the system is the manufacturer / marketer of the products .Why he is interested in creating such system whereas goods & services are getting sold through the tradtional system of supply chain management.
Understanding the Tradional System of Supply Chain Management
The way to produce money is reaching of Prodcut/Services to the end user (Consumer ).All people are performing their role in this cycle and earning money out of it.
For Example ,A Soap Manufacturer is making production of Soaps .His total cost of prodcution is $10 and he decided to earn $5 profit on each piece.Whereas the MRP (Maximum Retail Price ) is $50.The soap reaches to consumer thrrough folowing ccycle :
Manufacturer _Stockist_Distrbutor_WholeSeller_Retailer _ Customer
Whereas Advertisement Cost also added in this system as without advertisement it is not possible that customer will attaract to product (Soap)
This system is approx 100 Years old and now Manufacturer get to know some of the issues in this system :
Network Marketing is a system where persons who are interested in flexible sources of income are paid according to efforts of himself & his team.This is also known as Direct Selling & Multi-Level Marketing.In this system independent distributors are paid for their personal sales as well as the Sales through persons he recruited & even recruitment done by his personally recriuted persons.
When i first heard about this system.A person comes to me & he expalined the concept of Passive income throgh the cash flow quadrant by Rober.T.Kiyosaki .It was really interesting to understand about the passive income but the question arises in mind that creator of the system is the manufacturer / marketer of the products .Why he is interested in creating such system whereas goods & services are getting sold through the tradtional system of supply chain management.
Understanding the Tradional System of Supply Chain Management
The way to produce money is reaching of Prodcut/Services to the end user (Consumer ).All people are performing their role in this cycle and earning money out of it.
For Example ,A Soap Manufacturer is making production of Soaps .His total cost of prodcution is $10 and he decided to earn $5 profit on each piece.Whereas the MRP (Maximum Retail Price ) is $50.The soap reaches to consumer thrrough folowing ccycle :
Manufacturer _Stockist_Distrbutor_WholeSeller_Retailer _ Customer
Whereas Advertisement Cost also added in this system as without advertisement it is not possible that customer will attaract to product (Soap)
This system is approx 100 Years old and now Manufacturer get to know some of the issues in this system :
- Diminishing impact of Advertisement : Now we are bombarded with advertisements and consumers are getting matured day by day.They understand they impact and real use of the products/services.They understand that advertisements are created hype which is not real.So the influence of the advertisements are diminishing.Studies shows that some time over explantion or misrepresentaion creates even negtive impact in consumer's mind.
- Know the Actual Customer : In traditonal system only the last person in supply chain management mostly retailer knows the actual customer.In current age it is said that Customer is king. So it is neccessary for manufacturer to know who is his actual king .
- Brand Replacement by Retailer : Sometimes when a consumer reaches to retailer after watching the advertisement of the prodcut/services.Retailer ,actual supplier of the prodcuts changes his mind due to non-availability or any profit associated with another brand.In such cases manufacturer have to face the Zero return on investment on advertisement cost & Retailer & customers loses brand loyalty.
- Incresing Cost of Sales : In traditional system Sales team is generally recruited on Fixed salary basis where Non-performers are paid at par with performing Sales individuals.Resulting which active sales person got depressed.
- Greater chances of Duplicay/Piracy : In tradional system there are more chances of duplicay / piracy .
Network Marketing as a Solution for Manufacturers /Marketing Companies :
Network Marketing /Direct selling comes as a solution all above problems of the manufacturer/ marketing companies
In this system Manufacturer/marketing company creates an account of the customer with them so that person will come to the company for purchaing of the products or company will deliver the prodcuts to the customer's place.
If customer likes the products he can refer the same to other customers.All new customer who comes through his referral got their account opened with the company under the account of the referring person and the same continous.a fix compensation plan craeted by the principal company and the compensation paid according to the results generated by the person & his team.
Customer are getting rewarded for their purchase and if they promote the products/services to others they also got rewarded for the same.
Amway ,Oriflame,Avon & Tupperware are the companies who started this concept in earlier stages Now companies like Juenesse are taking the World with wave.
Manufactuers are moving towards Direct Selling as a system of supply chain management.
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