Understanding The Difference Between Network Marketing and Pyramid Schemes
Do you find yourself in a position of having to constantly defend Network Marketing every time some uneducated prospect says the word "Pyramid"?
The first step is to understand that there is no need for you or I to get offended or become defensive. This question usually arises out of ignorance more than anything else. As a professional in the industry, part of your job is to help educate your prospects about our amazing industry of network marketing. So let's start by making sure YOU understand the difference between network marketing and the proverbial "pyramid scheme".
A Pyramid scheme is really nothing more than a money game. People are simply recruited to invest money based on the promise that the money they invest will somehow flow back to them. Typically, there is no real product or service involved. It's really just a matter of money changing hands and the people that get rich due so based on other people in the program losing money.
Network Marketing on the other hand is a legitimate method of providing people with real products and/or services that they need or want and would pay for regardless of any income opportunity.
The simplest question I like to ask is, "If there was zero money opportunity involved, would the product or service be something people would buy anyway?" In other words, if someone paid for the product or service, would they believe they have received a fair or equitable exchange in value?
Companies use network marketing as a distribution model because it can be quite cost-effective. Let's compare a traditional distribution model with a network marketing distribution model in the possible example of a movie theater as an example:
Movie Theater A pays for newspaper ads, magazine ads, radio ads, etc . . . in order to attract customers. They have to spend the money up front in hopes of generating a solid return.
Movie Theater B offers to sell the same movie tickets to you at a discount. Instead of paying $10 per ticket, you buy the tickets at $5 each and can then sell them to your friends, family, and peers for $10. The $5 difference is yours to keep. This is an example of retail sales in network marketing. You buy the tickets at wholesale ($5) and then sell them at retail ($10) to your "network".
Most of your friends, family, and peers may be happy to just be able to buy movie tickets from you. They'll be your customers over and over again.
But Movie Theater B recognizes that you can only sell a limited number of tickets personally so they tell you, "Tell some of your friends about this deal. They can buy tickets at wholesale and sell them at retail just like you're doing now. Each time your friends buy their tickets at wholesale, we'll pay you a 50 cent commission."
Now you can earn by selling tickets directly to movie goers AND you earn additional commissions on anyone else you refer that wants to do what you're doing!
This example is, of course, over-simplified but should give you the basic idea. The people buying the product (in this case, movie tickets) are getting an actual product in exchange for their money. They are customers and many of them are going to buy tickets without any consideration of possible income. And some of them are going to recognize an opportunity for them to earn by doing what you're doing. In the process, because you referred them to the Movie Theater, you get a share of those revenues, as well.
Depending on the products, services, and the pay plan, the details will vary from one company to the next but the opportunity to build significant wealth via the network marketing model is a definite possibility for those business minded people willing to put in the work required to succeed.
Movie Theater B gets a great deal because they now have a sales force of motivated entrepreneurs working to distribute their product (movie tickets) and they don't have to spend thousands of dollars in advance on expensive advertising that may or may not generate the sales they need.They are also able to more accurately project and control the cost of customer acquisition which can absolutely help stabilize their business model.
So the next time you are presented with a network marketing opportunity, consider what is actually being offered in exchange for your hard earned money. If you see a product or service that people would buy normally, you are looking at a potentially lucrative opportunity for yourself. If you see no discernible product or service, or the product or service is of little to no real value to the end user, you may be looking at an actual pyramid scheme. Knowing the difference between the two can not only save you some trouble but could also make you rich!
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Contact the AuthorBrian Rooney
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