I have MOVED this Blog to JanetCallaway.com - CLICK HERE to join me there.

Saturday, February 5, 2011

Networking Marketing vs. Standard Manufacturing Distribution—what's the difference? By Janet Callaway

Subscribe to Janet CallawayThe Natural Networker by Email

According to noted economist Paul Zane Pilzer “small businesses today account for more than one-half of our nation's economic output and employ more than half our private-sector work force—and more than half of these are home-based businesses.”

Network marketing in particular is seeing dramatic growth in these challenging times. Over the past 10 years the direct selling industry (of which network marketing is the largest segment) has experienced 91% growth with annual sales in excess of $30 billion in the United States and $100 billion worldwide.

While there are numerous reasons for this growth, one of the reasons is shown in the accompanying chart which explains the difference in distribution systems. Manufacturers report that their greatest challenge is not in creating the next great new product, rather it's how to reach people and teach them that these new products exist.

That is exactly why the network marketing industry is growing so rapidly—faster than franchises or traditional businesses. Think about it, who do you trust more—your friends or a billboard?

Network marketing is about people teaching people about a new product or service and the company paying those people for educating consumers.

With the standard or traditional manufacturing distribution model, the manufacturer makes the product and then, in order for the product to be distributed, money is paid to various national, regional and local resellers or distributors before it finally reaches you, the consumer. The actual manufacturing cost is about 20% while the distribution cost, including advertising, is about 80%.

With network marketing, the manufacturer makes the product and it is shipped directly to you, the consumer. This system allows the manufacturer to keep more money to make quality products as well as pay various distributors and customers who tell others about the products. It's a great system!


  1. In theory it's definitely an excellent way of reaching potential customers, Janet.

    However, the catch is that network marketing has a bad name thanks to some dodgy operators. Some of them work more or less like pyramid schemes and increase prices to compensate all involved.

    It's hence my belief that new and serious network marketing companies first have to overcome the scepsis they encounter from the public. If they succeed in doing so and can show that they are different, I'm sure they will prosper.

  2. First of all, thanks very much for visiting my blog. This post of yours has taught me a lot about the importnace of networking not only if you have an actual product to seel, but also if you try, like me, to make a name for yourself as a travel writer in the hopes that magazine editors will eventually find you.

  3. Thx, Catarina, for stopping by and taking the time to comment. You are right that network marketing, just like any other industry, has had its share of dodgy operators—think of finance, investing & Bernie Madoff. In a pyramid or ponzi scheme no value is exchanged and money is made solely by taking money from others while in a network marketing business, there is always an exchange of goods or services for whatever money is paid. True network marketing is neither a “get rich quick scheme” nor is it a “something for nothing” proposition.

    While some people do think that prices are increased to compensate the field, again, I find that to be a misconception. With the traditional or standard business model, the price of the product increases substantially from the point of manufacture to the end consumer. Along the way, jobbers, reps, warehousers and others are compensated for their parts in moving the product to the end consumer.

    In the network marketing model, the product is moved directly from the company to the end consumer with no middlemen involved. The reps or distributors of a company are paid for their roles in helping to facilitate this transfer. However, they are not paid the 80% that is the customary cost of distribution in the standard model.

    There are companies in the industry that are well over 100 years old as well as many decades old. Some of the older companies do multiple billions a year while one less than 10 years old does a billion. Again, as in any industry, there are some great companies and some not so great.

    Like social media marketing and social networking, network marketing is a relationship business. Unfortunately, what happens is that people often join a company solely because of a relationship with a friend and then neglect to do the same due diligence on a company that they would a prospective employer. As in any industry, the good companies prosper while the others fall by the wayside.

    For the person who wants to take control of their life, create residual income, have a complete package with a system to follow as well as coaching, I believe network marketing is the answer.

  4. Inka, aloha. Thx so much for stopping by and for your comment. As I mentioned to Catarina, we are all in the relationship business and the business of networking. No doubt the magazine editors will find you to be as engaging a travel writer as I did. Aloha. Janet