CONCEPTS OF NETWORK MARKETING
Marketing in general is the provision of goods or services to meet consumer needs. For a product-driven company, marketing may be more closely defined as the process whose primary objective is to distribute the maximum volume of product from the manufacturer to the consumer. Assuming no limitations in manufacture of product and a limitless reservoir of consumers, the effectiveness of the marketing process is determined by the distribution mechanism. The general marketing process is illustrated as follows:
In the conventional marketing process, the distribution mechanism consists of four major elements each of which has its own particular structure: advertising, sales force, wholesale and retail operations. The general structure of the distribution mechanism in conventional marketing is static - each of the elements is connected in line and each element is designated a fixed set of tasks. The static structure of the distribution mechanism is independent of the customer.
In contrast, the distribution mechanism in network marketing consists of a single major element: the individual independent distributor. The independent distributor performs all the functions required to sell and distribute the product to the customer. Each independent distributor is linked to other distributors through a dynamic hierarchical non-linear network, which grows, by geometrical progression. [The details and functionality of this dynamic network are described below] Moreover, the process of generating new customers provides a natural path for developing the distributor network. Each new customer represents potentially a new distributor source. Thus a positive feedback loop is established which naturally expands the distributor network. The dynamic structure of the distributor mechanism in network marketing is therefore dependent on the consumer element. This is shown in the following diagram:
The extent of the positive feedback relationship is determined by the particular company. For Forever Living Products, which is product-led, this consumer-dependent relationship is strong.
The dynamic hierarchical network is characterized by geometrical progression. For example, a distributor signs on two new customers as distributors and they in turn each sign on two further distributors and so on. In this simple growth progression, by the fifth generation, the total number of distributors in the network has reached 31. This sum is easily calculated from the formula:
where S is the total number of distributors in the network reached by the n th generation and R is the ratio between terms. In this example R = 2, n = 5 and S = 31. If each distributor signed up 5 instead of just 2, then R = 5, n = 5 and the total number of distributors is S = 781. This represents a dramatic increase for just 3 additional people per distributor and demonstrates the power of geometric progression. It is clear that the network grows rapidly and that in practice the network is more complex since: each distributor at each generation may sign on more or less than the number given in these examples, some distributors may cease to operate and the network generation may extend well beyond the 5th generation. A simple more realistic 4th generation distributor network may look like this:
The 1st generation shown in the diagram as the white circles is defined as the frontline in network marketing parlance and represents those distributors directly signed up under YOU. The 2nd generation level shown as the cyan circles and the 3rd generation level shown as purple circles constitute the remainder of the downline. The specific advantages of the network marketing mechanism are as follows:
Each distributor builds his or her team network using the principle of duplication of training methods at every level of the network. In the case of Forever Living Products, integrity is essential in the duplication process. Within the broad pattern of the duplication process there is a modicum of room for individual implementation.
Each distributor uses the products and is convinced of their efficacy.
Direct contact by word of mouth provides the most powerful proven method of advertising. Sharing experiences with personal contacts, friends and family provides the cornerstone of most distributor networks.
A personal bonus scheme is applied on the personal volume of product sold. The personal bonus percentage increases as the distributor rises up the ladder. An additional group volume bonus scheme is applied depending on the performance of the network belonging to the distributor and varying bonus levels applied within the given network. It is the group volume bonus that provides an additional positive feedback mechanism which drives the incentive of each distributor to continue expanding their network.
Forever Living Products' bonus schemes are generous compared to those of other network marketing companies. The particular marketing plan operated by Forever Living Products is discussed in Part 2.
Independent distributor of Forever Living Products