CLAIM: Network marketing companies are pyramid schemes
RESPONSE: There are legitimate network marketing businesses helping people reach their financial dreams
To understand why network marketing is not a pyramid scheme, one must first understand what a pyramid scheme is. By definition, a pyramid scheme is a unsustainable system which can only continue its existence when there are new people joining the scheme. Since compensation of these schemes are in a pyramid structure, you always need more people than before you join in order to sustain the scheme. In the end, there are not enough new people joining (or new people are not joining fast enough), and the scheme collapses.
An example of a pyramid scheme is the Canadian Pension Plan. Currently, people who are working need to pay a CPP premium for every pay-chaque they receive. The government takes these premiums and pay the retirees of the society. In this case, when the current working people retire, who's going to pay them? It will be the working people at that time paying these retirees! What if there are not enough working people (birth rate has been going down)? Answer: The whole system collapses.
The main difference between a pyramid scheme and a legitimate network marketing company is that, for a legitimate company, the network marketing is HOW the company markets its product, whereas for a pyramid scheme, the network marketing system IS the only thing the company has to offer.
Here is a more detailed explanation. A sustainable network marketing company is just like any other successful company. It has good products/services competitively priced, good management, a solid mission, a sound business plan, excellent training program, etc. The only difference between a network marketing company and a successful conventional company is that, instead of relying traditional marketing methods like advertisements to promote the products/services, a network marketing company uses a direct sales approach by giving incentives to consumers to help them promote and sell the products/services.
On the other hand, for a pyramid scheme, all of the elements that make a business successful are missing. People buy the "products" or "services" (if they are even present) MAINLY (or even only) because they see they can make money from the "compensation plan". If new people fail to join the scheme, the existing distributors would no longer continue purchasing the products/services (because the products/service either don't give any value, or are drastically overpriced), and the whole scheme collapses.
Are there crooked pyramid schemes that false advertise themselves as legit network marketing company? ABSOLUTELY! Are all network marketing companies scams? DEFINITELY NOT! Just analyze a networking company like any other company to see if the business is sound, and you shall find out whether a network marketing company is legit or not!
CLAIM: The network marketing model is obsolete because of information technology
RESPONSE: Information technology allows people to communicate more easily with people, which empowers network marketers.
Some people believe that the network marketing model was only useful in the old days when towns are sparse, and a network marketing strategy allows a company to make sales to people who the company would not have a chance to reach to. Therefore, in today's world with the worldwide web, a company can easily make an online store for customers to make purchases, so they no longer require network marketers to do the job.
While there is some truth to this, this statement makes the assumption that marketing only involves putting some fancy ads so people can see and make an online store for people to purchase. We all know this is not true. Marketing to have customers buy the product/service requires more work than that. In fact, in today's world that is overwhelmed with information, marketing through direct sales have became more effective. Consider the last time you want to go to a restaurant. Did you just see an ad and then go there to eat, or you try to see if anyone you know has tried the restaurant and see what they think about the place? This example is just to show how a person-to-person interaction is still very powerful for marketing products/services and is NOT an obsolete marketing method.
If marketing using a person-to-person interaction is NOT obsolete, then it is safe to say that information technology makes it even easier for person-to-person interaction to happen, and it empowers network marketer. In the past network marketers could only get to their prospects through in-person meetings or via phone calls, but now they have faster and more interactive methods like video conference available as an option, and network marketers can now reach internationally with the information technology, instead of being stuck only nationally or locally!
All in all, information technology has been nothing but a great blessing to the network marketing industry.
CLAIM: Network marketing is not really a business
RESPONSE: Network marketing is a business that can give you the potential to achieve tremendous wealth
A lot of people think you are just being a sales if you are in a network marketing business. While there is some truth that sales play an important role, a network marketing business is nothing but a business.
Remember the definition of being a big business owner is that you own a system that works for you and gives you money no matter you work or not. In network marketing, if you have built and trained your downlines correctly, your down-lines would continue to purchase products/services, make more sales, and recruit more distributors. If you have built your downline organizations correctly, it will generate cash flow no matter you work or not!
This, by definition, is a business!
CLAIM: Only the top dogs get the big bucks
RESPONSE: That's true, but so what?
In fact, isn't that how everything works in life? If you work in a company, the chief-executives are probably the highest-paid individuals, and then the senior management, then the middle management, and finally the rest of the workers. No one complains the top dog earns the most money in other businesses, so why should this be a drawback for network marketing?
In fact, network marketing gives you a chance to succeed based on your individual effort. Your success is defined by your ability to sell and your ability to lead your organization. You do not have to face the troubles of being more competent than your boss and get paid less. This is the value of being your own boss and running your own business!
CLAIM: Most people fail in the network marketing business
RESPONSE: It's true, but the failure rate is not any worse than starting any businesses
It is said that for businesses, 1 out of 10 would fail after 5 years, and for the next 5 years, only 1 out of 10 that survived the first 5 years survives. This implies that only 1 out of 100 businesses can last more than 10 years, so it's a whopping 99% failing rate.
For network marketing, it is said that about 3% of the people succeed in earning an income comparable to a full time job. The failing rate in network marketing is really nothing special in the world of business.
Furthermore, the consequences of failing is a lot lighter in a network marketing business. For a conventional business, to be successful, people usually need to work full time. Business start-up requires capital so people usually are in debt. Shall the business fails, not only do people lose their income, they also need to repay their debt!
For network marketing, however, you can easily start part-time and work in your own pace to acquire the skills you need to build the business. While in a conventional business, time is not your friend as you have the pressure to succeed (to repay the debt, mainly), in network marketing you can work according to your own pace. If the result is a failure, thanks to the small initial investment, you can still walk away easily and hopefully take with you valuable knowledge you learned while trying to build this business!
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