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The Real Pyramid Selling

Spot the pyramid

Spot the pyramid

One of the challenges of any business is dealing with its reputation. Reputation is very important to success. A good reputation is something that most business people aim to achieve and to keep. A bad reputation can break your business. That’s why people protect their reputation. Brands are built upon reputations.

Some industries have bad reputations which have come about through the unscrupulous practices of a minority. Estate agents have a bad name, in general, but most of them work hard to sell your property. Double glazing companies have a bad reputation for sharp sales tactics and over-inflated prices, but not all double glazing companies behave like that.

Business models which are well known for being scams and are illegal as a result include ‘Ponzi’ selling schemes and ‘Pyramid’ selling schemes. The financial crisis we are in has revealed one massive fraud through Bernard Madoff’s Ponzi scheme where people are taken in by large confidence tricks. Pyramid selling has been banned because it involved persuading people in their team (their ‘downline’) to buy products for resale for which there was no market. The products were purchased on a ‘no return’ basis which meant the purchaser was stuck with this worthless stock.  But people confuse network marketing for pyramid selling.

Network marketing works on a completely different basis. It is based upon an individual building a team of motivated people who also build motivated teams. If you start a network marketing business, you gain from other people’s sales. It is a highly leveraged method of building a business and it is a very efficient form of distribution.

But, the teams of motivated individuals are not infinite in depth. The most successful network marketing firms only go three deep. Nobody has to buy a whole load of stock up front which is difficult to sell because it has been marked up so much by the numerous people above you in the chain. The price of the products are controlled centrally.

However, it is common for people to misunderstand network marketing. They think it is ‘pyramid selling’. However, the point I want to make is that we live in a business world which is not so far off ‘pyramid selling’ and it is hard to see why network marketing as a model is so looked down upon when it is so different from ‘normal’ distribution methods and illegal pyramid selling.

Our ‘normal’ distribution model relies on a manufacturer producing their products which are then purchased and resold, perhaps, by a national agent. The national agent sells the products to distributors who might sell it to wholesalers or retailers. All the way down the line, each party takes a cut of the recommended retail price. A pyramid of stock is spread throughout the chain.

Each one of them holds stock and gets a better deal on the products they buy based upon the risk they are prepared to take in knowing how much they can sell. Often, the manufacturer sells their product based upon a limited amount of unsold products that can be returned. This transfers risk from manufacturer to the agent who then might pass this down the line to the distributor to the wholesaler to the retailer. Unsold stock is often sold off cheap, hence the wave of ‘end of season sales’. Sometimes, the retailer is able to return all of their unsold stock to the wholesaler or distributor.

Compare that to network marketing where the distribution channel consists of the manufacturer who is also the distributor, that ships products directly to the end customer or sometimes through the person who is the local networking marketing agent. No stock is held in the pipeline. The networking marketing agent and their team is supplied directly by the manufacturer/distributor.

The team of networking marketing agents are all paid by the manufacturer and the person who built a team below them is rewarded for doing so and paid on their results.

So, why is networking marketing believed to be pyramid selling when traditional distribution methods are far more akin to that sales model? It comes down to reputation. Pyramid selling caused such a scandal that it tainted a very good, efficient and reputable business model. People cannot separate network marketing from pyramid sales models. And, ironically, illegal pyramid selling schemes are far more like mainstream distribution models than you may care to believe.

Don’t Be Snobbish About Network Marketing

Network marketing companies are strong, profitable and growing

Network marketing companies are strong, profitable and growing

If you run your own business, I expect there have been times when you wondered why on earth you started it. You might even be in a business where you are responsible for bringing in new customers and sales. The pressure is on to perform and you have moments of self doubt. “Can I do this?” “Am I good enough?”

The times that make you wonder why you are putting yourself through this pain often come down to one of two things. Money and people.

With the money, you are worrying about getting sales, whether they are profitable sales, whether you have enough money in the bank to to pay your current bills while you wait for the money to come in from the sales, chasing debtors and then working out whether you have made any money at all at the end of each month.

With people, it can be that you have tough customers who do things like ask you to show them exactly how you do what you do so that they don’t have to use you anymore. Or you have some tricky relationships at work where you feel as though you are not entirely on safe ground because your boss is being particularly distant from you.

The hardest thing that people have to deal when they are running their own business and selling for the first time is the fear of rejection. Getting turned down by the customer who you thought would buy your product or service without doubt is a hard thing to deal with in business when you are not used to it. That’s why cold calling is loathed by most sales people. Rejection after rejection, day in, day out is not only demoralising, it’s boring.

But dealing with rejection from prospective customers is one thing. Dealing with rejection from friends or family is another. When you start your own business, you start it with optimism, enthusiasm and fear. You are giving up that regular salary  and the certainty which that brings. The support that your friends and family give you is vital to making you feel as though you are not entirely on your own.

But when you don’t get that support, it can be very difficult to deal with. Belief in your products or service is what holds you together and the determination to win against all odds is one of the characteristics of an entrepreneur.

Someone I know well has started their own business and that person is one of the most determined people that I know. In five years, they have taken their business from zero to £500,000 in turnover having started it part time. That person is now being joined by their spouse in the business who has given up their highly pressurised but well paid nine to five job.

But their family does not see their business with the same enthusiasm as they do. In fact, they don’t see it as a proper business because it is a network marketing business. And that’s not really a ‘proper business’. Network marketing is regarded with quite a bit of snobbery in this country. People think you are selling them some sort of ‘pyramid-ponzi’ scheme where they will have to buy a load of ridiculous water filters or similar which you can’t sell.

But this is old thinking. For sure, some network marketing schemes in the past have given the model a bad name. But this is not the same. Network marketing is becoming a phenomenally successful and influential route to market for many companies who do it well. If network marketing is bad, why do you see so many brands using social networking to get their name out there to help them sell products?

The plain fact is that the world has become wise to the effectiveness of networking, network marketing and social networking. The days of brands marketing at you are declining rapidly. We no longer accept what marketers tell us about their products. We tell them what we think about their products and not just by refusing to buy them.

Networking is a people-centred activity. People buy from people they trust. People buy from people who sell good products. Network marketing is built upon that principle but people seem to think that just because the product was purchased in this way that it is less than legitimate.

You know what? If that’s the way you think then all I can say is “Get over it”. The best network marketing companies are strong, profitable, growing and they are quietly making the people who work in the businesses a lot of money. In fact, I might just join them.