The article deliberates the meaning of “network marketing” and “affiliate marketing”.
Page Contents
Network Marketing
Network marketing is an approach that promotes person-to-person sales by a group (network) of distributors. In this approach, the distributor network replaces the retail stores’ network, and customers purchase their goods directly from the distributor.
In network marketing, companies start by recruiting potential distributors interested in their products. These distributors buy the products at a discounted price from the companies and sell them at full price to customers. Each distributor can recruit additional distributors who are offered a percentage of each sale. This builds up the “network” over time.
Network marketing relies extensively on a strategy comprising:
- Lead generation: to locate new customers.
- Recruiting: to add customers and business partners to the network.
- Management: to train, motivate and manage customers and business partners.
Network marketing has been in existence since the 1930s, and today, there are broadly three types of network marketing models:
- Single-tier network marketing
- In this model, companies use affiliate marketing to sell products and services.
- Two-tier network marketing
- In this model, the distributor or affiliates execute direct sales to consumers.
- Multi-level marketing
- This model uses two or more tiers as part of a distribution-based marketing network.
Graphically the network marketing approach is as follows:
Image source: https://medium.com/@sapnaedu/how-does-binary-mlm-work-2f948b90d5d5
What are the advantages of network marketing?
- It is cost-effective.
- It does not need a formal marketing infrastructure or teams.
- Easier to enter new markets with network marketing.
- Easier to sell new products.
Affiliate Marketing
Affiliate marketing is a strategy where an online brand pays a third party (external website) a commission to promote the brand on the third party’s website, blog or other online channels or social media handles. It is essentially a “digital/online sales representative”, and the third party receives the commission once the sale is completed.
Affiliate marketing comprises the following:
- The merchant
- The party that creates the product.
- A big or small company, or even an individual.
- The affiliate marketer
- Also known as a “publisher”.
- The key marketing source for the product; selling the product and earning commissions.
- The consumer
- The driver of the entire program.
- Their purchases drive the revenues and commissions in the affiliate marketing system.
Affiliate marketing is depicted below:
Image source: https://neilpatel.com/what-is-affiliate-marketing/
What are the advantages of affiliate marketing?
- Lower initial costs: a brand does not have to invest in marketing or advertising, and participants do not have to invest in inventory or build a physical network of distributors or customers.
- Minimum running costs: the affiliate handles most of the brand’s expenses.
- Targeted traffic generation: brands can choose affiliates with a similar target audience.
- Higher ROI: affiliates promote the brand to customers interested in the brand and who rely on the affiliate’s recommendation for purchasing brands.
Visually these benefits, especially for small and medium enterprises, can be summarised as below:
Network Marketing Vs. Affiliate Marketing
As seen above, there are several differences between network marketing v/s affiliate marketing. The major differences are given below:
- Structure: offline vs. online
- Network marketing allows an individual to join a team or a company selling specific products, usually offline. Network marketers work independently to build a network of “salespeople” to promote their associated brands.
- Affiliate marketing allows a person to join an existing program to promote a product or service online. The affiliate creates content around the product and includes a link to the company website within the content.
- Sales vs. promotion
- Network marketing is sales based – the network marketer only earns money when they close a sale.
- Affiliate marketing is primarily promotion – the affiliate marketer gets paid to promote the brand on their online platform. They can also earn extra income if the customer uses the link provided in the content.
- Approach to customers
- Network marketing creates relationships with a particular customer base, and the participants must know the other people in the network.
- Affiliate marketing tries to get customers to click on an online link that takes them to the main product/brand website. The marketer and customers do not have to know each other.
- Compensation / earnings
- Under network marketing, the participant can make money either by selling the product/service and retaining the margin or receiving commissions from the sales made by other members they recruit into the network.
- In affiliate marketing, the affiliate earns money whenever a customer buys the promoted product through the affiliate link.
- Effort
- Network marketing requires more effort to contact people, build a network, manage it properly and promote the product or service.
- Affiliate marketing is relatively simpler because it does not require the participant to build a network. All they have to do is join an existing affiliate program offered by a company and start promoting the brand.
- Start-up capital
- Network marketing requires an investment of start-up capital to purchase inventory, contact distributors/customers and deliver products to purchasers.
- Affiliate marketing is usually free to join but can require a certain investment for online campaigns, paid traffic/leads generation and SEO management.
- Community vs. individual
- Network marketing depends on a community of distributors and customers – the larger the community, the better the returns.
- Affiliate marketing is an individual effort requiring little or no direct community engagement.
- Skills required
- Network marketing requires good expertise in engaging people face-to-face and closing sales.
- Affiliate marketing is better suited for those good at content creation, online traffic generation and SEO management.
- Speed of income generation
- In network marketing, the marketer takes more time to generate a viable income after recovering their initial product investment and distributor/customer development.
- In affiliate marketing, there are no start-up costs. The marketer can start making money from day one because they have no investment and do not need to bring in additional participants or work their way up through the network to earn more.
- Reputation
- Network marketing programs do not always have an outstanding reputation, especially with the growth of “Multi-Level Marketing” programs (MLMs), many of which could not function properly and were shut down.
- Today, affiliate marketing has an improved reputation as the program’s control is in the brand’s hands, and it can choose the affiliate partner it wants to work with.
Summary
There are considerable differences between Network Marketing vs Affiliate Marketing. Although businesses can do both network and affiliate marketing to get a diversified income stream, it is better to enter a program that uses its skills and strengths.
Affiliate marketing today is considered a safe method of understanding how the model works and generating a steady income stream. Affiliate marketing can also be extended to other online business models.