Does a Network Marketing model beat supply chain management model?

The other day a friend asked me what is this network marketing? Well this is not so easy to answer in a simple way as straight as the question was fired at me. So I picked one aspect of the biz.

I asked him 'Dude you know how a traditional supply chain management works?' let me explain a bit here.

Let us take the example of a bottle of Coke. Now the cost of manufacturing a bottle of coke could be what, say Rs. 5. To move this coke from the manufacturing plant to your glass at your home, industry follows the MAD process, Marketing, Advertisement and Distribution

Marketing and advertisement is a costly affair and many companies earmark a substantial budget for this endeavor to make their product reach as many end user / customer as possible. and this costs huge money.

Now this bottle of coke passes through the whole supply chain of distributor, stockiest, whole seller, retailer before it reaches the end user i.e. you. Now all the above parties in the supply chain are in business obviously. so they have their individual margin of profit which adds to the cost of coke  Add to it is cost of transportation, cost of cold storage, maintaining inventory as part of distribution process.

So finally you will pay RS. 25/- for the same coke and you are bearing all the cost of the supply chain management all along the way

Fine now what if I say, I shall deliver get you the coke directly from the factory at say Rs. 15/- you save Rs. 10 and I still earn my Rs. 10/-. This is called Direct Sales where a customer /end user benefits from the absence of middle men in terms of reduced price or otherwise he becomes a single point of conduit between the company and the end user for a commission. Now note that in the second scenario the customer still gets the product at a substantially lower price thereby beating the whole supply chain management system.

Now Network marketing company follows the direct selling model whereby the whole hog of MAD is bypassed. So No Marketing cost, No advertisement cost and No distribution cost. How is that?

Marketing and Advertisement is done by word of mouth by the company distributors or independent representatives and the product flows directly from the manufacturing place to the end user.

This is one of the many ways you can have a glimpse of a network marketing. Now let us see how this whole claim by networking industry works.

 If you observe, most of the network marketing companies promote vague /intangible product with less / or no known / established market / product value. The established product value of a known brand of washing machine, Fridge or a Motorcycle is different from a wellness product or an online educational programme. The value of the latter is determined by the promoter as they deem it fit (Of course the actual product value is much less / fraction of the sale value considering the step referral commissions / pay out involved, which can go up to say 13 or 14 steps / levels for example). 

So in the above scenario you see that that  it beats the claim of bypassing the supply chain flat out as the products are in fact priced much higher than they actually are else from where would the company pay out referral commission all the way say up to 13-14 steps / levels.  What I mean to say is if the same product were to be introduced in the market directly using the traditional supply chain management then the cost of the product could be very much much lesser

Now on the lighter side.    Let us assume that you want to buy one of the products of the networking companies but find them too expensive (which they are). Just try eBay. If you are in luck, you could just find someone who has put the  product your are seeking, on the block for a much lesser price than he had bought it, just to ... let us say get it off his back. 

This brings to the question why did he not keep it in the first place..... Well that is for another day to chat..