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Network Marketing vs Pyramid Selling (An extract from "The Secret Formula")

Network Marketing vs Pyramid Selling

Any business associated with a “pyramid” is often viewed with suspicion and Network Marketing has in the past been misunderstood in terms of the motives and methods of the participants.If you consider any organisation or supply chain that moves goods you will see that it is shaped like a pyramid. Stock passes along a distribution chain, being sold on at increasing prices until it reaches the end, or the bottom of the pyramid - you, the customer or user.The pyramid selling scams that many fear are indeed illegal. Often they reward the signing up of people to the scheme rather than the distribution of any product to an end user. If there is a product involved then rather like the conventional distribution chain, it is just moved on to from one person to the next one who is signed up, except that it never reaches an end user.The investment scams, or “ponzi” schemes are named after Charles Ponzi who in the first half of 20th century promised incredible returns on investments for people paying into a fund. However new money invested was used to pay the returns to the earlier investors.Eventually when there were not enough new investors joining to pay the “interest” the scheme collapses.Interestingly the unfunded pension schemes run by most governments run on a similar principle, with current contributors paying the pension, or interest, to those already retired.

The Inverted Pyramid vs Pyramid Selling

With Network Marketing when a certain level of business or volume is reached the Distributor, who will already be a user of the product, qualifies to purchase stock directly from the manufacturer.Some Network Marketing plans allow the customer to purchase directly from the company from the start. There is no “retail” profit for the introducer but they are still rewarded for the referral by receiving a higher commission for the product bought by the people they personally enrol.



So with Network Marketing product does not really enter the ‘pyramid’ at all, but is shipped directly to the consumer. There are strict legal definitions that allow a scheme to be legal, and if a company has been in existence for a number of years it would certainly meet any such criteria or would have been closed down.It is essential for both a company and the individual Distributors to uphold ethical standards and exercise integrity in order to maintain long term growth.Network Marketing also has a number of benefits compared to conventional business, making it easier to set up and trade as a Distributor and build a business:


No Big Investment                                                         No Employees

No Stock to Hold                                                             No Deliveries

No Complicated Book Keeping


A criticism often levelled at Network Marketing schemes is that they only reward a few people at the top who were fortunate enough to get involved early on. It certainly can be an advantage to start earlier, but while Network Marketing has been around for decades there are still many millionaires in the business who have only made their money recently.Indeed if the highest earners in the industry started from scratch with a different company and product they would most likely quickly become high earners again not because the opportunity for high rewards is only available to the select few who have already started, but because they know and understand the industry. On the contrary the only way to make and sustain a high income is to help those you introduce to your company and its products to do so. Far from sitting back and earning money from the back of their efforts you will only be rewarded by ensuring that they are earning a significant income themselves.




Any conventional organisation is pyramid shaped, with a chairman or president, a board of directors, senior management, middle management, administrators and “the workers”. Opportunities for advancement, promotion and rewards have natural limitations.With Network Marketing the opportunity for promotion and rewards are unlimited; and unrelated to education, qualifications or background, but instead to the efforts and attributes of the individual. There is no rigid hierarchy because everyone does the same thing, recommends the product, introduces customers and helps their downline build their business. Those already established merely started sooner, but a Distributor may be more effective in developing a business and earn more than their sponsor! Network Marketing is now a very established industry but it still has enormous potential for growth with perhaps only 0.5% of the eligible population of the free world actively involved. Certainly any suggestion that imminent market saturation will prevent new Distributors from being able to earn a significant income is an exaggeration, but if there is a suggestion that it may be an issue in the future then now would be a good time to join!

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