SWOT Analysis of Network Marketing For Business Owners3 min read
For business owners who are curious to learn about the distribution method of network marketing, here is a SWOT analysis of the industry.
For decades business owners have noticed that word-of-mouth advertising is one of the most powerful methods of advertising. Companies who distribute their products in network marketing can experience exponential growth because of the viral effect. Everyday people can become distributors for your company and bring the products to their local market. This is based on the philosophy that people are willing to purchase products or services more readily from people they know and trust, rather than from a sales rep.
Compensation is performance-based as there is often a pay grid in place for satisfying certain quotas. Having this kind of pay structure in place reduces the risk for the business owner for if a new distributor does not perform, the financial burden of obtaining the new distributor/ associate is minimized. Customers are loyal to both the Independent Distributor representing the company and the products. Products are usually consumable which creates repeat orders therefore increasing sales from one quarter to the next is common.
As business owners we will want to cover the weaknesses as part of our SWOT analysis of the Network Marketing industry. The first and obvious weakness is that the growth of the company becomes dependent on the strength of your distributors. This is not completely out of a business owners’ control but can be difficult to influence. The compensation is the main motivating factor for distributors. Retention of distributors is a problem right across the industry. As it is easy for a distributor to join a company, it is just as easy to leave. This model of distribution works best for products or services that are consumable. This creates repeat orders which ideally can be set up on a monthly cycle. Works best for products between $30 and $180 which makes it affordable for customers, and still profitable for the company.
Having a look at the Threats portion of our SWOT analysis of the industry, down line raiding can occur at any time. Down lines are referred to as a group of distributors who work and benefit from one another. If a key distributor decides to join another company and bring their team, a portion of sales can be loss. Having incentives and agreements in place is the best way to avoid this situation.
Another threat to the business owner and company is that distributors are free to promote in the field following certain guidelines. These guidelines may not always be followed resulting in possible lawsuits or defamation of the company’s brand.
Expanding into new markets is on top of the list of opportunities as part of our SWOT analysis of network marketing. As people are happy with the products in one market, distributors will be ready to move to expand into a new market. This will also be possible due to the low marketing budget needed for the main stream of communication is through the distributors who only get paid when a product is sold.
Since the marketing budget is not as taxing as traditional advertising methods, business owners have been able to allocate more resources to the product allowing it to be more competitive in the market. And as sales grow another opportunity that business owners take advantage of is being able to expand the product line to the existing customers who are often open to adopting the new products.
This SWOT analysis of network marketing for business owners is by no means comprehensive, but gives you a starting point on what to expect. The industry is rapidly evolving and more people than ever are looking to build with reputable companies who they can trust. There are different strategies to build a network marketing business for the owner and for the distributor. A recommendation would be to integrate technologies which will optimize your leverage in reaching the highest number of qualified prospects.