There are two primary business models in direct sales: party plan and network marketing. They represent the largest share of companies in the industry. Over the years, these two have evolved, but even today they share some similarities and distinct differences. I will present an overview of the differences and shared features.
First let’s discuss what is similar between the two models. Both have multi-level compensation plans. Both sell products. Both allow their representatives to recruit others to sell and recruit. Both can have international sales forces. Both use independent contractors.
Here are some of the differences. Party plan companies call their representatives “consultants.” Network marketing companies call them “distributors.” Party plan companies tend to attract women although a few men are joining now. Network marketing companies attract both men and women. Party plan companies first promote a culture of selling products to retail customers and second focus on recruiting. Traditionally, network marketing distributors focus first on recruiting and then having these new recruits buy the products at wholesale for personal consumption. Because of the enforcement actions taken against Vemma and Herbalife, network marketing companies are starting to focus more on wholesale customers and recruiting at the same rate.
In the initial approach of the party plan opportunity, there is more focus on the product and what the personal commission is if you sell the products. There is less emphasis at first on the multi-level compensation plan. In network marketing there is focus on the product, but quickly most presentations turn to the MLM compensation plan and how much money you can make if you build a large organization.
The core selling model of the party plan company is the party. The party has three different types of attendees, the consultant, hostess and the guests. Party plan companies have a complex order entry system that includes multiple orders from different customers, hostess rewards, booking rewards, shipping to different locations and payments from credit cards, cash, and checks all from a single party. Network marketing is more of a one-to-one relationship when it comes to selling and recruiting. Network marketing companies use distributors’ replicated websites as the primary shopping cart for both the retail customer and distributor to purchase product. Auto-ship has become a standard for distributors to get their monthly order and personal volume.
Now let’s dive a little deeper into each model. Party plan companies sell products that have an “experience” associated with it. The product, when displayed or demonstrated with a group of people, creates enthusiasm, fun, taste, memories, or some other emotional personal connection. For example, a scented soy candle, food, or jewelry creates an experience much better than a bottle of vitamins or juice. There is no obligation to buy, but because of the social environment, most do purchase something. The parties last anywhere between 60 to 90 minutes. Presentations normally are short and then sampling or viewing the products commences. Light refreshments are provided normally by the hostess and then the party is wrapped up with ladies placing orders and booking additional parties. An experienced consultant will always weave the business opportunity into her presentation or discussion. She will encourage guests to book their own parties so they can earn either free or half-price items.
When a consultant gets home she will enter the party order into her online company workstation. She creates a party, enters guests and the hostess and then enters each customer’s order. Based on the party sales volume, the hostess will earn free or half-priced items. Customers can have their orders shipped directly to them, or the combined party order can be shipped to the consultant or hostess. Once the party order arrives either the consultant or the hostess prepares each individual order for delivery.
As you can see in a party plan, there is a lot of retail focus on the product. The product needs to have retail appeal, and must be priced so actual retail customers will purchase the items. Even though the party is the center of sales activity, more recently some party plan consultants have used the internet to market to new and repeat customers. Other methods for selling are catalog parties, 1-to-1 sales and fairs and shows.
The majority of consultants who join party plan companies tend to join because they like the products and feel they may be able to make some extra income doing parties or just selling the products. Some consultants do join to build a downline organization.
Network marketing companies sell products and services that range from life insurance to antioxidant juice. Network marketing companies offer thousands of products. They are normally unique products either because of the ingredients or the service they provided. Most of the products can be consumed personally by the distributor. We call this concept “internal consumption”. This is when the primary user of the product is the distributor. All network marketing companies have policies in place to encourage retail sales.
Auto-ship is a standard in network marketing. This is used as a standing order for distributors and preferred customers. Auto-ship creates a consistent reoccurring order, and it allows the distributor to make their personal volume each month. Each distributor is encouraged to be a user of the product.
Network marketing companies put additional emphasis on the downline compensation. The compensation plan in many cases is the lead concept in presentations when promoting the business. The product, as valuable as its benefits are, becomes a tool to create volume to drive the compensation plan. The focus on recruiting may change given recent court decisions. However, you do not see as many distributors in a network marketing company selling to retail customers. They are more focused on recruiting and then getting that person using the product. This method of marketing has created millions of distributors around the world. With the advent of the internet, distributors have been able to build large downline organizations globally as their parent companies have expanded.
The ordering process is more simplified in network marketing. Almost without exception, each distributor or customer can order products from a distributor’s replicated website. They can have the product order setup as an auto-ship with it being shipped directly to themselves. It is a very efficient method for the distributor. The ordering process is much more one to one than the party plan model.
There are network marketing companies that have a little more focus on the retail customers. For the sake of this article, we have directed our explanation to the most prominent method used by network marketing companies, internal consumption.
How do you determine if you are going to use the party plan or network marketing model? It really is determined by your product and the culture you are trying to create in your company. You need to ask yourself which model is the best fit for your product? You might simply ask, does your product fit the fun, social experience and environment of the party plan or does it fit better in the internal consumption model of the network marketing model?