sit journal of management - ejsit.org journal of management vol: 5 ... mlm companies can allocate...
Post on 14-Apr-2018
217 Views
Preview:
TRANSCRIPT
SIT Journal of Management Vol: 5; Issue: 1, pp-1-11
ISSN: 2278-9111
IF: 1.232
Das Page | 1
A Study on Reasons for Development of Network Marketing In India and Utilization
of Relationship Platform
Dr. Mrinal Kanti Das*
Abstract
The concept of network marketing was originated in 1940’s when a company trading under the name
of ‘California Vitamins’ discovered that they could make more sales with a lot of sales representatives
selling a small amount of product each (Waitley, 2007). The industry itself is now currently being
endorsed by many business leaders as a proven system for anyone who wishes to achieve financial
success. According to data released by Network Marketing Business School, network marketing is now
one of the fastest growing industries of all time with an estimated 1,50,000 people joining the industry
every single week. The present study is an endeavor to summarize the reasons for development of this
business in India and also to examine whether relationship is the foundation of network business. An
attempt is also made to provide current trend of network marketing in India and West Bengal.
Key Words: network marketing, relationship exploitation, reasons for development
*Corresponding Author: Dr. Mrinal Kanti Das
* Dr. Mrinal Kanti Das, Assistant Professor, JIS College of Engineering, Kalyani, West
Bengal, M:+91-9433710231; email:mkdas_06@rediffmail.com
SIT Journal of Management Vol: 5; Issue: 1, pp-1-11
ISSN: 2278-9111
IF: 1.232
Das Page | 2
Introduction
Network marketing, also known as Multi-level marketing (MLM), is a marketing activity
that compensates promoters of direct selling companies not only for product sales they
personally generate, but also for the sales of others they introduced to the company
(Cardon, 2011). The products and company are usually marketed directly to consumers
and potential business partners by means of relationship referrals and word-of-mouth
marketing. Network marketing is a marketing where marketing activities are carried out
through direct selling and referrals by making intermediaries absolutely unwanted in
distribution channel. After going through existing literatures on network marketing the
Figure 1.1 has been developed.
Figure 1: Network Marketing and Traditional Marketing
Producer
International Distributors
Regional Distributors
Local Distributors
Retail Outlets
Consumer
Advertising and
Marketing
Network Marketing
Model
Bypass the
Middlemen
Traditional Marketing
Model
SIT Journal of Management Vol: 5; Issue: 1, pp-1-11
ISSN: 2278-9111
IF: 1.232
Das Page | 3
(Source: Self Generated)
The above diagram (Figure 1) distinguishes between Network Marketing Model and
Traditional Marketing Model. Network marketing primarily relies on word-of-mouth
communication, personal selling, and motivating the distributors, whereas Traditional
Marketing relies on mass media advertisement. Distributors of network marketing get only
performance based reward, on the other hand, in traditional marketing, distributors
receive fixed salary with less incentive based reward. A distributor of network marketing
invests low operating capital, but more operating capital is required for traditional
marketing.
Objectives of the study
The specific objectives of this study are:
i) to understand current trends of network marketing in India
ii) to find out the reasons for development of this business in India
iii) to examine whether network business exploits relationship platform
Literature Review
Bhattacharya and Mehta (2000) demonstrated in their study that there exist more rational
explanations which could potentially explain the behaviour of Network Marketing
Organization (NMO) distributors. They studied that 70% of direct-sales revenues in the
world are generated by NMOs.
Laudon (2004) highlighted that network companies are able to cut down expenditure
associated with advertising and other overheads. The costs of distribution and retailing
SIT Journal of Management Vol: 5; Issue: 1, pp-1-11
ISSN: 2278-9111
IF: 1.232
Das Page | 4
often run at 70% or more of the gross turnover of conventional business operations. So
MLM Companies can allocate these savings to the distributor of network for marketing and
servicing the customers on behalf of the network company.
Subramanian (2007) focused on current trends and future challenges of network
marketing in India. He appeared with the observation that India is a safe abode promising
tremendous opportunity in the network marketing business as only a few companies in the
country do this business in a professional way. According to him money and business
opportunity are the two main reasons the network marketing attracts people for joining.
According to him the mindset of the people should be changed by educating them with
required knowledge to make the functioning of MLM successful in India.
Chaudhari and Mistry (2010) are of the opinion that there is exploitation of relationships in
network marketing where people join mainly because of persuasion by friends and
relatives. They conducted their study at Surat district of Gujrat.
Lahiri and Das (2010) have developed a theoretical framework of network marketing in
their study. They have evaluated and analyzed the performance of some successful
network marketing companies to assess the market opportunity not only in the developed
countries but also in the developing countries with facts and figures. Their study shows
positive growth of network marketing in Asia, but not at par with other countries of the
world. They concluded that in India network marketing companies can also exploit
opportunities by educating prospect through proper communication.
Lahiri and Das (2011) studied brand loyalty of MLM and Non-MLM brands in Kolkata and
its outskirts. They appeared with the observation that customers are more loyal for their
MLM brands than that of Non-MLM brands. Their study also revealed that availability,
quality, price and promotion are the factors that customers seek for purchasing MLM
brands.
SIT Journal of Management Vol: 5; Issue: 1, pp-1-11
ISSN: 2278-9111
IF: 1.232
Das Page | 5
Lahiri and Das (2012) examined consumers’ attitude in choosing different shampoo brands
on one hand and developed a perceptual map based on consumer ratings on the other
using convenience sampling technique. The results indicate that attitude of the customers
buying shampoo is more favourable towards Non-MLM brands than MLM brands
Network Marketing in India
In India, the network marketing is still at a nascent stage. But, it is expanding at a
phenomenal growth rate. This practice took roots in India around 25 years back due to its
population and largest independent consumer market in the world. This practice is the
most attractive proposition for network marketing, provided that it is customized to suit
Indian culture as well as requirement. Reputed MNCs have entered the Indian market since
1998 to grab a bigger pie of this lucrative market. Now-a-days more than 50 lakh
consumers are involved in the industry locally, and the number is getting multiplied at the
rate of 5000 people a day (Shah, 2012). There is a growing acceptance of network
marketing as a mainstream profession in West Bengal, with a wider outreach in the rural
areas. Excellent quality products coupled with friendly and interpersonal services account
for the success of network marketing. What makes the network marketing approach
interesting for the people of West Bengal are factors like lower initial cost of setting up
business, financial independence, development of personal and business skills, flexible
timings, an improved ability to take care of families and convenience of retiring whenever
distributors want.
Reasons for the development of network marketing in India
The survival of companies in the competitive market by simply producing goods and
services has taken an assured place in the history. Now the only alternative remains before
business organizations to reach at pinnacle is the effective marketing as the companies are
falling prey to fierce competition and changing technology both at home and abroad. In
SIT Journal of Management Vol: 5; Issue: 1, pp-1-11
ISSN: 2278-9111
IF: 1.232
Das Page | 6
marketing, promotion and distribution of products play a vital role and both promotion
and distribution account for large investment of company’s fund to inform the benefits of
the products of the company. Thus one of the reasons for the development of network
marketing is low promotional and distribution expenses and thereby network marketing
companies can save a major chunk of its own fund. The companies practicing network
marketing takes unconventional way of promotion like word-of-mouth communication,
rather than taking conventional way of promotion through mass media advertisements
by making intermediaries absolutely unwanted.
The network marketing industry is experiencing phenomenal growth in India. India is
faced with massive problem of unemployment. The incidence of unemployment is much
higher in urban areas than in rural areas. The problem of unemployment has becoming a
colossal. There are a large number of educated unemployed persons in India. With the
decreasing employment opportunity among graduates, network marketing offers greater
incentive to the individual distributors that may supplement their income for maintaining
their desired modern lifestyle. Lower initial cost of setting up a business is another
important reason behind the development of network marketing. So anyone can join as a
distributor of this business with a very little amount of capital.
Network marketing provides an opportunity to earn additional/residual income. Network
marketing companies focus more on recruiting downlines than selling products to
customers. Individuals, involved in distribution channels, represent the company as the
employee of the company with no fixed salary and are awarded commission in return.
They develop their organization in two ways – (i) building an active customer base who
purchase directly from the company, and (ii) recruiting a downline of independent
distributors who also build a customer base. Thus, there is a scope of higher earning on the
part of distributors and motivated them to join network marketing business.
Exploitation of relationship in soliciting business
SIT Journal of Management Vol: 5; Issue: 1, pp-1-11
ISSN: 2278-9111
IF: 1.232
Das Page | 7
Relationship is the foundation on which the network marketing stands. Relationship not
only helps expanding the operation of network marketing company, but it also boosts the
market with low promotional expenses. Given the existing marketing environment number
of network marketing companies exploited relationship, a firm way their success is brought
through (Lahiri and Das, 2010).
Table 1: Observed Frequency (fo)
Experience
Whom contacted
Total
Relatives Friends Colleagues Others
Below 2 years 35 17 6 2 60
2-5 years 23 27 16 8 74
Above 5 years 23 30 21 12 86
Total 81 74 43 22 220
(Source: Primary data)
The null hypothesis (H0) is that there is no relationship between experience of distributor
and person to whom they contacted. From the observed frequencies (table 1), expected
frequencies have been calculated.
Table 2: Expected Frequency (fe)
Experience
Whom contacted
Total Relative
s
Friends Colleague
s
Others
SIT Journal of Management Vol: 5; Issue: 1, pp-1-11
ISSN: 2278-9111
IF: 1.232
Das Page | 8
Below 2
years 22.0909
1 20.18182 11.72727 6 60
2-5 years 27.2454
5 24.89091 14.46364 7.4 74
Above 5
years 31.6636
4 28.92727 16.80909 8.6 86
Total 81 74 43 22 220
Table 3: Data
Level of Significance 0.05
Number of Rows 3
Number of Columns 4
Degrees of Freedom 6
Table 4: Test Results
Critical Value 12.59159
Chi-Square Test Statistic 19.36038
p-Value 0.003596
SIT Journal of Management Vol: 5; Issue: 1, pp-1-11
ISSN: 2278-9111
IF: 1.232
Das Page | 9
Reject the null hypothesis
The table value of χ2 for 6 degree of freedom at 5 percent level of significance is 12.592.
The calculated value of χ2 (19.360) is higher than that of table value (12.592) and hence
the null hypothesis is rejected. So Chi-square test indicates that experience and person to
whom they approached are related. Those who are having less than two years of
experience approached mainly relatives, those who have 2-5 years experience
approached friends, relatives and colleagues, and those who have more than 5 years of
experience approached mainly friends and colleagues more than relatives.
Conclusion
Now-a-days companies are striving hard to earn profit tracking down the needs of
prospect. Marketers are always in search of ground-breaking way of delivering value to get
to the final customer. Direct selling is one of the ways to reach buyer to be acquainted with
the requirement the customers exactly posses in mind as distributors cease to exist in the
distribution process. But this brings an unbearable cost burden to the company that
requires personnel to be recruited with fixed salary for selling and distribution of product.
Network marketing, being recognized as cost effective, is gaining importance in recent
marketing scenario to reach customers conveniently.
This study explained the main reasons for the development of network business in India.
The reasons are low promotional and distribution expenses, problem of unemployment,
lower initial cost of setting up a business and opportunity to earn additional/residual
income.
This study also concluded that relationship performs a key role in influencing people to
join network marketing business. Another implication of this study is that experience of
SIT Journal of Management Vol: 5; Issue: 1, pp-1-11
ISSN: 2278-9111
IF: 1.232
Das Page | 10
distributors in terms of the time period engaged in the business emphasizing nature of
relationship exploitation and the experience may enhance the likelihood of approaching
friends and colleagues than relatives.
References:
Bhattacharya, P. and Mehta, K. K. (2000), ‘Socialization in Network Marketing
Organizations: Is It Cult Behavior?’, Journal of Socio-Economics, Vol. 29, pp. 361-374.
Cardon, G. (2011), The 10X Rule: The Only Difference Between Success and Failure, John Will
& Sons, Inc., Hoboken, New Jersey, pp. 217 -218.
Chaudhari, J. and Mistry, S. H. (2010), ‘Multi Level Marketing: Does it lead to
Exploitation of Relationships?’, Quest, Vol. 1, No. 2, pp. 3-8.
Lahiri, I. and Das, M. K., (2010) ‘Network Marketing: Looking through a new window’,
Review of Professional Management, A Journal of New Delhi Institute of Management, Vol.
8, Issue-1, January-June,2010, pp 90-99.
Lahiri, I. and Das, M. K., (2011) ‘A Study on Brand Loyalty of MLM Brands’, International
Journal of Marketing and Management Research (IJMMR), Vol. 2, Issue 4, pp. 88-102, April
2011.
Lahiri, I. and Das, M. K., (2012) ‘MLM Vs NON-MLM Brands: Attitudinal Evaluation through
Customers’ Eye’, International Journal of Business Insights and Transformation (IJBIT),
Vol.5, Issue 2 (April 2012 - September 12), pp. 69-75.
Laudon, K. C. and Laudon, J. P. (2004), Management Information System: Managing the Digital
Firm, 8th Ed., Prentice Hall of India Pvt. Ltd., New Delhi.
SIT Journal of Management Vol: 5; Issue: 1, pp-1-11
ISSN: 2278-9111
IF: 1.232
Das Page | 11
Shah, P.K. (2012), “Network Marketing in India”, New Winners Express Magazine.
(available at: http://networkingeye.com/2012/02/network-marketing-in-india/-
accessed on 07-10-2012).
Subramanian, R. (2007), ‘Network Marketing in India: A Study on its Current Trends and
Future Challenges’, The Icfai Journal of Brand Management, Vol. 4, No. 3, pp. 44-66.
Waitley, D. (2007), History of Network Marketing, Network Marketing Business School,
Australia. (also available at: http://www.network-marketing-business-school.com/history-
of-network-marketing.html)
Website references:
http://www.network-marketing-business-school.com/history-of-network-marketing.html
- accessed on 03-09-2012.
top related