Affiliate Marketing vs. Network Marketing
by Oren Shtrasberg | on June 9, 2012
Lately a lot of people ask me about the differences between Network marketing and Affiliate marketing, so I decided to write a short post in order to explain the differences in a clear and understandable way.
Let’s start with the definition of Affiliate marketing:
Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate’s own marketing efforts.
Affiliates receive commissions on any action that customers perform on the business site (buying merchandise, completing registration forms, etc.). In this way the business does not incur a marketing expense unless results are accrued.
There are several different models for affiliate marketing:
A. Pay per click (PPC) – the affiliate receives a commission on every entrance to the business website (e.g. Google AdSense).
B. Pay per lead (PPL) – the affiliate receives a commission on each customer that filled out a form with his details on the business website.
C. Payment per sale (PPS) – the affiliate receives a commission on every sale carried out by customers that he referred to the business site.
The concept of affiliate marketing on the Internet was conceived of, put into practice and patented by William J. Tobin, the founder of PC Flowers & Gifts. Launched on the Prodigy Network in 1989, PC Flowers & Gifts remained on the service until 1996. By 1993, PC Flowers & Gifts generated sales in excess of $6 million per year on the Prodigy service.
Let’s continue with the definition of Network marketing:
Network marketing (or Multi-Level Marketing) is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a downline of distributors and a hierarchy of multiple levels of compensation.
Most commonly, the distributors are expected to sell products directly to consumers by means of relationship referrals and word of mouth marketing.
MLM companies have been a frequent subject of criticism as well as the target of lawsuits. Criticism has focused on their similarity to illegal pyramid schemes, price fixing of products, high initial start-up costs, encouraging if not requiring salespeople to purchase and use the company’s products, complex and sometimes exaggerated compensation schemes, and cult-like techniques which some groups use to enhance their members’ enthusiasm and devotion.
The United States Federal Trade Commission states:
“Much has been made of the personal, or internal, consumption issue in recent years. In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme. The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture.”
Now, let’s compare the two methods of marketing:
A. Commissions – Network marketing distributor gets a commission on sales (PPS). On Affiliate marketing there are several different models for commissions.
B. Purchasing products – Network marketing distributor is generally required to purchase the company’s products (auto-shipping). Some Affiliate marketing partners are required to purchase the company’s products and some not.
C. Organization structure – Network marketing distributors receive a commission on their sales and on the sales of other distributors they recruit (pyramid structure). On some Affiliate marketing programs the affiliates only receive commissions on their sales and in some programs they receive commissions on the sales of other affiliates they recruit.
D. Customers – Network marketing distributors usually recommend the product to friends, acquaintances, colleagues, etc. Affiliate marketing partner achieves its customers through search engine optimization, promotion on social networks, mailing lists, etc.
In summary, there are many differences between Network marketing and Affiliate marketing, despite the resemblance between the two models. Today, a lot of Affiliate marketing programs adopt the Multi-level model from Network marketing, so it’s hard to distinguish between the 2 models.
It is important to understand the differences, and choose the best program that is suitable for you.
For your success,
P.S: Do you want to hear about affiliate program that pays you 100% commission on your sales and on the sales of other distributors you recruit? I invite you to hear about Empower program on the next video.
P.S 2: If you are a distributor of a Network marketing company, you are invited to learn how you can increase your income on the next link.