Charles W. King isn’t your average college professor. Although his academic interests center on marketing management, strategic marketing planning and competitive market positioning, this Harvard University Doctor of Business Administration is an internationally known and recognized speaker in the network marketing field. Dr. King currently teaches network marketing in the University of Illinois and conducts ongoing research on the network marketing industry..
Network marketing is a marketing channel that uses word-of-mouth communication, people sharing information with people, referral marketing to move products. You have been recommending outstanding restaurants, movies, books, hair salons, retail shops, resort hotels, physicians, dentists and attorneys for years. The difference is you probably didn’t get paid for that information.
The network marketing process involves person-to-person explanations and demonstration of products and services. Network marketing differs from traditional direct selling in its compensation plan; the independent network marketer makes a commission on the initial sale from the supplying company. The representative can also recruit his customers into his organization, teach them to sell the product and duplicate that process. Very large networking sales organizations can be developed using this format.
The Network Marketing Industry
The network marketing industry traces its roots to the 1940’s when Nutrilite Products, Inc. launched the pioneering era through the sale of food supplement products. Over the past 50 years, the industry has matured into a legitimate and efficient channel of distribution ideally structured for target marketing in the 1990’s into 2010.
In 1996, network marketing annual sales were estimated at $15 to $20 billion dollars in the United States and $75 to $100 billion worldwide across a broad spectrum of products and services. Between 7 and 11 million people are involved as independent network marketing sales representatives in the United States with dramatic growth internationally.
The industry is represented by icons in American marketing. For example, Amway sells over 7,000 products and reports retail sales over $7 billion; Nu Skin International, the personal products and nutritional giant, has estimated retail sales in the $2.5 billion range; Mary Kay, the cosmetic leader, has retail sales over $2 billion; Herbalife and Shaklee in the nutrition sector post sales in the billion dollar window.
In terms of product mix, the industry has historically been product driven, selling from the traditional categories of personal care, vitamin/nutritional supplementation, home and family care, and leisure and educational products. Amway has historically offered a range of services, but its major sales volume continues to be product-based. Starting in the 1980’s, however, service became a growing component in the network marketing arena. A.L. Williams, which became Primerica Financial Services, now a division of The Travelers, Inc., achieved dramatic success in selling personal life insurance through a form of multi-level marketing.
Network marketing also invaded the deregulated telecommunications industry in the 1980’s. To challenge AT&T’s dominance in the long distance telephone market, MCI began to sell long-distance telephone service through Amway. Ultimately MCI developed it’s own “Friends and Family” network marketing program and earned “number two” position behind AT&T. Sprint established a joint venture with Network 2000, an independent network marketing company and signed more than three million customers. Excel Communications, which has used network marketing as its exclusive long distance phone distribution channel, reported over $1.3 billion in sales in 1996. AT&T is now selling its long distance services through Shaklee.
Other service programs continue to adopt network marketing as a channel of preference. The People’s Network offers satellite broadcasts that feature self-development and motivational programming. Pre-Paid Legal Services offers access to legal services. World Class Network and TravelMax offer travel services. Under this pressure, many of the older product-oriented network marketing firms are also adding a range of these types of services to their programs.
The Outlook for the Industry
The 1990’s have added a new era of professionalism in network marketing that will support impressive industry growth over the next ten years. The industry is attracting an increasing number of college graduates, successful corporate managers/executives, physicians, dentists, other health care professionals, attorneys, college professors, etc. The professional demeanor and attitude of the industry is increasing under the influence of this more knowledgeable and sophisticated new generation of networkers.
Medical researchers are in agreement that the environment is hostile to good health and longevity based on: bad diet, food additives and chemicals, foods with all the nutrition processed out, pesticide residues and preservatives on fresh foods, intensively raised meat and poultry doctored with antibiotics and growth hormones, polluted air, depleted and poisoned land, contaminated water, etc.
The health care “wellness center”
A rapidly expanding group of health care professionals, chiropractors, dentists, nutritionists, paramedics, pharmacists, physical therapists, primary care physicians, psychiatrists, surgeons, trainers, etc. are integrating the concept of the “wellness center” into their health care policies.
The wellness center: liaison for patients and practitioners
The “wellness center” educates the patient on preventive medicine and alternative options for lifestyle management and longevity. Focus is placed on proactive low-fat diets, active exercise and vitamin/nutritional supplementation. Because of the provider’s credibility and relationship with the patient, the provider can educate the patient and encourage behavioral change toward healthfulness.
An old wive’s tale once questioned providers selling products to patients. In the 1997 economic environment, health care providers advertise and sell products. Eye, ear and nose doctors sell hearing aids, orthopedic doctors sell orthopedic devices, opthamologists sell contact lenses and eye glasses, dermatologists and cosmetic doctors sell skin creams; OB/GYN doctors sell diaphragms and ovulation predictor kits.
Enter network marketing into the wellness center
Most wellness centers use a specific high-tech line of personal care and vitamin supplementation products for the patients. Several leading network marketing companies have developed outstanding product lines that are being featured by health care providers. The supplying network marketing distributors assist the providers in structuring their wellness centers.
Providers structure a number of different operating formats for managing their wellness centers. After selecting the network marketing supplier and becoming an independent contract distributor, the provider staff defines the policies and procedures the office staff will use in dealing with the patients. The staff also receives product knowledge training from the sponsoring distributor on product information.
A typical patient introduction/education would involve:
- During the routine patient visit, the provider would discuss the role of vitamin and nutritional supplementation and broadly outline alternative product systems.
- The patient would ultimately be referred to the office/nurse/assistant/receptionist for handling the patient’s ordering process.
- The office works with the interested patient in selection of a product system. A limited product display of key products may be featured in the office to provide patient information/ “touch and feel.”
The industry is gaining positive exposure via the following:
- The trade press is giving the industry and individual companies much more positive coverage in leading publications such as The Wall Street Journal, Forbes, Success magazine, Working at Home, The Chicago Tribune, The Associated Press and a wide range of regional newspapers and special interest publications.
- The University of Illinois at Chicago established the UIC Certificate Seminar in Network Marketing, which applies the concepts of entrepreneurial management to building a network marketing distributorship. To date, the seminar has been conducted seven times in the United States and two times in Seoul, Korea with over 900 graduates worldwide.
- Invitations have also been extended to conduct the program across Asia, Europe and South America as the network marketing industry expands internationally.
- Other universities are planning to sponsor similar seminars in network marketing.
- Currently, a Network Marketing Institute is being organized to serve as a center for original, unbiased research on the industry as a clearing house for industry information.
- The Direct Selling Association is providing a strong platform for the networking industry development with a well defined Code of Ethics regarding appropriate network marketing policies and procedures. The major companies are adopting aggressive distributor training and regulatory compliance procedures to support constructive customer relations.
Improved Patient Care through Programmed Preventive Medicine
The “wellness center” in the practice office during a routine office visit introduces the patient to the need for ongoing preventive medical care and presents alternative therapies and product systems from which the patient can choose. The wellness center also serves as a supplemental revenue stream/ “strategic business unit” (SBU) for the practice office.
In the sales process, some offices maintain a small inventory of key products to make them immediately available to the patient. Alternatively, the office assistant may help the patient make a long distance telephone order directly from the company.
Some offices charge patients the wholesale price and base their profit on the commission received directly from the supplier. Others charge full retail price and earn both the retail-wholesale margin and the company commission.
Most offices require the patient to pay for the product purchases via cash, check or credit card to keep the transaction as an independent strategic business unit (SBU), separate from medical treatment fees.
If a patient becomes a repeat buyer, most offices sign the person as a distributor with the supplier company. As independent distributors, they can buy the product directly from the company at wholesale… usually arranging for automatic delivery directly from the company to the patient.
The Economics of the Wellness Center: A Pro Forma
One wellness center I analyzed in depth produced the following financial return. The practice enrolled and maintained 460 patient families into a vitamin-supplementation program. The families averaged $150 (wholesale price) per month in vitamin purchases. The wellness center’s commission from the supplier company was 20% on the wholesale value.
The Monthly Profit Equation
460 families x $150 (wholesale price)
bought directly from the company
= $69,000 monthly wholesale revenue
$69,000 monthly wholesale revenue x 20% commission
= $13,800 commission to the wellness center
With this patient usage level, the wellness center earned an average of $13,800 per month, $165,600 per year, with modest incremental expense to the practice. All of the families were on automatic delivery directly from the supplier company. You can manipulate the profit equation and develop your own pro forma for your practice.
Build a downline of network marketing distributors
Health care providers typically focus on introducing and supplying the products through their practices and also introduce and sponsor personal associates into their own wellness center programs. Some providers, in contrast, have become aggressive in targeting the health care industry and in developing a “downline” among their health care peers. These “fast lane” networkers build “downline” organizations of several hundred practices and move millions of dollars of product annually to their patient populations.
An increasing number of individual health care professionals are also becoming involved in network marketing as independent contractors. They represent a range of companies and products. Most of these individuals are attracted by the growth of the industry and the opportunity to explore enterpreneurism and to earn supplemental income.
Dr. James F. Winterstein, President of National College of Chiropractic, has written the chiropractic profession is in a dramatic state of change. Conventional scientific medicine is under attack. Alternative medicine, with its broad modalities, is being recognized as a realistic approach to wellness and longevity. Winterstein warns the profession must avoid, “inertia of… position,” failure to adapt and capture opportunities for repositioning chiropractic.
The individual chiropractic practice is facing the same threat of “inertia of position!” The wellness center built on a cornerstone of a vitamin/nutritional supplementation program can provide an important patient wellness contribution. The center, as detailed in the economic analysis, can give the individual practice significant profitable revenue.