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Affiliate
Network Marketing or Networking Arbitrage. 1. What is Affiliate Network Marketing? In short, Affiliate Network Marketing is the synergetic symbiosis of Affiliate Marketing and Network marketing. Below we give more detailed description.
1.1
MLM or Network Marketing MLM/Network marketing is a method of distributing products or services directly to consumers through a network—of independent distributors. Distributors are rewarded as for the sales as for their efforts to build the network (recruit new distributors). A MLM company sells the products to distributors for a price P1. Distributors sell the products to customers for a price P2 which is higher then P1, so distributor earns the difference P2-P1. In addition company pays commissions to distributors for attracting new distributors. New distributors which were attracted by a distributor are named as 1st level distributors with respect to this distributor. All 1st level distributors from 1st level distributors are named as 2nd level distributors with respect to this distributor, and so on. The power of MLM consists in the payment scheme. According to this scheme each distributor receives commissions from all distributors up to a some level. To understand the power of MLM rewarding model, let us consider a simple example. Suppose that a distributor has income of 5% from personal sales, and 1% from sales of others distributors up to the 5th level. Suppose that each distributor “recruites” two new distributors, and on average a distributor sells products on $1000, each. Then income of a distributor who has at least 6th –levels network will be -$1260. But his own sales (personal sales) give to the distributor only $100. All other income ($1160) comes from sales of other distributors. See table below.
But on practice occurs some problems. (See, MLMer Survival Guide) The main problem is a finite market size. The second big problem is the cost of entry (participation in MLM). As far as the each new distributor can face the situation of market’s saturation (so she/he could not recruit new distributors), she/he is exposed to a risk of loosing her/his money (costs of entry).
1.2
Affiliate Marketing (AM) Affiliate marketing is a method of distributing products or services to consumers through a network—of affiliates who refer customers to the seller. The affiliates are rewarded for these references or/and for sales to the referred customers. According to Forrester Research,Inc., affiliates delivered 13% of retail sales in 1999, and will deliver 21% in 2003. The power of Affiliate Marketing is –viral distribution. According to research of Opinion Research Corporation International (ORCI), users told an average of 12 other people about an online shopping experience. So the Network of affiliates growths very fast. See table below.
The main problem with Affiliate Marketing is that affiliates are not receiving full reward for their contributions to the “Network” formation. They receive income (in addition to their own references) usually from 1st and some times 2nd levels affiliates and do not receive income from affiliates on other levels.
1.3
Synergy The Law of Synergy (in a very primitive form) may be formulated as follows: “The whole is greater than the sum of its parts” There are a lot of examples about this law in many disciplines. The most known example for business people is-Corporate Mergers. The
affiliate Network Marketing uses the advantages of both MLM and AM and in the
same time has no their main drawbacks. 1.4
Comparison The table below shows differences and similarities of all discussed methods.
2. Who have the best chances on success in
Affiliate Network Marketing? Theoretically any person has positive chances on success in ANM, but as shows practice the most successful are two categories. The first category consists of people who have a network or virtual network (relations with other people that can be quickly converted in to the real network). The second category consists of people who are very creative and hard working. They can quickly beat competitors using their natural talents and working habits. 3. Step by step guide. In this section we describe a step-by-step way to ANM, affordable for any person. For people/businesses that have products/services for sale, the step 1 should be skipped. Step1. Selecting Merchants (AP) Key points in selecting a Merchant’s Affiliate Program (AP) are: -risk do not receive some or all commissions from the merchants, -profit potential (select AP with highest profit potential). There is a lot of information on the first theme, regarding how to select reliable merchants (see, for example http://www.affiliateunion.com). To select merchants with a high profit potential (among the pre selected reliable merchants) you can use our simple spreadsheet (tools). Step2. Analyzing the Network On this stage you should determine (or guess) the growth factor of your network. As was mentioned above (see 1.2) the growth factor for best online shops is about 12. If your network has a different value it is not critical, as far as you can regulate your future income with your payments scheme (rewarding system). For example, if your growth factor is only 2, then you should extend the number of levels in your rewarding system up to 10 (or more). Step3. Designing the arbitrage Let us, demonstrate this step on a simple example. Suppose, that you select the Merchant that pays to you 10% from each sale (to customer that you refers to him). Assume, that you have three levels network of people
that can be your affiliates (see. Table below).
Suppose, you decide to reserve 1% (from 10%) for own
profit and distribute 9% to affiliates. Your sociological/marketing research
shows that your potential affiliates have the following preferences:
10% of the affiliates have no preferences. You expect, that average sales per month per an affiliate will be -$100. From this information you can estimate an income from your
ANM program (see, for example- Arbitrage_calculator)
From the table above you can see that scheme N1 gives to you more income than other schemes, so you decide to use scheme N1. In this way you designed the arbitrage between 1-level network (10% ) and the 3-levels network. Without this arbitrage your income is only $120 (10% from 12*100). Therefore, arbitrage gives you about 2000% increase in income ($2388 versus $120). If you are not impressed by this result try to calculate
income for 4th, 5th ,….10th levels networks.
The problem is the more levels you want the harder to build the network. Step4. Announce your ANM program Now you can announce your ANM program to your perspective affiliates. If you have not any perspective affiliates, you can publish your ANM program in the Affiliate Programs directories. (See, for example http://www.refer-it.com ). Step5. Manage your ANM program. This step may be detailed as follows: Search for new affiliates (or super affiliates) Attract affiliates to your network Register
affiliates Register orders/sales/leads Generate reports Reward affiliates Register payments Communicate with the affiliates Analyze trends and performance Make decisions.
Good luck in the world of Affiliate
Network Marketing ! |
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