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Comparing Franchising and Network Marketing

Written by: Dhawal Shah

Article Overview: Although, Franchising and Network Marketing hail from the same family, they are quite different, here are a few differences.

Comparing Franchising and Network Marketing

Organisation Strategy

Network Marketing is similar to carpet bombing. Create channels as many as possible. Chain of people who become teams. Purely a distribution form of channelising sales. From an organisation perspective, the overheads are minimum. Does'nt mind if one team clicks or not. There would be hundreds of channels without any territory or boundaries and in a war, lot of them get killed but the war continues.

A franchising is much more process oriented and has a lot to do with commitments both ways. There is a lot of emphasis on the brand and the way it gets delivered eg. A car showroom has an experience to share and hence you need franchised showrooms who would take care of the sales and service. Also, franchising is about running the business yourself and then if at all you have area developer / master franchise rights, you could further recruit franchisees. Most franchisees are single unit developers, hence there are no tiered payouts.

A product like shampoo is experienced at home and hence the distribution at as many shops is very important. It depends on the strategies of the organisation and the objectives set apart for a Network Marketing.

Generally it is seen that you have a pool of products in hand and the distribution could be through people or the visible channels like shops etc. Another example could be Life Insurance Corporation (LIC, one of largest insurance companies in India) you look at it it may not be a Multi Level Marketing, but it is again on a network channel wherein he has products which are attracted to different classes and masses and hence needs more bisected territories viz. In Mumbai, at a smaller suburb, Matunga alone there would be atleast 100 LIC agents and they would map the entire territory and start penetrating, now this network gives Life Insurance Corporation, a huge advantage and that is probably why it is # 1, Life Insurance Company in India.

Success Rate

The two are not really compatible even though both business models work. The failure rate of network marketing is much higher than the failure rate of franchising, both because of support systems in place and due to the nature of the people investing in each model.

Training and Support

In network marketing, you are depending largely on the person that recruited you while in franchising you have direct access to a business development team (or should have at least).

Risk vs. Reward Factor

The risk vs reward factor is different for the two. Granted you can become and amway distributor for INR 5000 (USD 1000) but you have to do everything yourself. You can get a INR 30,00,000 Subway Franchise (USD 60,000) and the business can practically run itself. In a network marketing company, you are buying into a job that can have a long term payout, in franchising you are often buying a business that does not depend on you.

What's Common...

However, what is common in a Franchising Business, say like Aptech and a network marketing business, say like RCM, that they provide you with the supply mechanisms as well as the training and other tools to succeed. Either of them would fail if you quit.

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Article Tags: car showroom, carpet bombing, commitments, companies in india, franchisees, insurance companies in india, largest insurance, life insurance company, life insurance corporation, master franchise rights, multi level marketing, mumbai, network marketing, overheads, shampoo, showrooms, single unit, suburb, success rate, visible channels



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