What the Walmart Business Model can Teach Us About Network Marketing

Question: What is the lifeblood of any business?
Answer: Product movement to the end consumer.

If you’ve never read Sam Walton's autobiography, you should. Sam Walton was the founder of Walmart and Sam’s Club and the business model he pioneered and his overall vision was nothing short of brilliant.

The story goes that when Sam opened the doors to the first Walmart store, he made a bold statement: "We will be the largest retailer in the world." And, as we all know, he went on to achieve this goal beyond anyone’s expectations.

Why was Sam Walton able to Achieve his Goals?

Now, why was Sam Walton able to achieve his goals exactly as he dreamed? Because he found a way to move product to the end consumer at the cheapest price. Walton’s explanation for being able to hold the lowest price was this: “Do people care when they buy their groceries whether there's an acoustical tile ceiling or if they see roof rafters and white bar joists?" The answer, of course, was – and is – “No, they don’t care”.

So, Walton invented a business model where he’d have shelves with cases and cases and cases of soda pop. In the evening, all those cases would come down and the shelves would be filled with stock from various manufacturing companies. In doing this, he’d save all those companies a fortune and leave every other retailer eating his dust.

Walton built enormous warehouses all over the world. He met with Scott Tissues, Hershey's, Johnson & Johnson, Levi's, and hundreds of other top companies and said, “Hey! Don't build expensive warehouses all over the place. Ship your products to MY warehouses and I’ll store it. As we sell it, I'll pay you!"

So, that’s how the Walmart system came into being. When sales clerks scan that bar code, Scott Tissues knows that Walmart sold exactly 73 cases of paper towels today because the system tracks each and every sale. And, at the end of the business day, Walmart sends each vendor a check for his money.

Over the years, other retail outlets have shown that they simply don’t have the vision – or the space – to make that same offer to suppliers. Instead, they continue to buy product in small quantities, store it in the back of the warehouse, and move it to the front only as needed. Visit many other suppliers other than Walmart and you won’t see those tall, tall stacks of product reaching the ceiling, towering over you. But that's how Walmart does it – and it works!

There’s a reason why customers choose Walmart over other stores…See, because Walmart and Sam’s Club pay less than other retailers do for identical products, they can afford to pass their savings on to the consumer. As a result, both stores attract throngs of buyers on any given day.

Cutting the Overhead

With Sam’s Club, Sam Walton makes his money with the membership program and the fact that he continues to warehouse product – not on the product itself. It's all laid out in the business model: whosever able to move product to the consumer at the lowest price wins. It’s as simple as that. Sam Walton proved that point. He did it by cutting the overhead for all his product suppliers. Imagine that…

So, how does this apply to MLM and network marketing? Let’s take a look at the majority of companies and the majority of compensation plans. Let's say, for example, that every company pays out 50% of retail to its reps – and that’s for each product, no matter the cost, 50% commission.

The problem here is that the pie can only be cut so many ways. If you pay 50% commission on $79.95 or 50% commission at $39.95 for the identical product, do you think a $39.95 product makes it much easier to sell twice as much or 3 times as much?

Walton figured correctly that if you cut the overhead, you increase your chances of selling that product. You're not just competing against other network marketing products - you're competing against Sam's Club & Walmart as well.

The Bottom Line …

The bottom line is that your business model needs to allow you to make a good offer to the consumer. This alone could help you to succeed in your business.

If you remember nothing from this story, remember this: The network marketing company that moves the product to the end consumer at the lowest price wins. That would be the company to build your future with.

The Business Model Drives the Behavior in the Field. No doubt about it.

Your partner in the journey,

Cindy Manoske

The Business Models DO Drive the Behavior in the Field

In network marketing, your business depends on marketing. Business Models really DO drive the behavior in the field. That's a given. Did you know that the Business Models drive the behavior of the representatives AND the customers and prospects?

Don't Join if the Company Atmosphere is Recruiting

Anywhere in the world a business sells products or services for a profit. If the company plan you're reviewing can't do that because people only earn money on recruiting people, IT'S just not right. Big trouble could happen with that type of Business Model.

Company Products

Let's talk about the company products. First of all, I think all network marketing companies have good products. Some companies have a retail and a wholesale price. The retail price is usually pretty high, and they try to get you to join so you can get the lower price. In fact, the retail is usually so high that people just won't buy it at that high of a price. This company is focusing on recruiting, recruiting, recruiting. Some people JUST want the products! They don't want to build a business. Look at the product cost...are they reasonable? If they're not reasonable, you could be setting yourself up for big-time failure in the business. You're at a competitive disadvantage. Run! Keep all of this in mind when you're looking at a company's Business Model.

Watch Out for a Company with High Overhead

All profit to pay your commissions come from the sale of a product. The difference between the cost of product, plus the overhead = the amount of commission that the business can pay to the field. Companies with huge overhead always have long policies and procedures. This is something to watch for. Read my articles on The Five Pillars. Find out about the building the company is in and how many employees they have answering the phone. You want to be looking at a more streamlined company. That way they will pay more money to the field. Less people=less overhead=more commissions to the distributors. Remember this: High overhead DEMANDS more product price.

The Business Model Truly Does Drive the Behavior in the Field ...

To Your Success,

Cindy Manoske