Network Marketing In The Energy Drink Sector

Research Proposal

Introduction

Working Title(s):

Is Network Marketing a viable option to launch a new product?

Can new companies use direct marketing to introduce their products?

Definitions:

Other Phrases:

Network marketing

Direct selling

Person-to-person selling

Multi-level marketing (MLM)

Definition:

Multilevel Marketing, or MLM, is a system for selling goods or services through a network of distributors. The distributors are individuals rather than retail outlets.

Overall aims of the project:

Most of the literature on network marketing focuses on the experience of the consumer and the promises made by the parent company of the riches to be able to be made through selling to their friends and relatives.

Regardless of the outcome of this debate, the direct selling industry is growing, and reputed to be worth $80 billion a year. Traditional companies are looking at this form of marketing, and are partnering with direct selling organizations in either exclusive relationships, or as an additional distribution channel.

This project is to look at the reasons a company would enter into such an agreement and compare to a similar product on the market, distributed and marketed in a traditional method.

The parameters of this project:

▫ Looking at exclusive relationships only between network marketing companies and independent companies.

▫ The traditional method of marketing and distribution is generally considered as the route from manufacturer, to wholesaler, to retailer, to consumer, promoted through advertising in many formats.

▫ Will be researching primarily the UK market, but will provide comparisons with countries of similar culture, buying behavior and lifestyle. These countries are proposed as the US, Canada, Australia and New Zealand.

▫ The project will largely ignore the customers as benefited by network marketing, and will focus primarily on revenues and expenses of the product compared to traditional marketing methods.

▫ The project will focus on one case study of a new energy drink, XS being launched into the market using a network marketing model. We will compare with the market leader, Redbull, and Shark, a relatively new entrant into the UK market.

Case Study

A small company had developed an energy drink to be used for athletes and other active sportspeople. It had great success when introduced by a training coach to a small Olympian team. They decided to go into the market and make it a commercially viable product. They hired an external consultant to help them launch this product into the energy drink market.

Taste testing in supermarkets and gyms showed great success and customer taste preference over the main competitor, Red Bull and these always contributed to great sales on the day of sampling. However, due to time and money constraints, it was not a viable option to provide taste testings regularly enough to ensure nation wide purchase. Their advertising budget could not compete with Red Bull.

The consultant had some business ties with the Amway Corporation, a network marketing organization founded in the US by Jay Van Andel and Rich De Vos in 1959. They decided to approach Amway to see if they could use the distribution system to sell their energy drink.

The drink was rebranded as XS Energy drink and introduced into the Amway business, more commonly known in the US as Quixtar.

Since the energy drink partnered with Amway, they have gradually severed its ties with previous suppliers, so that virtually the only way to get the product is through an Amway distributor.

In the past three years, XS Energy has now joined the Amway Business in Canada, Australia, New Zealand, and most recently the UK in April 2005.

Key Issues of the Project

▫ Distribution models and supply chain strategies

▫ The mechanics of the Network Marketing model

▫ Advantages and disadvantages of using this marketing mix

▫ What types of products are best for this model

▫ The financial arrangements of such a partnership

Preliminary