Network marketing organizations: Compensation plans, retail network growth, and profitability

Network marketing organizations, or NMOs, are retail selling channels that use independent distributors not only to buy and resell product at retail, but also to recruit new distributors into a growing network over time. Comm issions and markups on personal sales volumes, and net commissions on the p ersonal sales volumes of downlines, are the methods of compensation commonl y used to motivate NMO distributors. Ln this paper, we develop, analyze, an d calibrate a dynamic decision model of the growth of a retail NMO. Descrip tive and prescriptive insights show how compensation and other model parame ters affect distributor motivation, sales, and network growth and profitabi lity. (C) 1998 Elsevier Science B.V. All rights reserved.