Systematic profitability analysis of binary network marketing organizations

Abstract

Purpose

This paper seeks to introduce a systematic approach to simulating a given binary network marketing (NM) growth topology in a definite society of people.

Design/methodology/approach

The study represented a binary plan network by its binary rooted tree, where each node represents a down‐line distributor of the root. The paper sought to find a cost function which would identify which existing node is most eligible to attract the new node. Using a survey strategy, the paper introduced some effective criteria, where cost function and design systematic algorithms were introduced, in order to simulate an NM growth topology. According to the designed algorithms, the paper modified a currently used compensation plan of the Questnet Company.

Findings

The comparison results indicate that the modified plan improves the efficiency by 6 percent, in the sense of profitability for the costumers, and also penetrates the market in 80 percent of trials.

Research limitations/implications

The paper did not find any currently proposed simulation for binary NM plans. So, in order to introduce the systematic approach, new criteria were obtained based on survey strategy.

Practical implications

Network marketing organization designers need such a systematic method to arrange their strategies according to the prediction of the network's growth topology.

Originality/value

The paper presents a novel idea for designing analytical simulation tools for NM plans verification. As far as the authors are aware, this is the first systematic method to propose binary compensation plans.

Citation

Pedrood, N., Ahmadi, H. and Charafeddine, H.A. (2008), "Systematic profitability analysis of binary network marketing organizations", Direct Marketing: An International Journal, Vol. 2 No. 2, pp. 81-96. https://doi.org/10.1108/17505930810881743