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Affiliate Marketing
Affiliate Marketing is an Internet-based marketing practice in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate's marketing efforts.
Affiliate marketing is also the name of the industry where a number of different types of companies and individuals are performing this form of Internet marketing, including affiliate networks, affiliate management companies, and in-house affiliate managers, specialized third party vendors, and various types of affiliates/publishers who promote the products and services of their partners.
Affiliate marketing overlaps with other Internet marketing methods to some degree, because affiliates often use regular advertising methods. Those methods include organic search engine optimization, paid search engine marketing, e-mail marketing, and in some sense display advertising. On the other hand, affiliates sometimes use less orthodox techniques, such as publishing reviews of products or services offered by a partner.
Affiliate marketing—using one website to drive traffic to another—is a form of online marketing, which is frequently overlooked by advertisers. While search engines, e-mail, and website syndication capture much of the attention of online retailers, affiliate marketing carries a much lower profile. Still, affiliates continue to play a significant role in e-retailers' marketing strategies.
Compensation Methods
Predominant compensation methods
Eighty percent of affiliate programs today use revenue sharing or cost per sale (CPS) as a compensation method, nineteen percent use cost per action (CPA), and the remaining programs use other methods such as cost per click (CPC) or cost per mille (CPM).
Diminished compensation methods
Less than one percent of traditional affiliate marketing programs today use cost per click and cost per mille. However, these compensation methods are used heavily in display advertising and paid search.
Cost per mille requires only that the publisher make the advertising available on his website and display it to his visitors in order to receive a commission. Pay per click requires one additional step in the conversion process to generate revenue for the publisher: A visitor must not only be made aware of the advertisement, but must also click on the advertisement to visit the advertiser's website.
Cost per click was more common in the early days of affiliate marketing, but has diminished in use over time due to click fraud issues very similar to the click fraud issues modern search engines are facing today. Contextual advertising programs such as Google AdSense are not considered in the statistic pertaining to diminished use of cost per click, as it is uncertain if contextual advertising can be considered affiliate marketing.
Performance Marketing
In the case of cost per mille/click, the publisher is not concerned about a visitor being a member of the audience that the advertiser tries to attract and is able to convert, because at this point the publisher has already earned his commission. This leaves the greater, and, in case of cost per mille, the full risk and loss (if the visitor can not be converted) to the advertiser.
Cost per action/sale methods require that referred visitors do more than visit the advertiser's website before the affiliate receives commission. The advertiser must convert that visitor first. It is in the best interest for the affiliate to send the advertiser the best-targeted traffic as possible to increase the chance of a conversion. The risk and loss is shared between the affiliate and the advertiser.
Affiliate marketing is also called "performance marketing", in reference to how sales employees are typically being compensated. Such employees are typically paid a commission for each sale they close, and sometimes are paid performance incentives for exceeding targeted baselines. Affiliates are not employed by the advertiser whose products or services they promote, but the compensation models applied to affiliate marketing are very similar to the ones used for people in the advertisers' internal sales department.
The phrase, "Affiliates are an extended sales force for your business", which is often used to explain affiliate marketing, is not completely accurate. The primary difference between the two is that affiliate marketers provide little if any influence on a possible prospect in the conversion process once that prospect is directed to the advertiser's website. The sales team of the advertiser, however, does have the control and influence up to the point where the prospect signs the contract or completes the purchase.
Multi-Tier Programs
Some advertisers offer multi-tier programs that distribute commission into a hierarchical referral network of sign-ups and sub-partners. In practical terms, publisher "A" signs up to the program with an advertiser and gets rewarded for the agreed activity conducted by a referred visitor. If publisher "A" attracts publishers "B" and "C" to sign up for the same program using his sign-up code, all future activities performed by publishers "B" and "C" will result in additional commission (at a lower rate) for publisher "A".
This system rewards a chain of hierarchical publishers who may or may not know of each others' existence, yet generate income for the higher level sign-up. This sort of structure has been implemented successfully by a company called Quixtar, a division of Alticor, the parent company of Amway. Quixtar has implemented a network marketing structure to implement its marketing program for major corporations such as Barnes & Noble, Office Depot, Sony Music, and hundreds more.
Two-tier programs exist in the minority of affiliate programs; most are simply one-tier. Referral programs beyond two-tier involve multi-level marketing (MLM) or network marketing.
From the advertiser perspective
Pros and cons
Merchants favor affiliate marketing because in most cases it uses a "pay for performance" model, meaning that the merchant does not incur a marketing expense unless results are accrued (excluding any initial setup cost).Some businesses owe much of their success to this marketing technique, a notable example being Amazon.com. Unlike, however, affiliate marketing is not easily scalable.
Implementation options
Some merchants run their own (i.e., in-house) affiliate programs using popular software such as idevaffiliate or mpa3, while others use third-party services provided by intermediaries to track traffic or sales that are referred from affiliates (see outsourced program management). Merchants can choose from two different types of affiliate management solutions: standalone software or hosted services, typically called affiliate networks. Payouts to affiliates or publishers is typically made by 3rd party payment aggregation companies such as webmasterchecks.
Affiliate management and program management outsourcing
Successful affiliate programs require significant work and maintenance. Having a successful affiliate program is more difficult than when such programs were just emerging. With the exception of some vertical markets, it is rare for an affiliate program to generate considerable revenue with poor management or no management (i.e., "auto-drive").
Uncontrolled affiliate programs did—and continue to do so today—aid rogue affiliates, who use spamming,trademark infringement, false advertising, "cookie cutting", typosquatting, and other unethical methods that have given affiliate marketing a negative reputation.
The increased number of Internet businesses and the increased number of people that trust the current technology enough to shop and do business online allows further maturation of affiliate marketing. The opportunity to generate a considerable amount of profit combined with a crowded marketplace filled with competitors of equal quality and size makes it more difficult for merchants to be noticed. In this environment, however, being noticed can yield greater rewards.
Recently, the Internet marketing industry has become more advanced. In some areas online media has been rising to the sophistication of offline media, in which advertising has been largely professional and competitive. There are significantly more requirements that merchants must meet to be successful, and those requirements are becoming too burdensome for the merchant to manage successfully in-house. An increasing number of merchants are seeking alternative options found in relatively new outsourced (affiliate) program management (OPM) companies, which are often founded by veteran affiliate managers and network program managers. OPM companies perform affiliate program management for the merchants as a service, similar to advertising agencies promoting a brand or product as done in offline marketing.
Types of affiliate websites
Affiliate websites are often categorized by merchants (i.e., advertisers) and affiliate networks. There are currently no industry-wide accepted standards for the categorization. The following types of websites are generic, yet are commonly understood and used by affiliate marketers.
Search affiliates that utilize pay per click search engines to promote the advertisers' offers (i.e., search arbitrage)
Comparison shopping websites and directories
Loyalty websites, typically characterized by providing a reward system for purchases via points back, cash back,
or charitable donations
Coupon and rebate websites that focus on sales promotions
Content and niche market websites, including product review sites
Personal websites (This type of website was the reason for the birth of affiliate marketing; however, such websites are almost reduced to complete irrelevance compared to the other types of affiliate websites.)
Weblogs and website syndication feeds
E-mail list affiliates (i.e., owners of large opt-in -mail lists that typically employ e-mail drip marketing) and newsletter list affiliates, which are typically more content-heavy
Registration path or co-registration affiliates who include offers from other merchants during the registration process on their own website
Shopping directories that list merchants by categories without providing coupons, price comparisons, or other features based on information that changes frequently, thus requiring continual updates
Cost per action networks (i.e., top-tier affiliates) that expose offers from the advertiser with which they are affiliated to their own network of affiliates.
Publisher recruitment
Affiliate networks that already have several advertisers typically also have a large pool of publishers. These publishers could be potentially recruited, and there is also an increased chance that publishers in the network apply to the program on their own, without the need for recruitment efforts by the advertiser.
Relevant websites that attract the same target audiences as the advertiser but without competing with it are potential affiliate partners as well. Vendors or existing customers can also become recruits if doing so makes sense and does not violate any laws or regulations.
Almost any website could be recruited as an affiliate publisher, although high-traffic websites are more likely interested in (for their own sake) low-risk cost per mille or medium-risk cost per click deals rather than higher-risk cost per action or revenue share deals. |