Affiliate marketing is a marketing arrangement in which affiliates receive a commission for each visit, signup or sale they generate for a merchant. This arrangement allows businesses to outsource part of the sales process.[1] It is a form of performance-based marketing where the commission acts as an incentive for the affiliate. This commission is usually a percentage of the price of the product being sold, but can also be a flat rate per referral.[2]
Affiliate marketers may use various methods to generate these sales, including organic search engine optimization, paid search engine marketing, e-mail marketing, content marketing and display advertising, organic social media marketing, and more.
Though the largest companies run their own affiliate networks (for example Amazon), most merchants join affiliate networks which provide reporting tools and payment processing.
Types of Affiliate Marketing
There are three main types of affiliate marketing:
- Unattached Affiliate Marketing: This is an advertising model where the affiliate has no connection to the product or service they are promoting. They have no known related skills or expertise and do not serve as an authority on or make claims about its use. This is the most uninvolved form of affiliate marketing. The lack of attachment to the potential customer and product absolves the affiliate from the duty to recommend or advise.
- Related Affiliate Marketing: As the name suggests, related affiliate marketing involves promoting products or services by an affiliate with some type of relationship to the offering. Generally, the connection is between the affiliate’s niche and the product or service. The affiliate has enough influence and expertise to generate traffic, and their level of authority makes them a trusted source. The affiliate, however, makes no claims about using the product or service.
- Involved Affiliate Marketing: This type of marketing establishes a deeper connection between the affiliate and the product or service they’re promoting. They have used or currently use the product and are confident that their positive experiences can be shared by others. Their experiences are the advertisements, and they serve as a trusted source of information. On the other hand, because they’re providing recommendations, their reputation may be compromised by any problems arising from the product or service.
Advantages and Disadvantages of Affiliate Marketing
Affiliate marketing can yield great rewards for the advertising company and the affiliate marketer. The company benefits from low-cost advertising and the creative marketing efforts of its affiliates, and the affiliate benefits by earning additional income and incentives. The return on investment for affiliate marketing is high as the company only pays on traffic converted to sales. The cost of advertising, if any, is borne by the affiliate.
Early on, companies largely paid the cost per click (traffic) or cost per mille (one thousand impressions) on banner advertisements. As technology evolved, the focus turned to commissions on actual sales or qualified leads. The early affiliate marketing programs were vulnerable to fraud because clicks could be generated by software, as could impressions.
Now, most affiliate programs have strict terms and conditions for generating leads. Some affiliate marketing programs go as far as to lay out how a product or service should be discussed in the content before an affiliate link can be validated.p
PROS
- Access to a broader market
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Better accounting of qualified leads
Low-cost advertising
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Subject to fraud
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Less creative control
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Vulnerable to theft