The Mechanics: How Affiliate Marketing Works
Although the definition and understanding of Affiliate Marketing is fairly straightforward, the application of the process can be cumbersome. What follows is an attempt to describe the mechanics of Affiliate Marketing. What is involved, who is involved and what relationships and processes need to be enabled to make Affiliate Marketing work.
Let’s start with an understanding of who the “players” are within Affiliate Marketing
The Main Players in Affiliate Marketing:
There are 3 main players in Affiliate Marketing: The Advertiser, the Consumer and the Publisher (bloggers, marketer, portal, etc); each playing a specific role. Affiliate Marketing only exists with the participation of these 3 players. The Advertiser wants to reach the Consumer and they do so by leveraging the audience reach and influence of the Publisher.
Additionally, there are 3 supporting players that aid the process: Affiliate Consulting Agencies, Affiliate Networks and Affiliate Technologies; each providing a service that results in a far more effective Affiliate Marketing process.
Advertisers are businesses that sell something online. They always want more customers to buy their product or service. Advertisers can be Online Retailers, online businesses, Manufacturers, Online marketers, Email marketers, etc; any entity that sells or markets something online.
Anything that is sold or marketed online can benefit from Affiliate Marketing. The challenge for Advertisers has always been to reach new customers in an affordable manner. Affiliate Marketing provides them with a mechanism to reach even more customers without spending marketing dollars before these customers produce an action of some kind (buying or an action like filling out a form, joining newsletter, etc). Advertisers search for relevant and complementary publishers and convince them to promote, highlight, review or mention their product or service to that publisher’s audience. The Advertiser provides the Publisher with special tracking links, banners and advertisements to use. If the publisher’s audience buys the Advertiser’s products or services after having clicked on a referral link on the publisher’s site, then a commission is paid to the publisher by the Advertiser. Essentially, publishers are a commission-only marketing/sales force for the advertiser. Some advertisers have thousands of publishers promoting their products to the publisher’s audience and this can translate to hundreds of thousands of consumers seeing the advertiser’s products for free. Once again, if the audience clicks on the link or banner provided by the publisher, then the publisher makes a commission on the sale or lead. (Some Advertisers also provide commissions based on the amount of “leads” they receive from forms being filled out by consumers.)
A publisher is any individual, company, organization, blog, website, e-magazine, newsletter, report, video or any other form of content or communication between the content provider (the publisher) and the audience (potential consumer). Publishers provide content to their audience for many reasons; some have hobby websites, some sell advertising on their content or site, some enjoy building a community, some sell the content and some simply offer coupons to advertiser stores. There are hundreds of thousands, if not millions, of publishers available. Every bloggers can potentially be a publisher in Affiliate Marketing. All publishers have a following or a certain type of audience. Think of any topic and there is probably thousands of publishers creating content around that topic. This is especially important for Advertisers because they can now work with specific publishers that reach targeted audiences. Advertisers are realizing more and more that a recommendation, review or mention from a publisher can drive sales of their products.
Advertisers are, therefore, realizing that marketing through influencers like publishers is a very effective and affordable way of reaching consumers in comparison to other forms of marketing/advertising. (search marketing, social marketing, traditional marketing, etc).
Think about all the ways an eRetailer has to market and all the marketing dollars they have to spend to drive attention to their store (facebook, PPC, online ads, sponsorships, traditional advertising, content production, etc) without knowing if a sale will result. Now, think of promoting that same eRetailer through influencers (publishers), perhaps offering a special promo to the publisher’s audience. In turn, publishers will promote the advertiser at the publisher’s own expense, to the publisher audience. If a consumer clicks through to the eRetailer’s site and makes a purchase, then, and only then, will the advertiser pay the publisher a commission. This is what Affiliate Marketing is all about; advertisers leveraging the influence and audience that publishers have in order to reach consumers. The benefit is obvious for advertisers, but how about publishers? Well, in order to monetize their influence and audience (in order to earn some money) publishers and advertisers have gotten together to develop a referral relationship. Meaning, if the publisher can refer a client to the advertiser, then the Advertiser would pay the publisher a commission on that sale. As such, publishers go about promoting advertisers through various manners. Perhaps they mention the advertiser in an article, perhaps they highlight advertising banners on their site, perhaps they provide product reviews. Regardless the manner in which advertiser products are promoted by publishers, the goal is the same for that publisher; to entice their audience enough so they can click through to the advertiser web site and make a purchase. Only upon the audience taking a specific action (a purchase or form signup) does the advertiser pay the publisher a commission. The process of affiliate marketing has not only enabled plenty of online businesses to generate revenues from consumers referred to them by publishers, but has also led to publishers being able to earn referral revenue from the audience they have created and cultivated. This referral process we call Affiliate Marketing has greatly benefited both publishers and advertisers.
There can be no Affiliate Marketing without the consumer. Ultimately, if consumers do not take an action (buying or providing contact info) from the advertiser based on the referral of a publisher, then affiliate marketing would not have value. Consumers shop online in many ways; they search on search engines, they visit their favourite online stores, they click on advertising or they read something that leads them to an online store, among other methods. More and more consumers are visiting an advertiser’s store because they saw a review, an article, a coupon or a recommendation from a blog, magazine or other site they visited. Consumers seem to trust content, recommendations, review, articles, etc more than they do pure advertising directly from the advertiser. As a result, Advertisers are not only continuing to see the benefit of reaching consumers through publishers but they are also developing special promotions or offers specifically for consumers who are referred by publishers.
THE SUPPORTING CAST
Building a marketing channel of referral partners offline is not very difficult to manage. Most companies would typically only have a few dozen referral partners at any given time. Managing communications and commissions would not be overwhelming. However, managing an online referral partner program (affiliate marketing) is far more complex. Advertisers can have thousands and thousands of online publishers they partner with. Not only does communicating with all those publishers become unmanageable but delivering updated links, banner ads and managing the payment of commissions to all these publisher would be a nightmare to handle directly. On the publisher’s side; they could typically partner with hundreds of advertisers at the same time. Most publishers do not have the resources available to communicate effectively, request links, banners and follow up on commissions to be paid from hundreds of advertisers at the same time. So what is the industry to do?
Enter the Affiliate Network. An Affiliate Network acts as a go-between or broker of information and tracking for both the Advertiser and the Publisher. Affiliate Networks provide the ability for Advertisers and Publishers to work together. They provide advertisers a way to communicate and offer updated links and banners and any other creative with all publishers, and most importantly they provide the technology that both tracks consumer purchases made from a publisher’s referral and the commission payments that go with that referral. Affiliate Networks also take payments from Advertisers and then pay publishers the commissions they are owed, essentially acting as an escrow service between Advertisers and publishers. Advertisers simply cannot have direct relationships with thousands and thousands of publishers, and publishers simply cannot manage relationships with hundreds of Advertisers. Affiliate Networks, therefore, provide, an absolute necessary service to ensure a more effective Affiliate Marketing process.
So how do Affiliate Networks actually track consumer purchases? The answer is called a “cookie” and is described below.
A cookie is a technology that works with web browsers to store information on the user’s computer or device; like user preferences, login or registration information, and shopping cart contents. In affiliate marketing, cookies remember the link or ad the visitor to a website clicked on originally. They can also remember browsing history, date and time, and other user information. The kind of cookie affiliate marketing relies on is called a first-party cookie.
When a user visits a publisher’s website, email, newsletter, etc and clicks on an advertiser’s ad, or link, the cookie automatically installs and tracks the identification of the publisher, the advertiser, the specific link or ad and the commission owed to the publisher if the consumer ends up buying something from the advertiser. This data is used by Affiliate Networks and Advertisers not only to pay publishers their commissions but to also produce valuable data and analytics that can help them better market to the consumer. Without the cookie, tracking the originator of the referral and, in turn, referral commission would be very difficult.
For further information on cookies, please visit the official Wikipedia description.
Managing a successful Affiliate Program is not easy. Many things are to be considered; everything from recruiting the most effective publishers, to producing ads or content that convert, to motivating and communicating to determining the most effective payout models, managing the financial and administrative aspects, commission payouts and Affiliate Network rules and regulations. There comes a time when every advertiser asks if their program would be more successful if an outside agency manages it. These agencies are essentially marketing or consulting agencies that operate Affiliate Programs on behalf of Advertisers. They work with both Affiliate Networks and Publishers at moving programs forward. There can be many reasons to hire an Affiliate Agency, but whatever the reason, the folks that operate these agencies are experts at Affiliate Marketing and are an integral part in growing the industry.
Managing an Affiliate program, either by the Advertiser, the Publisher, the Network or the Agency, incurs many processes and administrative tasks. As technology has done in other industries, Affiliate Marketing has also benefited from software being developed in order to help improve processes. Perhaps it’s a better way of tracking commissions, or a more effective manner of updating links and banners. Perhaps it’s a faster way of grabbing coupon feeds or perhaps it’s a new way of using links within articles or an out-of-the-box publisher affiliate template like a coupon website theme. As Affiliate Marketing continues to grow, so too will software that is developed specifically to improve the processes for the industry.
As intricate as the entire ecosystem may seem, it still all comes down to one simple thing: referrals!
Affiliate Marketing is all about an online Advertiser paying someone (publishers) a referral fee to send them customers. This fundamental aspect of business will never change, never go away. How this process is managed, however, does indeed change and mature. As such, the future of Affiliate Marketing certainly looks promising.