What is Affiliate Marketing? A Primer
As ecommerce continues to grow, as competition for consumers becomes increasingly expensive, brands, retailers and online businesses are constantly in the hunt for effective and affordable ways to reach consumers.
Online businesses now have a number of ways to reach and acquire customers; search marketing, PPC, Social Media marketing, online advertising, marketing partnerships, etc. However, some of these methods have grown costly for many and other channels of distribution/marketing are being sought after to determine if reaching customers can be less expensive or more effective for online businesses to use. Affiliate Marketing is one of those methods.
For those who would like to be thoroughly overwhelmed (re: confused) over the definition of Affiliate Marketing, may I suggest reading the official definition and history on Wikipedia found here: http://en.wikipedia.org/wiki/Affiliate_marketing
For a more simplified version, read on.
Affiliate marketing is essentially the same thing as referral marketing. Meaning, an advertiser pays someone (a blogger, for instance) a referral fee for sending them traffic that eventually turns to a sale. Simple!
The definition for Affiliate Marketing depends on who the audience is. If the audience is an advertiser then one way of looking at Affiliate Marketing is to describe it as paying for advertising but on commission only. If the traffic from the advertising produces a sale, only then does the advertiser pay the source of the traffic. If the audience is a blogger, for instance, then Affiliate Marketing is about getting paid by an advertiser when you advertise/promote their product/service to your audience and that audience produces an action of some kind, be it a sale, a download, a sign up, etc.
The main thing to remember about Affiliate Marketing is that the referral is done online or on mobile through links, banners, advertising, text links, articles, coupons, reviews, etc, as long as it can be tracked digitally. An online magazine or a blogger, for instance, may refer a specific product to their audience. They refer that product by advertising it, writing about it, referring to it or other means through online links, ads, reviews, coupons codes or other means. If their audience clicks on any of the links and lands on the advertiser’s website and then buys that product on the advertiser’s web/mobile site, then the advertiser/retailer gives a referral fee of some kind to the online magazine or blogger for referring that customer that resulted in a sale.
That’s Affiliate Marketing; for advertisers it’s a way to pay for advertising…..all on a performance basis and for publishers (bloggers, media, marketers, etc) it’s a way to generate revenue, monetize your audience by promoting the goods/services of others.
The mechanism is to refer business to another party in exchange for a referral fee, all done online or through mobile, at scale (large numbers).
As mentioned, the purpose of Affiliate Marketing differs depending on whether one is an Advertiser or a Publisher.
For Advertisers, Affiliate Marketing is both a way to pay for advertising and a sales & marketing channel. It’s a method of distributing advertising and marketing to consumers and only paying publishers on a performance basis if consumers actually buy due to the marketing referral from the publisher. For Advertisers, Affiliate Marketing has become an effective vehicle to promoting and advertising a product/service/brand with low cost risk. Hundreds or thousands of publishers agreeing to promote the Advertiser’s ads for free and only be paid on a performance basis is a worthwhile approach to evaluate.
For Publishers, Affiliate Marketing is a way of monetizing the audience a publisher has built. For many, however, it has become a full time livelihood and business model. Affiliate marketing has grown so much over the years that many businesses have been created for the sole purpose of sending advertisers traffic and collecting Affiliate commissions. This can be in the form of blogging, coupon sites, shopping comparison sites, email marketing, or other. One of the most attractive aspects of affiliate marketing for publishers, is the fact that they do not need to carry inventory, build a product or sell in the traditional sense. The main focus of publishers (affiliates) is to drive quality traffic to advertiser sites. If that traffic end up buying on the advertiser site, then the publisher gets a commission.
There are many different types of publishers that are involved in Affiliate Marketing. A blogger, for instance, that has accumulated a large enough audience of parents, can decide to show ads or write articles about Children retailers such as Toysrus, Lego, Disney, Leap Frog, etc. Each of these advertisers will agree to pay the blogger a commission if the traffic the blogger sends them ends up buying within a certain amount of time.
Another example would be a coupon site; where the site was built for the purpose of showcasing coupons from online advertisers. If a visitor to the coupon site clicks on a coupon, gets redirected to an advertiser’s site and then buys on the advertiser’s site, then the coupon site owner would get a commission from that “referral”.
There are many other creative ways of monetizing an audience within the Affiliate Marketing model. Publishers have come a long way from simply advertising banner ads on their sites in hopes of getting enough commissions to justify their time investment.
Now, although the definition of Affiliate Marketing is straight forward to understand, the mechanism to ensure the entire process works is far more complex. Millions of referrals all need to be tracked, managed and then compensated for, automatically. So although Affiliate Marketing is a simple concept to understand, it is more complex in its execution.
For a summary of how Affiliate Marketing Works, please read the article titled: The Mechanics of how Affiliate Marketing works.