What is Affiliate Marketing and How Does it Work?
This form of commission-based marketing is very much cut from the same cloth as Internet marketing in that the person displaying the ad gets a percentage of the sale he provides. It’s affiliate marketing that is the standard bearer for all marketing strategies performed online.
This type of marketing requires groups outside the company, such as affiliate management companies and third party vendors, to use a number of different marketing techniques to deliver sales that will guarantee the success of the product.
The incoming web traffic is monitored in-house or by a third party to ensure that proper credit is given for each sale. There were a number of issues when this type of marketing arrived on the scene, with spamming, false advertising, and trademark infringement all fairly rampant.
The introduction of improved security measures and complex algorithms helped clear up all the issues, making it much safer to shop online. These changes led to merchants taking more time to look over the terms and conditions of affiliate programs, which in turn led to greater profits as the spammers and scammers were weeded out. The success of affiliate programs led to more opportunities for marketers, but also increased the level of competition.
The intense level of competition led many companies to switch their affiliate programs for merchants to outsourced programs. The advantage in doing so was that the companies they outsourced to were full of employees who brought high levels of affiliate marketing experience to the table. They also tended to have a publishers association, which was a great help when it came to advertising.
The first affiliate marketing program to arrive online was delivered by cdnow.com that, as the name suggests, had a number of music oriented sites. Website owners were encouraged to post links to new albums on their websites, with a small payment made for every sale from those links.
Geffen became the first major company to link with cdnow.com. Shortly after that launch, a woman approached Amazon, offering to sell their products on her website for a small commission. Amazon agreed and ended up liking the idea so much that they introduced the Amazon associated program a short while later. Their program was different in that people would receive commissions for clicks on Amazon links and banners, rather than for just the products sold.
Since those early days, company in just about every industry niche (travel, gaming, retail, finance, mobile, etc.) has set up affiliate programs. The most popular of the bunch are in the gambling and adult sector, with UK affiliates alone making in excess of £ 2.16 billion.
Compensation Methods Used to Pay Affiliate Marketers
- Cost per sale (CPS)
- Cost per impression (CPM)
- Cost per action (CPA)
- Cost per click (CPC)
CPS and CPM are the most widely used of the group, simply because the other two tend to deliver traffic that is not necessarily targeted to the site they are being sent to.
CPS and CPA tend to generate clicks from interested buyers, with the end result more often than not being a sale. With both of those methods, the affiliate only receives payment when a sale is made, which usually means that the affiliate goes out of their way to ensure that they only try to generate targeted traffic.
These methods are both commonly referred to as performance marketing. It’s worth noting that the affiliate team and the sales team are wholly different entities in that it’s the affiliate’s job to drive targeted traffic to the site, with the sales team then attempting to influence the visitor to buy.
This is perhaps the most effective affiliate method for businesses, since they only have to pay after a sale has been generated. While the merchant pays for the initial cost of setting up the affiliate program, the remaining costs all fall on the publisher, who is then encouraged to make that back by driving sales. Many businesses have credited affiliate programs as a major part of their success.