Put simply, affiliate marketing is mainly where a business will sell someone else's product in return for a commission. It is a well-established method of performance marketing, with virtually every brand operating online in the UK running an affiliate programme. Yet despite this ubiquity it remains relatively poorly understood by marketers more familiar with other channels. This article gives an overview of affiliate marketing and the benefits it can bring to large brands and niche SMEs alike.
Back to basics
Affiliate marketing is a performance-based form of online marketing. At its heart is a simple principle: that whatever you want your visitors to do on site -- whether that be to make a purchase, call a phone number, submit their details in an application form or sign up to an email -- you only pay when this specific action has occurred.
Affiliate marketing brings together three actors. Those who are paying for the action to be performed are referred to as merchants (or sometimes, advertisers). These range from transactional websites belonging to high street retailers, to corporate banks and online dating sites, but the most common action they will look to achieve is a sale.
Those referring traffic to merchants with the aim of it 'converting' to the specified action are their affiliates (sometimes, referred to as publishers), they will be rewarded with a commission every time this happens. Affiliate networks bring these two parties together. Networks provide tracking, reporting and account management services, and also handle the payment of commissions between affiliates and merchants.
Your invisible sales team
The inherent benefits of affiliate marketing are therefore simple to grasp. For the merchant, it is a pay-on-performance marketing model that is transparent and measurable by its very nature. Return on investment is based on a cost-per-acquisition (or CPA): how much a merchant is willing to pay the affiliate if the latter can get the traffic they refer to perform a certain action, such as a sale. Unlike other forms of marketing therefore, affiliates take on the initial risk in the promotion they do and bear the cost if it does not work. Effectively, they are an online sales force for the merchant.
For the affiliate, it is a model that offers high rewards for those who can turn good quality traffic into sales. The more expert affiliates are at referring traffic that converts, the more they will earn. This makes affiliate marketing an inherently innovative field, attractive to those who want to push beyond the boundaries of traditional marketing, and the affiliate channel has always been a breeding ground for promotional methods that have later become mainstream. Affiliates were amongst the first to take up social media and have spearheaded the utilisation of consumer incentives like voucher codes and cashback.
Indeed, the beauty of affiliate marketing is the multitude of different actors it attracts. Affiliate marketing is an industry now worth £5bn in the UK, and for some retailers it regularly drives as much as 40 per cent of their online sales. When recently one foreign retail giant decided to launch its business in the UK affiliates were the chosen channel through which they successfully built market share and consumer awareness. In their opening months, affiliate campaigns produced 60 per cent of online marketing revenue. Specialists in paid search, email, consumer rewards, social and comparison all operate as affiliates, alongside traditional content and community sites looking to monetise their web properties. Indeed, given the breadth of different ways to promote, what unites these actors is less the term 'affiliate' as the way in which this promotion is measured and how they are remunerated: the cost-per-acquisition (CPA) metric.
Pay-per-sale, everything else is free
Anyone working on this model can be considered an affiliate, and by virtue of this they cover all parts of the web. This means that advertisers benefit from a wide reach into discreet niches that above-the-line marketing often cannot penetrate. Moreover, all the activity affiliates do to secure the sale -- writing unique content, providing banner coverage on their site, exposure through email, or representation in the search space -- is included in the CPA: merchants are not billed for this on top.
However, affiliate marketing is not a silver bullet. It takes time and resource to run a programme successfully. A great deal of sensitivity to the different promotional methods affiliates will use is needed, as is knowledge of the challenges encountered in merchants' respective industries. In essence then, the job of anyone running an affiliate campaign is to manage these relationships in a way that is complementary to both parties and provides demonstrable results against the merchant's commercial objectives.
Owen Hewitson client strategist for Affiliate Window and Buy.at