Affiliate marketing describes the process whereby an affiliate earns a commission for selling the products of another person or company. Here, the affiliate is simply an individual who is motivated to promote a particular product through incentivization. The business whose product is being promoted will gain in terms of sales and marketing from affiliates.
Understanding affiliate marketing
Affiliate marketing is now a $12 billion industry that accounts for 15% of all digital media revenue.
Affiliate marketing is a concept as old as marketing itself, but it was Amazon who was responsible for bringing affiliate marketing to the mainstream.
Brand evangelists with their own blogs started reviewing Amazon products, sending interested consumers back to Amazon through a personalized referral link. If a consumer purchased through their link, the blogger would receive a percentage of the total sale.
Today, affiliate marketing is prolific in eCommerce. Companies such as Amazon run their own affiliate programs, but there are also third-party program providers. These providers run affiliate programs for businesses that either can’t or are not prepared to run in-house programs themselves.
The nature and scope of earning commissions have also changed. Not limited to reviewing popular consumer products, affiliates can earn money based on the number of leads they generate for a business.
They can also be compensated for app installs and email signups, for example.
Advantages and disadvantages of affiliate marketing
Affiliate marketing is a win-win for all parties. Businesses spend less on marketing as willing affiliates promote their products, generate buzz, and rapidly scale the amount of targeted traffic to a product or service.
Affiliates receive money for promoting products that they would often promote for free anyway. Indeed, affiliate marketing is low risk, low maintenance, and enjoyable – particularly for brand evangelists.
For businesses, the main advantage of affiliate marketing is that it is performance-based.
Since affiliates are only paid once a sale has taken place, there is no upfront marketing cost. In effect, the business is only paying for traffic (through affiliate commissions) that they see a direct benefit from in sales.
Affiliate programs that pay affiliates based on the number of clicks, impressions or signups are vulnerable to fraud since they are easily manipulated.
This has led to some businesses becoming stringent on the terms and conditions of affiliate agreements. Some even stipulate how their products can be described to prevent exaggerated claims being made by affiliates to increase sales.
There is also a lack of affiliate marketing uptake in certain countries such as Australia. Whether through perceived management complexity or ignorance of the benefits, businesses who chose not to embrace affiliate marketing are at a competitive disadvantage to those who do.
- In affiliate marketing, a business allows affiliates (consumers) to promote their products or services for a commission of the total sale.
- Affiliate marketing is not a new concept, but it has proliferated with the advent of eCommerce.
- Affiliate marketing is a low-cost, win-win scenario for consumers and businesses. But it can be manipulated and in certain countries, its use in eCommerce is still uncommon.