Affiliate Marketing

What is Affiliate Marketing?

Affiliate marketing is a business partnership in which a business or individual (“the affiliate”) promotes another party’s product, service, or brand. When someone engages with an affiliate marketer’s promotion, the marketer earns a commission.

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Affiliate marketing campaigns involve three key parties:

  1. Merchant: This is the party who wants someone else to promote their product, service, or brand. The merchant may also be known as the seller, brand, retailer, vendor, or advertiser.
  2. Affiliate: This is the party that promotes the merchant’s product, service, or brand in exchange for earning a commission. Because affiliate marketing is often used in contextual advertising campaigns, the affiliate may also be referred to as the publisher.
  3. Consumer: This is the party that engages with the affiliate’s promotion. Typically, engagement involves clicking on an affiliate link, submitting a coupon code, or making a purchase.

While affiliate marketing is often associated with business-to-consumer (B2C) marketing models due to its direct appeal to individual consumers, its strategies and principles can be adapted for business-to-business (B2B) and business-to-government (B2G) markets as well. The key difference lies in the target audience and the type of products or services that are being promoted.

Techopedia Explains the Affiliate Marketing Meaning

Techopedia Explains the Affiliate Marketing Meaning

For a clearer understanding of how this revenue-sharing model works, let’s look at a basic affiliate marketing definition. Affiliate marketing is a performance-based marketing strategy. Because advertisers only pay for successful interactions, it can be a cost-effective strategy for organizations that want to optimize their marketing budget.

While affiliate marketing is often viewed as an online marketing strategy, affiliate marketing campaigns are increasingly being initiated offline with physical marketing materials like QR codes and coupons. A blend of online and offline strategies enables advertisers to build brand awareness in multiple environments and potentially capture a wider audience by catering to different consumer behaviors and preferences.

The key to success in affiliate marketing is to provide value to the audience through informative content, entertainment, or exclusive deals, while transparently disclosing affiliate relationships.

History of Online Affiliate Marketing

William J. Tobin, founder of PC Flowers & Gifts, is often credited as being the pioneer of online affiliate marketing. In 1989, he launched an affiliate program on the Prodigy network that allowed websites and individuals to become referral partners and earn commissions by promoting his company.

When Amazon launched its Associates Program in 1996, the program proved to be so successful that other companies quickly recognized the potential of partnering with online content creators to extend their customer reach. Today, affiliate marketing is a multi-billion-dollar industry, and 83% of the merchants who engage in affiliate marketing recruit new affiliates through affiliate network dashboards.

How Does Affiliate Marketing Work?

How Does Affiliate Marketing Work?

Affiliate marketing involves a formal partnership between an organization that wants to promote something and an affiliate who wants to earn income by promoting someone else’s products, services, or brand.

Here’s a step-by-step breakdown of how the process typically works:

  • The merchant creates a direct affiliate program or joins an affiliate marketing network.
  • The affiliate seeks out an organization’s direct affiliate program or joins an affiliate marketing network.
  • The affiliate applies to become the merchant’s partner.
  • Upon acceptance, the affiliate receives unique tracking links or point of sale (PoS) codes that are used to track the results of the affiliate’s promotional efforts.
  • When a consumer uses an affiliate’s tracking link or promo code and/or completes some other desired action, the affiliate earns a commission.
  • Periodically, the merchant’s direct affiliate program or affiliate network tallies the affiliate’s commissions and issues payment.

Affiliate Networks vs. Direct Affiliate Programs

Affiliate marketing campaigns are typically managed by either an affiliate network or a direct affiliate program.

An affiliate network is a third-party service provider that facilitates how advertisers and affiliate marketers can connect and form partnerships. In contrast, direct affiliate programs are managed by the advertisers themselves.

A direct approach gives advertisers more control over the affiliate agreement, but it requires more effort in terms of setup, management, and maintenance.

Affiliate Network Direct Affiliate Program
Partnership Affiliate network manages partnerships between merchants and affiliates. Merchants manage their own partnerships with affiliates.
Management Affiliate network provides tools for affiliate tracking, reporting, and commission payment. Merchants are responsible for program management, tracking, and payments.
Access to Affiliates Affiliate network connects merchants with affiliates. Merchants recruit and manage their affiliates directly.
Costs Typically requires a fee for joining. Merchants may also be charged an additional fee for successful engagements. Avoids affiliate network fees but typically requires additional financial and personnel resources for program management.
Control and Flexibility The affiliate network controls partnership options. Advertisers have full control over affiliate partnerships.
Ease of Setup It’s quick to set up partnerships using network infrastructure, services, and support. Requires more effort and resources to set up and manage.
Relationship with Affiliates Partnerships are with the affiliate network. Affiliates partner directly with the advertiser.
Customization Standardized set-up, monitoring, and reporting tools; limited ability to customize commissions. High level of customization.
Scalability Easy to scale a number of partnerships. Scaling the number of partnerships can require significant time and effort.

Types of Affiliate Marketing

There are three main types of affiliate marketing. Each type is characterized by the level of connection and engagement the affiliate has with the product or service they are promoting.

Unattached Affiliate MarketingRelated Affiliate MarketingInvolved Affiliate Marketing

In this approach, the affiliate marketer will aim to connect people with a product, service, or brand through content or promotions that have little or nothing to do with what is being promoted. This tends to be the least effective form of affiliate marketing.

In this approach, the affiliate’s promotion has some connection to the merchant’s product, service, or brand. While the affiliate does not need to endorse what they are promoting, their promotional efforts should have some degree of topical relevance to be effective.

This approach requires the affiliate to use and endorse the product, service, or brand they are promoting. This tends to be the most effective form of affiliate marketing.

Affiliate Marketing Examples

Affiliate marketing can be implemented in a number of ways across different platforms and communication channels. Here are some examples that illustrate the diversity of affiliate marketing strategies:

  • A tech expert who writes about web hosting platforms might provide affiliate links in their article that point to the ten web hosting platforms they reviewed for the article.
  • A YouTuber who specializes in kitchen renovations might include an affiliate link to a major home improvement center in their video description.
  • When a TikTok influencer talks about their smartphone running out of memory, they might provide a promo code in their post captions for the cloud storage service that helped them solve the problem.

How Much Money Do Affiliate Marketers Make?

The amount of money affiliate marketers can make depends on the commission structure of the products, services, and brands they promote – as well as the effectiveness of the affiliate’s marketing strategies.

Beginners with limited resources may only earn a few dollars each month, while corporate affiliates can earn six figures or more. Success in affiliate marketing typically requires strategic effort over a long period of time, a clear understanding of the target market, and consistent engagement with the target audience.

Pros and Cons of Affiliate Marketing

Affiliate marketing is a popular strategy for monetizing online content, but like any business model, it comes with its own set of advantages and disadvantages.

Successful affiliate marketing initiatives require a lot of preparation, but once the context for affiliate links or promo codes has been decided upon – and the promotional strategies have been put in place – affiliate marketing campaigns can generate semi-passive income for weeks or even months.

Affiliates have no control over the product, service, or brand they partner with, however, and it’s not unusual for affiliate program terms to change without warning. Diversifying by promoting products from multiple advertisers can lessen the impact if a particular program changes unfavorably.

Future of Affiliate Marketing

For many years, affiliate networks used third-party cookies to track user behavior and calculate commissions.

Now that third-party cookies are being deprecated, affiliate networks are looking at other ways to manage commission-based marketing campaigns that will ensure the sustainability of commission-based marketing campaigns while respecting data privacy and regulatory compliance requirements.

Two popular strategies are:

First-party Data Collection

In this approach, the affiliate network continues to play an intermediary role by providing the platform, tools, and services that affiliates and e-commerce merchants need to connect and manage their partnerships, but when a consumer engages with an affiliate’s link or promo code, the data generated from the consumer’s actions is collected and stored by the merchant.

Server-Side Tracking

Some affiliate networks are implementing server-to-server tracking to avoid browser restrictions on third-party cookies. Server-side tracking, which may also be referred to as server-to-server (STS) tracking, involves direct data exchanges between the affiliate network’s server and the merchant’s server. When the consumer engages with an affiliate’s link or promo code, the data generated from the consumer’s actions is sent directly from the merchant’s server to the affiliate network’s server. S2S tracking doesn’t rely on data stored on the consumer’s device and reduces the risk of tracking data being intercepted or misused.

The Bottom Line

Affiliate marketing allows merchants to expand their reach and allows affiliates to earn commissions without having to create and manage products, services, or brands themselves.

Affiliate marketing is not a get-rich-quick scheme, however. It is a partnership that requires a commitment from both the merchant and its affiliates to be successful. The merchant needs to provide a good product or service, and the affiliate needs to provide effective promotion.

FAQs

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Margaret Rouse

Margaret is an award-winning technical writer and teacher known for her ability to explain complex technical subjects to a non-technical business audience. Over the past twenty years, her IT definitions have been published by Que in an encyclopedia of technology terms and cited in articles by the New York Times, Time Magazine, USA Today, ZDNet, PC Magazine, and Discovery Magazine. She joined Techopedia in 2011. Margaret's idea of a fun day is helping IT and business professionals learn to speak each other’s highly specialized languages.