Affiliate marketing is a type of Channel Marketing. Here the merchant/producer/brand works with an Affiliate (individual or company) who promotes one or more products and helps the brand reach new potential customers. The affiliate earns a commission if people end up buying the product.
Affiliate marketing can also be seen as an advertising model in which the brand pays third-party publishers when they bring traffic and generate leads for it’s products and services. The vast majority of the affiliate marketing, though, focuses on the actual sale of the product or service.
Affiliate marketing is one of the several Performance Marketing approaches, given the commission is typically payable only on a sale.
Affiliate programs are also known as Associate or revenue-sharing programs.
While revenues generated through an Affiliate program may not be substantial, affiliate marketing is popular because it is cost-effective and low risk.
In the internet era, Affiliate marketing has gained popularity after Amazon created an affiliate marketing program whereby websites, that put links to the Amazon page for a reviewed or discussed product, receive advertising fees after a sale.
The primary and straightforward goal of affiliate marketing is to increase sales—a win-win solution for the merchant and the affiliate.
As discussed earlier, Affiliate Marketing is a type of Performance Marketing. Other examples of that kind of marketing include Influencer Marketing, Referral Marketing.
Influencer Marketing and Affiliate Marketing differ based on the cost structure, measurement, FTC adherence.
Referral marketing and affiliate marketing differ on the source of referral – it is the current customers in the case of referral marketing while it is the third-party brand advocates for the latter.
Affiliate marketing has gained scale recently with new partnerships and new technology in the Marketing mix. Most affiliates used to operate as a website. Now, vloggers, podcasts, and mobile apps are new ways of driving significant traffic. As an example, mobile apps recommend other products to buyers within the app and earn a commission on those transactions. So, with Affiliate marketing, the producer can reach the customer by the customer’s preferred channel.
Seen through the lens of Performance Marketing, Affiliate Marketing is a combination of paid advertising and brand marketing but only paid out on producing the agreed-upon results. Affiliate marketing is more than two decades old yet is gaining more traction than ever - proof positive for its adaptability and versatility.
B2B affiliate marketing, when compared to a B2C situation, has more of a challenge in finding the right media partners that attract enough business buyers to warrant an investment. It does call for some hard work to solve this challenge.
Recruiting some micro-influencers to your affiliate program will help as most of them will have a very cohesive audience, and you also get the benefit of working with them without having to pay for them upfront.
As in any contract, there is a scope for legal conflicts, in Affiliate Marketing, that must be watched out for by both the brand and the affiliate. As an example, should the affiliate indulge in copyright infringement, the brand may be pulled into the mess. Ensuring a good solid contract is key to a sustained Affiliate Marketing.
Benefits of Affiliate Marketing
Not only Consumer brands, but also B2B companies leverage affiliates. B2B affiliate marketing helps increase lead generation, as long as your brand and your affiliates are aligned.
The main advantage of having an affiliate program is that it is entirely performance-based. Because affiliates are only paid a commission once the desired action has taken place, they’re more motivated to drive the conversion you’re looking for. This mitigates any efforts that drive traffic with little to no value to your company while also ensuring that you get what you pay for/
Affiliate marketing now drives as many e-commerce orders in the US as email. Both channels currently account for 16% of US e-commerce orders…This makes affiliate marketing one of the four largest sources of e-commerce orders, outperforming social commerce, and display advertising.
Affiliate Marketing gives confidence to the brand about ROI as the payment happens only after meeting a specific deliverable. While marketing budgets may change or face a reduction, the budget cap rarely exists for Affiliate Marketing because of the certainty of the outcome.
On top of the revenue or traffic benefits, the brands get the benefit of free brand exposure and targeted clicks, increased brand loyalty and retention too.
There is no other new customer acquisition strategy or marketing opportunity like it today!
The best performing affiliate programs are usually those who have an already established presence in several marketing channels with an engaged audience and a demonstrated conversation rate.
Affiliate Networks and Third-Party Tracking Platforms are one of the components of a successful Affiliate Marketing channel. They add their own benefit – ease of use - by providing a single-window platform for information, tools, and measurement. Leading affiliate networks and tracking include Partnerize, AWIN, Impact, and Rakuten Marketing.
Agencies (also known as OPM) that can help manage the affiliates are another component that can make working with Affiliates easier, especially when the brand teams have limited bandwidth, expertise, existing affiliate relationships, so on. Agencies can help fill these gaps and drive much faster results.
In summary, Affiliate Marketing is entirely trackable, measurable, and transparent. Brands can now see the entire consumer journey, analyze it to decide where to invest more.
Affiliate Marketing Forums
Several forums focus on Affiliate marketing:
- STM Forum
- DigitalPoint Forums.
These forums are excellent sources of insights on different aspects of Affiliate Marketing.
What can Software do for Affiliate Marketing?
Affiliate Marketing Software covers
- Affiliate Tracking
- Commission Management; Multi-tier commissions
- Multi-Level Marketing
- Fraud detection
- Banner Management
- Tax compliance management
- Social Media Promotion
- Transfer of funds from the brand to the affiliate, service provider, so on.
- Measurement (such as traffic tracking, leads, conversions)
Which are the industries that benefit Affiliate Marketing Software?
Almost all industries, from online gaming to property management, use Affiliate Marketing!
Affiliate marketing suits SaaS companies perfectly for several reasons, including the fact that the affiliates like recurring commissions, B2B level deals.
Per a study of affiliate marketing trends by Forrester Consulting, more than 80% of the brands use affiliate programs as of 2016.
Buyers Guide - Guide to choosing an Affiliate Marketing Software
While searching for the Affiliate Marketing Software, you need to upfront factor in
- Whether the management is done in house or using an agency
- Whether you want to have the full power of an Affiliate Marketing Platform or want a software that gives you more control. (The former is also more expensive of the two).
- Ability to customize selection, recruitment, and registration of affiliates, including access control
- Information sharing portal
- Security and Fraud detection – not just flagging suspicious activity but also being able to take action
- Compliance (to regulations such as GDPR) requirements
- Need for simultaneous campaigns with different goals/segments, so on.
- Multi-tier marketing - affiliates recruiting other affiliates
- Multi-currency support
One would also look for any integration with the other existing systems such as CRM and different types of Performance Marketing solutions you are using. Some standard integrations include MailChimp, Paypal, Stripe.
Creatives are among the most critical elements of affiliate marketing, so the platform must facilitate the addition, editing, and management of all the creatives needed.
It is essential to evaluate whether the particular affiliate marketing software has any vertical, geo, or another kind of a focus that makes it more suitable for your needs.
Finally, evaluate whether the benefits of AI in the selected software provide excellent ROI.
Challenges in Deploying an Affiliate Marketing Software Solution
Affiliate Managers need to ensure their mobile site tracks through their affiliate network, given the prominence of mobile today.
Taking full advantage of the data in the Affiliate program as well as with the Affiliates is not easy. Optimizing an on-going campaign requires that brands and advertisers share the collected, anonymous data with their marketing partners. Brands also use data to understand conversion costs, channel and partner category performance and efficiency, profitability across promotions, products, so on.
Tuning the attribution model is a tricky proposition, primarily when you operate more than one more of marketing or more than one type of affiliate. The attribution speed bump is one of the most critical challenges to resolve alongside click fraud, brand integrity, so on.
Getting the right balance between the publishers is non-trivial too.
Affiliate marketing can't deliver full benefits when sales and marketing channels are operating in silos.
Top-paying affiliates may require your site to have a certain amount of traffic each month or be choosy about content.
While creating your own affiliate program has benefits, such as reduced costs (of not having to pay the network), 1-1 relationship with the affiliates, and complete control of the program, it is a very highly resource-intensive and skill demanding work that you may not have the wherewithal to take on. Should you choose to go with an affiliate network, your costs will go up to the tune of 30% of the commissions paid to the affiliates.
While the software does address some of the challenges, some are intrinsic to the organizational structure, capability, so on.
Advances in Affiliate Marketing
Content and Creatives will remain an essential part of affiliate marketing.
AI Chatbots are taking root in Affiliate marketing. Recently, affiliate platform WebGains tied up with IBM Watson to create affiliate marketing’s first chatbot that can assist affiliate marketers in monitoring their performance and also help them communicate seamlessly with hundreds of publishers.
Today, savvier marketers are taking ownership of affiliate marketing and cutting out the middleman (aka the network), so they can develop better working relationships with affiliates. More so, brands using affiliate marketing strategies are focusing on collaboration.
With an increasing variance in customer journeys and with affiliate marketing contributing to only about 16% of the orders, tracking and attribution overhead is one of the biggest concerns
Affiliate Marketing and AI
In a large-sized Affiliate Marketing program, you would have thousands of data points to track and measure. AI embedded in the software can simplify the picture for you and scale optimization seamlessly.
AI and machine learning models will become an integral part of affiliate marketing, particularly in targeting a specific audience to cater to a particular niche.
AI-based recommendation engines can match brands and publishers that could conceivably work well together.
Nowadays, machine learning (ML) is increasingly a core part of lead generation platforms. And, in the case of Affiliate Marketing, it can help prevent and manage fraud.
AI chatbots are already in play in Affiliate Marketing.
While optimization in affiliate marketing is broad, at its core, the current process involves manually identifying areas of opportunity or risk and implementing alternative tactics to achieve desired outcomes. Drawing from the wealth of data available, machine learning streamlines the manual exchange between publishers and brands and automates processes.
ROI for Affiliate Marketing
Affiliate marketing is responsible for 16 percent of all online orders -- only 4 percent short of the performance of paid search ads.
Email campaigns were the undisputed king of digital marketing, but affiliate marketing stats show that the tables are turning. AM generates at least as much as email marketing, contributing to about 15% of the total revenue made through digital marketing efforts. (2018)
Affiliate marketing drove a 14X return for every $1 in marketing spend, according to a digital ad spend study by PricewaterhouseCoopers (PwC) and the IAB.
According to Conversant, affiliate referrals lead to purchases that have a 21% higher average order value. Additionally, customers acquired via affiliates generate an average of 58% more revenue than non-referred customers.
Here is an example of the ROI difference Google and Affiliate Marketing.
In Fashion, the typical affiliate fee is 10%. So if an affiliate drives a sale for Rs 1500, the cost is Rs 150. On Google, the average Cost Per Click is Rs 10 and the average conversion rate is 1%. Therefore, on Google, the cost per sale works out to Rs 1000.