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Affiliate Marketing

Updated on March 19, 2024
Article byNanditha Saravanakumar
Edited byNanditha Saravanakumar
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Affiliate Marketing?

Affiliate marketing is a marketing strategy in which firms partner with third parties, known as affiliates, to generate leads to its website and, thus, sales. For this purpose, the firm pays a commission to the affiliates. This is based on the number of leads, impressions, or sales.

Affiliate Marketing

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With the rise of e-commerce and increasing internet use, websites serve the important purpose of traditional advertising with more reachability and cost-effectiveness. Affiliate marketing creates awareness about products or services and re-targets prospective customers through banner ads, links, referrals, etc. 

Key Takeaways

  • Affiliate marketing is an arrangement between the advertiser (business) and the publisher (affiliate) where the latter promotes the former’s offerings. This could be in the form of advertisements, links, referrals, testimonials, etc.
  • Cookies from the affiliate’s website can help track visitors when they reach the advertiser’s website and complete the required action (view or purchase the product).
  • Though affiliate marketing is advantageous and plays a significant role in e-commerce and digital services, it is subject to many fraudulent online activities. Therefore, it can lead to serious issues if not appropriately monitored.

How Does Affiliate Marketing Work?

Affiliate marketing websites have become a significant part of companies’ communication mix and advertising models. With the proliferation of the internet and e-commerce standing head-on to traditional commerce, affiliates play a huge role in this digital era. It is an arrangement between advertisers and publishers, where both benefit.

For publishers, it is a means for providing free content to their audience. Since they can earn income through ads, they need not demand a fee from visitors. For companies, it is a way to find prospective customers and convert visitors to customers.

Affiliate marketing is made possible through data and cookies. Data enables the accurate targeting of customers, and cookies allow advertisers to identify the affiliate who drove particular traffic. The affiliates and publishers agree to the compensation model, which can be pay-per-click, pay-per-lead, pay-per-sale, and pay-per-impression.

One of the best examples is Amazon affiliate marketing, which brings together affiliates and publishers, who wouldn’t have to make an effort to connect, but publishes the ads. Nevertheless, it is wrong to assume that ads are the only medium of affiliate advertising. 

Affiliate marketing websites do publish display and banner ads. But they also review or recommend products. Some cite their experience as testimonials, whereas others state facts and promote products. Affiliates can also provide links or directly quote referrals or examples.

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Types

There are mainly three types of affiliate marketing programs:

  1. Unattached affiliate advertising – In this uninvolved type of advertising, the publisher or the affiliate does not relate to the product or service advertised. The lack of experience or knowledge of the offering makes the affiliate’s claim look unpromising to customers.
  2. Related affiliate advertising – This type of marketing refers to an affiliate who has some connection to the offering. Their claim of promoting the offering is authentic and more trustworthy to the audience. But they do not make recommendations based on experiences.
  3. Involved affiliate advertising – In this advertising model, the affiliate deeply connects with the products and endorses its offering. In addition, they share their experiences about using their offerings and recommend the usage. 

Examples

Here are some examples of affiliate marketing programs.

Example #1

Margot is an influencer who tries new and innovative products on e-commerce sites. She reviews the products and posts testimonials of her trials and videos on her social media. She is also a blogger and has her website. Customers visiting the advertiser’s website from her website can avail of a 5% discount on any product they purchase. By doing so, she ensures sales commission on products reviewed by her.

Example #2

Forbes recently published an article about the fraudulent means occurring in affiliate marketing. The most popular incidents include fake traffic and cookie stuffing. The formal implies affiliates using botnets or human click farms to drive traffic to the advertiser’s website. This usually happens with pay-per-click and pay-per-impression models. 

Cookie stuffing or cookie dropping is an affiliate advertising technique where the affiliate drops a third-party cookie on the visitor’s browser and collects a commission on any sales generated in the browser for which the affiliate isn’t even responsible. It is similar to adware and spyware.

The net value of affiliate fraud in 2020 was $1.4 billion. It formed 10% of the then revenue. But with affiliate advertising gaining prominence, the revenue and the loss from fraud are expected to rise. As a result, the estimated loss by 2030 is around $5 billion to $10 billion.

Pros & Cons

Affiliate marketing is a tool that plays a significant role in the digital era. So let’s look at its merits and demerits.

#1 – Pros

Affiliate marketing is beneficial to both the firm and the affiliate.

  • For the company, it is a cost-effective arrangement, as it needs to pay only for the leads generated. Thus, unlike traditional advertising, the message doesn’t get scattered and is intended only for the target audience
  • Another merit for the firm is that the affiliate bears the cost of advertising, and the firm only needs to pay the commission.
  • Also, the firm can retarget customers efficiently. For example, it has to track the customers who dropped out of shopping for a particular product and attract them again with offers or discounts. As a result, it helps businesses account for lost sales.
  • For the affiliate, it is a source of additional income. However, advertisements are the main source of income for those websites that offer free content.
  • The affiliate can also make effective use of their website space along with their content.

#2 – Cons

Though the pros are more likely to outweigh the cons of affiliate advertising, it is important to be aware of the downside of such an arrangement to avoid any issues.

  • Certain affiliates install spyware or adware into ads or links. Such parties with ulterior motives defraud customers, tarnishing the advertiser’s reputation. 
  • Customers might also feel annoyed with the repetitive advertisements from a particular company. This negative feeling might increase when retargeted for a certain product. It makes them feel insecure and concerned about their data and privacy.
  • Customers should exercise caution while interacting with online ads. Not all ads are testimonials; hence they should be aware of the potential negative effects.
  • For the companies, though, monitoring affiliates is important, as certain websites might defraud customers by misusing the firm’s information or directing fake traffic to their websites.

Affiliate Marketing vs Dropshipping vs Network Marketing

  • Affiliate and network marketing, as the name suggests, are both marketing strategies. But dropshipping is an entirely different concept. 
  • Dropshipping refers to the supply chain strategy where a business delivers the product directly to the customer from the supplier. The business follows a zero-inventory policy that enables it to cut down on holding costs and warehousing. 
  • On the other hand, network marketing is a business model in which different tiers of people earn their income through commissions generated from sales. 
  • Affiliate advertising is an important concept and is almost seen on every website and internet platform. But network marketing is followed by certain companies and is more prone to scams.

Frequently Asked Questions (FAQs)

1. How to do affiliate marketing on Amazon?

Amazon affiliate marketing is an example of one of the largest worldwide. To become an Amazon affiliate, publishers can visit the official site and sign up. Then, using customized tools by Amazon, affiliates can recommend or publish ads on their site, earning up to 10% in fees.

2. Is affiliate marketing worth it?

Yes. Affiliate marketing can be worth it for publishers who provide quality content for free and thus have a reasonable amount of website traffic. However, affiliates should make some effort to ensure that no fraudulent activities occur and that their visitors feel secure on their site.

3. Is affiliate marketing legit?

Yes. Affiliate advertising is a legitimate way to make money and promote products online. It is legal and authentic, provided the affiliates do not resort to fraud and data theft.

4. How to do affiliate marketing on Instagram?

Affiliates can review or recommend products to their followers and other Instagram users. In addition, they can add a link to the product and earn a commission.

This has been a guide to what is Affiliate Marketing. We explain its types, examples, pros & cons, & compare it with dropshipping & network marketing. You can learn more about it from the following articles –

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