Affiliate Marketing is a program between a Merchant/Advertiser and the Affiliate. This sales concept is characterized with a success-based commission that is paid by the Merchant. The amount of the commission is agreed upon between the Merchant and his partner. The Affiliate is responsible for the Affiliate-Portal and runs the advertising space. Affiliate Marketing can be implemented online, but also offline.
Affiliate Marketing is a method of Online Marketing and how companies can advertise their products and services. Therefore, companies look for Affiliates - sales partners - that place advertisements on their own sites e.g. as links or banners. The advertisement is made by the Merchant, so the Affiliate is the advertising media. The partner gets paid in various ways which are explained in the cost-per-action model in the following text.
Affiliate programs can be created by the Merchant itself in co-operation with the chosen Affiliate. Alternatively, Affiliate networks offer a big range of Affiliates for the merchants for a fee. Such networks often support both partners also with the creation of the campaign and the payment of the commissions.
The Merchant, also called “seller” or “advertiser”, is one part of the two components of the partner program for Affiliate Marketing which is a co-operation of sales and network partners. This is the component that offers the partner program and the advertising material.
As an online trader the Merchant co-operates with a website provider, also called publisher or Affiliate which usually offers his website as an advertising media e.g. for banners.
So through this co-operation the Merchant knows that his product is presented to a wider range of potential customers, so in return the reach gets increased. To make the partnership as efficient as possible the Merchant should choose an advertising partner that has a high popularity. In addition, the interests of the target group should be similar to reach a high advertising effect. The Affiliate is a nice complement for the Merchant which is a sales partner of the campaign the Merchant will profit from, so he gets paid for the advertising space.
There are various models to cash up e.g. Pay Per Click, Pay Per Lead, Pay Per Sale, Pay Per Click Out, Pay Per Link, Pay Per Print out, Pay Per View, Pay Per SignUp, Pay Per Install, Lifetime payment or Airtime Payment. "Pay" is often replaced with "Cost". The most used models are:
With Cost per Click / Pay per Click the advertising customer doesn’t pay the Affiliate a flat rate, but a certain amount becomes due for the advertiser if a user clicks on the advertisement. So a payment only falls due if a user actually reacts to the advertisement by clicking on it which leads him to the website of the advertiser. So with this model the company only has to pay if the user really recognized the advertisement.
With this method the payment gets calculated with the Cost per Lead. Each Lead is a gained contact. This model is mainly used in fields where it is not common to directly sell something to anonymous customers e.g. insurance brokers. Leads can also be obtained via catalog requests or newsletter subscriptions.
The CPS model cashes up every time a customer purchases something via clicking the banner. With the Unique Identifiers (UID) the actions of a user can be identified so it can be assured that a purchase was directly made after clicking an advertisement. This system is also called cost per order (CPO), but this leads to a fee for every order. Other models that do not follow a cost per action, are e.g. cost per thousand/mille (CPT/CPM) or cost per impression (CPI).
Affiliate Marketing derives advantages for both sides. The advertising company can get cheap client acquisition and reach an increase in the recognition, because with the Affiliate system the partner can develop sales. If it’s used correctly and the Affiliate is selected reasonable the web presence can generate significant sales. In order to use Affiliate Marketing effectively, patience, planning and inventiveness are required, because the better the advertisement place is, the more the clicks can be generated.
Affiliate Marketing can also be useful for blogs, e.g. if favorable arbitrage transactions are used to generate traffic.