If you are looking at the various ways in which you can promote your product or service online then, affiliate marketing is a term which you are very likely to come across. But many people are not fully aware of how this kind of marketing works. This post will help you to know and understand this concept better.
What is it?
It is basically a type of performance based marketing that rewards other companies for bringing customers via their marketing initiatives. This form of marketing is characterized by relationships and it primarily involves four parties:
- Merchant (the retailer or brand)
- Network (it offers a wide range of options from which the affiliate can select and also looks after the payment aspect)
- Affiliate (also known as the publisher)
- Customer
Over the years, its popularity has increased manifold and that has led to the development of a secondary tier of players like affiliate management agencies, specialized third party vendors and so on.
Affiliates employ common advertising methods and due to this reason this type of marketing often overlaps with other internet promotion techniques like organic search engine optimization, pay per click advertising, email marketing and many others to a great extent. It also uses other unconventional means like publishing reviews.
Affiliate and referral are two distinct forms of marketing that uses third parties to generate sales of the retailer and hence are commonly consumed. But there is a key difference between them which is, affiliate marketing is wholly dependant on financial incentives to push sales whereas referral marketing depends on mutual trust and personal connections to increase revenue.
How did it originate?
Four years after the emergence of the World Wide Web, in November 1994 revenue sharing principles were applied to mainstream e-commerce. The concept of marketing via affiliates was practiced and patented by William J. Tobin, who founded PC Flowers & Gifts. Thereafter there were many early innovators who developed this concept further. In July 1996, Amazon launched its associate program that gained immense popularity. Additionally, it also served as a model for the development of similar programs.
In the year 2006, adult, gambling, retail industries and file sharing services were the major sectors using this marketing channel. Mobile phone, finance and travel are the areas that are expected to register very high growth rates in this regard.
What are the various systems of compensation?
Revenue sharing or pay per sale and cost per action are the prevailing compensation methods used by present day affiliate programs. A limited number of such programs also use cost per click and cost per mille methods to calculate compensation.
What are the benefits?
Getting into an affiliate partnership offers many advantages to both the affiliate and the merchant. Some of the key merits are discussed below.
The value of partnerships and collaboration: An affiliate partnership offers a win-win situation for both the parties involved, that is, the affiliate and the merchant. The affiliates earn considerable sums of money from the merchants. The merchants on that other hand, gain immensely by getting increased website traffic and potential customers.
Relevant content: It involves smart marketing strategies that will enable you to reach out to the right demographic group. This enhances the revenue generating potential of your business.
Effective utilization of advertising resources: Since this type of marketing is performance based, you automatically land up spending less on advertisement. It greatly reduces the risk of incurring unnecessary expenses because you know exactly how much you are paying for an additional customer.
It can be easily tracked: Another crucial advantage is that, this form of marketing can be tracked very conveniently. Significant aspects like click-through rates, site views via affiliate web pages and so on can be viewed in such programs. Moreover, you can also assess the performances of the various affiliates.
Wide exposure: Reaching out to a large number of customers is the main objective of all marketing initiatives. With the help of affiliates, your product and service becomes visible to a vast number of people all across the globe. Having presence in suitable websites will assist you to increase the exposure of your business to a great extent. This will help you to establish a desirable image and brand name.
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