Affiliate marketing is an online marketing method used by companies to advertise products and services. The company (or “merchant”) teams up with a collaboration partner (or “affiliate”), who places links (in the form of banner displays, pop-ups, or text links) on the affiliate’s website, blog or social media profile, in order to reach the merchant’s target group. In return, the affiliate receives a commission that can be calculated based on a range of cost-per-action models.
How is affiliate marketing structured?
As a performance-oriented marketing tactic, affiliate marketing normally has four strands:
#1 Affiliate partner/publisher: Promotion for commission
Both individuals and companies can act as publishers and make their websites available, usually to promote a specific product. This product can be promoted via social media posts, videos, or blog entries, for example, by inserting an affiliate link that takes users to the online store or the merchant’s product page. If a user clicks on the affiliate link and it results in a transaction (such as a lead or a product purchase), then the affiliate partner is compensated. This involves relatively little effort: after targeting the content and inserting the link, the publisher can generate commissions for as long as the link is valid and users click on it.
#2 Merchant/provider: Attract more attention to your own product
Providers and merchants tend to be product manufacturers who want to expand their reach and grow their sales figures. To accomplish this, the publisher’s website should ideally have a high degree of recognition and visibility, plus the product should preferably be aligned with the interests of the publisher’s target group. If you want to market your new sneakers, it doesn’t really make sense to approach publishers with accounts or websites that only deal with political affairs. The advertising strategy will only benefit the affiliate and merchant if users have a clear interest in the product.
The advantage of affiliate marketing for merchants is that they can get effective advertising in return for a manageable effort and moderate budget. In addition, this set-up usually only generates payment for the affiliate partner if a user makes a predefined transaction.
#3 Affiliate networks: Where merchants and publishers interact
Affiliate networks act as intermediaries between merchants and affiliate partners. These platforms provide both parties with the required technological infrastructure, facilitate contact between merchants and affiliates, monitor all interaction between the two parties, and thus safeguard them against potential fraud.
Although using partner programs is not essential for affiliate marketing, affiliate networks can be very useful if retailers work with several affiliates, and can offer helpful support with tracking, calculating, and making payments.
However, affiliate marketing trends indicate that more and more retailers are interested in developing their own private network of publishers and cutting out the large affiliate networks as intermediaries. The advantages of this are: The most frequently incurred fees no longer apply and the retailer has sole access to the partner pool.
#4 Conversion: Turning your website visitors into customers
If affiliates offer content and a corresponding affiliate link then, ideally, visitors to the website will click on that link to access the featured product. If this leads to a relevant transaction – such as purchasing the product – the user then becomes one of the retailer’s customers. Affiliate marketing has neither advantages nor disadvantages for customers.
Potential advertisements in affiliate marketing
If merchants want to make forms of advertising available to their affiliate partners, they can choose from a range of options. The most common forms include:
- Display ads/banners: Affiliates add linked advertising space to their website. The format, design, and message of the banner should be tailored to the product in question, and of course to the target group as well. If users click on the banner, they are taken to the provider’s product. Banners are frequently positioned at the edges of website pages or incorporated within a block of text.
- Pop-ups: This type of advertising space is also positioned on the website, but opens in a separate window and covers part of the website. Users normally have to click on pop-ups to close them so that they can see the full website content again.
- Text links: These links connect two different websites or files and generally take users to a landing page.
- Video ads: As well as conveying complex content in a way that is easy to understand, video advertising also acts as a visual stimulus and attracts more attention.
- Mobile ads: In addition to traditional banner ads, mobile devices allow video and audio ads to display personalized local ads if the user’s location can be determined, for example.
Billing models for affiliate marketing
Depending on the agreement between the merchant and affiliate, a range of standard cost reporting models are used in affiliate marketing. The most common ones include:
- Cost per click (CPC): Advertisers pay affiliates a specific commission if users click on the relevant banner or link and end up at the retailer’s website.
- Cost per lead (CPL): With this model, affiliate partners are paid for each lead that is generated. Rather than simply being taken to the retailer’s website, users must fill out a contact form there, for example, or subscribe to the newsletter before the affiliates are paid the agreed-on fee.
- Cost per sale (CPS): With this variant, affiliate partners only receive a payment if a user actually buys a product and the merchant makes a sale.