EricEwe.com

I was helping a company do a competitive analysis on a pro bono basis, and I came up with a short page for “intro to affiliate marketing”. I thought that I will post it here to give merchants (advertisers) an idea of affiliate marketing and an illustration of affiliate marketing.

AFFILIATE MARKETING DEFINITION
Affiliate marketing is an advertising channel in which advertisers (merchants) pay publishers (affiliates) only for results, such as a visitor making a purchase or filling out a form, rather than paying simply to reach a particular audience. This “pay-for-performance” model is in essence the modern version of the “finders’-fee” model, where individuals who introduce new clients to a business are compensated. The difference in the case of affiliate marketing is that advertisers only pay their publishers when the new client introduction results in a sale or a lead, making it a low-risk, high-reward environment for both parties. (Source: CJ)

MODELS
The two most common models are:
- CPA (Cost per action) – Commission paid based off the % of a sale, it is sometimes called “Revenue Sharing”. A company utilizing this model usually carries products for sale. i.e. Wal-Mart, Target, Buy.com which might pay 3% on the total sale.
- CPL (Cost per lead) – Fixed commission paid on each completed registration.
A lead generation model program might include companies that offer services like Match.com, LendingTree.com, DentalPlans.com which might pay $15 per registration.

MERCHANTS
Merchants are basically advertisers. They are looking to drive traffic to their website by working with affiliates. Merchants would push out banners, text links, dynamic rich media, RSS, email templates, etc to assist affiliates with the necessary tools and content so that affiliates are able to drive traffic to the merchant’s website.

AFFILIATES
Affiliates are publishers that will take the banners/content of the merchants and publish it on their website or other channels with the goal to help the merchant generate a sale/lead, and in return make a commission.

NETWORKS
It is basically the market place where the advertisers and publishers are able to meet and conduct business. It is like an eBay for advertisers and publishers where advertisers are able to push out offers, find new potential publishers while publishers are able to login, look for appealing offers, check their commission and communicate with advertisers.

TRADITIONAL MARKETING vs AFFILIATE MARKETING
In a “Traditional marketing”, merchants would broadcast their marketing message to consumers utilizing some of the online marketing vehicles. With this method, it can get relatively expensive to reach a particular audience and there is no assurance of ROI.
See illustration below for traditional marketing.

1. Merchants

2. Broadcast

3. Audience / Consumers

In “Affiliate Marketing”, merchants are able to partner with affiliate and broadcast their marketing message to a particular audience. At the same time, the affiliates are bearing the cost to reach out to audience with the goal of making a commission. See illustration below for the affiliate marketing model.

1. Merchants

2. Affiliates

3. Broadcast

4. Audience / Consumers