What is affiliate marketing?
This term refers to the promotion by an individual or a company (also called. affiliate) of the products and/or the services of another person or company (known as a vendor or merchant), generally through an affiliate network using an affiliate link, to earn a cut of the sales price (or commission).
With the progress of the digital age, affiliate marketing has become a more utilised strategy in everyday marketing. It is also a very effective digital marketing technique that can bring benefits to all the parties involved.
For affiliate marketers, it is one of the most popular schemes for monetizing their web content.
According to Awin, because of its performance-based nature (where you pay commission only for sales made) and its positive return on investment, 81 per cent of brands have adopted an affiliate marketing strategy.
Concerning consumers, affiliate marketing enables them to get products they wouldn’t normally find at their local store. They can also shop from multiple sources and compare prices.
As you can see, affiliate marketing is a win-win situation for all the parties involved, which is why it is one of the most popular forms of online advertising.
But as with any marketing channel, there are advantages and disadvantages of using affiliate marketing.
In this article, we’ll list ways in which it can benefit or potentially harm the parties.
Parties involved in affiliate marketing
Many people often only talk about 3 parties in affiliate marketing: the merchant, the publisher, and the customer as shown in the image below:
(Image source: CJ)
Other sources, including Wikipedia, claim that 4 core players are involved in the industry.
They are, the:
- network (that contains offers for the affiliate to choose from and also takes care of the payments)
- merchant (also known as ‘advertiser’ or ‘retailer‘ or ‘brand‘)
- publisher (also known as ‘the affiliate’)
Let’s look at them briefly.
The network, also designated as the program or the platform, makes the goods or services of several merchants available to affiliates. They enable the merchant and the affiliate to handle referral link clicks, purchases, and payouts.
The network tracks the clicks the affiliate’s customers make, as well as the affiliate’s sales. They also calculates payments due the affiliate from the merchant.
Not all affiliate programs use the same methods to pay out. Therefore before joining any, make sure that the payment methods used are available in your country.
The merchant (a.k.a. the seller, the product creator, the business, the vendor, the brand, the advertiser, or the retailer) creates a product or a service that they offer through their own affiliate program or an affiliate network to be promoted by an affiliate.
The product can be a physical one such as video cameras, bicycles, etc. Or it can be a service, like plugins, eBooks, video games, etc.
The merchant provides affiliates the strategies to promote their offers, including email swipes, banners, blog posts, help & support, training, etc.
The affiliate, also known as the website publisher/owner, can also be an individual or a company that implements promotional strategies to sell the network’s/program’s products and/or services for a commission.
They may use strategies like creating marketing campaigns with ads, links and banners, etc. to reach the consumer.
Successful affiliates market to a very specific audience, meaning that the promotion is done within a defined niche or personal brand.
This way, the affiliate attracts people already stoked about an offer and thus most likely to act on it.
The consumer, also named the buyer or the purchaser, is the one who patronizes the merchant’s goods and/or services marketed by the affiliate. They use channels such as social networks, digital billboards or by content marketing on a blog.
That said, let’s go to the crux of the matter.
What Are Advantages and Disadvantages of Affiliate Marketing?
If you’re like most people, when going into affiliate marketing, you only considered its advantages (for affiliates). However what you should have minded too are the disadvantages for all parties since they allow you to be aware of the pitfalls in this marketing model.
Advantages of affiliate marketing
According to Statistica, affiliate marketing spending in the U.S alone is expected to hit $8.2 billion by 2022.
That’s quite a juicy amount that attracts networks, merchants, and affiliates to affiliate marketing. So, let’s look at some of the benefits, first, for the network, then the merchant, next the affiliate, and finally the consumer.
For affiliate networks / marketing programs
N.B.: Note that we will be using affiliate networks and affiliate marketing programs to refer to the same thing.
1. Easy to start and manage
All you have to do is set up your affiliate network and look for merchants to join it.
Merchants have to pay only a small monthly fee to join your network. Then you allow them access to publishers looking for a new source of income.
2. Low start-up cost
You don’t need to create your own products to start an affiliate marketing network. Your initial work consists in setting up the network and then selecting and vetting merchants and then affiliates.
You do not need to have an advertising team for ad visuals or even purchase ad space. Your merchants and affiliates could come up with their marketing content, and largely you can let them get on with marketing the products and/or services.
3. Low ongoing costs
As most of your marketing activities are done by your merchants and affiliates, they themselves support most of the related costs. And, you only pay your affiliates when sales are generated, since this is a commission-based program.
4. Low risk
The risk of losing on non-performing advertisements is low since it is the merchants and the affiliates that initiate and pay for them. Businesswise, you make payments when and only when there’s an actual conversion.
5. You bother little or not much with execution stages
Affiliates can pretty much take care of the execution stages. So this gives you little to no bother with this process.