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What are the advantages and disadvantages of affiliate marketing for the merchant?

Marketing strategy for affiliate marketing
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What is affiliate marketing?

The term affiliate marketing 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).

A performance-based marketing system, you pay only for sales the affiliate brings. When they put in little work and resources, you pay them little or next to nothing. When they invest a lot of work and resources in it, you pay them accordingly. And you still win, since you also get more.

Parties involved in affiliate marketing

The definition above makes you see that there are 3 parties in affiliate marketing: the merchant, the publisher, and the customer as shown in the image below:

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(Image source: CJ)

Other sources, including Wikipedia, claim that 4 core players are involved in the industry.

They are, the:

The Merchant

The merchant is the one who concerns us here, so let’s look at them briefly.

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.

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 products are promoted by an affiliate whom the merchant provides the strategies, including email swipes, banners, blog posts, help & support, training, etc. Hence, the advertiser distributes a part of their earnings to affiliates and affiliate networks.

That said, let’s go to the crux of the matter.

What Are Advantages and Disadvantages of Affiliate Marketing?

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If you’re like many, you probably only considered the advantages of affiliate marketing for merchants when getting into it. However what you should have minded most are the disadvantages since they allow you to be aware of the pitfalls awaiting you.

Since the former are what generally interest people, let’s first look at the advantages of going into affiliate marketing.

Advantages of affiliate marketing

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That’s quite a juicy amount part of which you can’t afford to let it go by. But reign in your anxiousness to begin for a while, and let’s look at more benefits of using affiliate marketers in your business.

1. Easy to start and manage

Affiliate marketing is easy for you to start and manage. Despite that, it’s a good idea to join an affiliate network before launching your own.

Here are some of the benefits of beginning with an affiliate network:

  • Access to affiliate tracking technologies
  • Access to audience data
  • Access to verified marketers and publishers
  • Data dashboard for campaign optimization
  • Doesn’t require additional resources
  • Ease of starting and managing campaigns, including payouts and commissions.
  • Expertise
  • More comfortable to control multiple affiliates at a time
  • Precise analytics to track the success of campaigns
  • Security (Fraud detection, Compliances)
  • Minimal investment to start

Affiliate program solutions can come straight off of the shelf. All you have to pay many companies to join their network is a small monthly fee. Then they grant you instant access to a variety of publishers looking for another source of income.

It could happen that joining a network may not be suitable for your business. Then you can manage it on your own using many available tools.

But in case you’re hooked, here are some of the best affiliate networks to choose:

Research each of them to find the one that best aligns with your business goals of sales, brand awareness, leads, etc.

Bar graph in red with climbing arrow on top with a sac with dollatr signs to show scale your business
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2. You easily scale your business

Joining an affiliate program can help you grow your customer base, boost revenue, and make constant improvements to keep up with shifting consumer preferences and help you stand out from the competition.

You can use that additional revenue and cash flow brought in by your new revenue stream through referral commissions to grow your business.

In that wise, you could create new products for sale, purchase new tools to improve your business processes, or build software that will enhance how you connect with your customers.

These improvements help you better satisfy your customers and grow your business.

3. You connect with like-minded businesses

An affiliate network contains a host of businesses. So, joining one gives you the opportunity to connect with other like-minded business owners. These valuable professional contacts of a community of businesses keen on helping each other increase their customer base and boost revenue, can help you reach your business goals faster, attract more customers, and make higher profit margins.

4. You gain free ad space and only pay on results

Red hologram letters reading FREE
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As it is affiliates who promote your products, you get free ad space; you pay only for proven results (Pay Per Sale, Pay Per Click, Pay Per Lead).

5. You gain broader brand exposure and better recognition

Many advertisers promote your product, making your ad to appear on their pages. Thus, you reach a vast audience. This gives your brand more visibility and recognition, increasing your reach and visibility on the Search Engine Results Pages.

6. Consumers provide you trends and demands

Consumers from the affiliate’s site can provide you important information about the latest trends and demands.

7. Motivated, creative affiliates to sell your products and/or services worldwide

People you recruit as affiliates are either looking to leave their 9-5 or are desirous to embrace a system that can help change the direction of their lives.

They know they’re not your employee where a system has been set up for them to follow. This means that they must be inventive and imaginative since their success depends solely on themselves.

By trying different ways to promote and sell, they move your products.

Besides, affiliate marketing theoretically is a business which can be done anywhere there is an internet network. Since this is available almost everywhere in the world, coupled with social media which have enlarged markets to the whole world, your products reach almost everywhere there are consumers for your products.

8. Bigger market to sell your products and services, bringing you more customers and more sales

Five silhouetted figures standing before map of world to show bigger market
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Two heads being better than one, (and several heads certainly being the best), affiliates, being present everywhere, help reach consumers that you alone couldn’t have even thought of.

And of course, the wider the promotional net cast by the affiliate, the more customers they reach and the more sales they can generate for you.

9. Little to no cost to acquire more customers

Many commission models are used in affiliate marketing. The one most commonly used is where you only pay the affiliate for leads they generate which sales.

To gain that income, the affiliate uses their time and money in the effort to reach people who may be interested in your products. This brings you buyers practically with arms crossed. Besides, you’re spending money on guaranteed results

10. You get a profitable sales channel

Conversion funnel showing Attention, Interest, Desire, and Action
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Affiliate marketing might become your most important sales channel that can grow sales and brand awareness over time.

You can use it to scale your business without having to access large advertising budgets. Just one successful affiliate can bring you much more traffic, leads, and sales than a traditional marketing campaign or even a highly effective online advertising campaign.

Affiliate marketing works for you 24/7, making you money round the clock. This is something a sales team can’t do. Yet passive sales funnel is what you need to expand and scale faster. Especially if the affiliate campaign has been properly built with great products and services and enticing opportunities for marketers.

Payment for affiliates being based on results, the cost for their upkeep is far lower than for a sales teams.

You may even do without a sales team. But if you have one, affiliate marketing will enable it specialize. For example, affiliates would bring cold traffic or leads that your sales team can nurture further into customers. For example, the sales team will have to further nurture the affiliate’s cold traffic or leads into customers.

11. You sell a range of products

Long shelves in a department store showing range of products
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A product that can be sold through affiliate marketing has some of these characteristics:

  • Fits a niche
  • Shows growing trend
  • Is high end or has high margin
  • Is Online (or is distributed online)
  • It’s scalable
  • Shareability for virality
  • Social traction

Small percentages of commissions for affiliates might drive some of them away. But Amazon has shown that modest commission rates can still attract affiliates. All it needs is for you to enjoy the trust of customers.

While generally a product paying high affiliate commissions attracts more affiliates to you, if a product has the characteristics above, it can bring you affiliates too.

In general, a variety of products paying different percentages of commissions is viable for affiliate marketing.

12. Access to influencers and their networks

Influencer written horizontally on an iPhone agaisnt a black-white striped background
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There are influencers out there that can help you connect with their target audiences better than you yourself.

Reaching out to work with them gives you valuable customer data essential for effectively scaling your business.

In effect, the audiences of influencers might often bring new data that can widen your audience related opportunities.

This is because if the influencer’s audience performs well, the data will lead to better decisions about data-driven audiences.

13. Access to affiliate’s resources

A successful affiliate certainly has access to different sources of traffic within their networks, which they can utilize to effectively boost your product’s sales.

Since the affiliate has built up trust for a long time, their conversion rates are higher. Why not, when they are leveraging word of mouth advertising which is a powerful tool.

Some ways the affiliate can use in accomplishing their task are:

Let’s take the first point above, of an affiliate who has a substantial following on their niche blog. With the right incentives and the perfect products, you will find it easier to convert the traffic the affiliate sends.

Gaining affiliate business from such a highly specialized and trusted source can increase your search engine visibility. This is because inbound links in SEO help you gain more visibility on search engines.

As conversions increase, your relations with the marketer grow as well, and you can expand the business.

On the contrary, building new funnels and trust with new customers only through online advertising will take you a lot more brand awareness to convert.

14. Affiliate marketing uses performance-based advertising

New York Times Square neon advertising
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Affiliate marketing is performance-based, so it produces results drastically differently from the other online advertising channels.

For instance, using affiliates to promote a business instead of buying ads increases visibility and sales for you without your spending any further on an advertising budget.

This doesn’t be understood that you shouldn’t use paid ads. They will complement the affiliate’s efforts for your benefit.

15. Affiliate marketing increases your competitiveness

Affiliate marketing can help quickly grow your competitiveness, and more so as the business model keeps growing.

As I said at the beginning, Statistica reveals that affiliate marketing spending in the U.S alone could reach $8.2 billion by 2022.

It’s therefore not a model to be neglected or ignored.

To begin using it, you must understand how your industry works and who the most important influencers in it are, and know how to make deals with them.

No doubt about it, it will take you time to build great relationships with influencers as well as word-of-mouth about your brand to affiliates to enable you come up with your own affiliate program.

Last but not least: when affiliates promote your business, whether they convert or not, they bring huge positive effects on your brand awareness. For, the more a potential customer can see and engage with your company, the more likely it increases sales because of enhanced attribution.

16. You learn from your affiliates

LEARN written on separate wooden cubes
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You should always try to learn from your affiliates’ audience data.

If you have a lot of affiliate marketers, their skillsets will range from that of complete beginners to professional marketers; you may even have large companies that have killer strategies and massive audiences.

If you find any of their marketing strategies useful, you can copy or adapt them for your own affiliate marketing.

For instance, if your affiliate’s style of communicating with their audience produces results, you can learn from it to improve your messaging to target your core audiences better.

Learning from the best of your affiliates will enable you to import that knowledge into your company’s workflows. By expanding your affiliate marketing campaigns through the introduction of newly acquired methods, you increase your promotional power and help your affiliates succeed.

You can also use these methods and data to improve your products and services and especially improve your other customer acquisition channels.

All of these help your affiliates succeed.

The more you help your affiliates succeed, the more they will bring you amazing results.

17. Reach new loyal customers

Hand holding paper with bust and under it, the word, customer
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Your affiliates will promote your products and/or services to their followers that you can potentially easily turn into a customer. With trust, you can make them into repeat customers.

18. Improves your SEO ranking

The sum of the traffic that affiliates are driving to your website makes Google see it as a trustworthy site. This helps to improve your SEO ranking.

19. No commission owed for repeat customers

Any repeat online business you make through the affiliate will not be owed as commission to the affiliate. So, in a sense, this becomes like passive income for you!

20. You use a flexible commission model

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If you’re using affiliate links to simply increase your brand exposure, you can pay your affiliates a commission per impression.

21. You have fixed costs

Network fees and affiliate rewards are generally fixed and you can easily add them to the price of your product.

22. Affiliates attract leads for you

Affiliate marketing is a simple and cheap way for content writers with successful blogs and social media users having large follower to generate income.

You just have to give a publisher a tracking link and add some branded graphics and email templates to help them attract leads for you.

23. Affiliate’s targeted prospects are potential customers

Buyer persona business
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As affiliates promote your products and/or services everywhere, there will be a lot of people clicking on the ad.

However, even if they don’t continue to your website to make the purchase, they’ll still enter your sales funnel.

Given that affiliates choose only relevant ads and all the prospects that click on their links are interested in the offer one way or the other, they represent your targeted audience.

Despite all these advantages, the affiliate marketing field is also fraught with pitfalls. This is important to know, so let’s look at them.

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Disadvantages of affiliate marketing

There are two sides to a coin. You’ve seen the head, now let’s look at the tail.

You’ll face several inconveniences when you set up affiliate marketing program yourself or when you do it through other people’s networks.

Here below are several types of issues you need to take into account if you want this to be an effective and profitable way to market your business.

1. Can be costly and time-consuming to start your program

At the beginning of the benefits of the affiliate marketing system, we started with the idea that it is easy to start and manage.

That’s true.

But here we’re saying something else here. That may sound contradictory, but it’s not.

The problem is, if you’re a small business, it could be expensive to go into an affiliate marketing program. It could also take up a lot of your time.

Imagine that you’d have to make sure your attribution model works well, you must recruit and manage your affiliates, and you also have to spend the time to create reporting and metrics for monitoring the channel. You would also need to work out which of your affiliates are performing well, and which ones are not.

On the contrary, it may be easier to sign up to an established affiliate network, without forgetting that here you’d have to pay a monthly subscription fee.

2. Online advertising can be better than affiliate marketing

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While affiliate marketing can take time and might not bring you the desired results, online advertising however is fast and gives you more control.

For instance, if you use an online advertising like LinkedIn ads, you control the flow of traffic and the amount of brand awareness you want.

Of course, online advertising might cost you more than using affiliate marketing, the ability it gives you to increase awareness anytime is powerful.

No doubt, a great affiliate can make a huge difference in traffic, leads and revenues, but a not so great one, would be a drain on your company’s results. The key is to use both an affiliate program and advertising budgets and know when to increase or decrease investments to one or the other.

What is the advantage in using both systems?

A great affiliate will undoubtedly drive traffic and increase sales, but if you use powerful retargeting advertising campaigns, you will dramatically increase those results.

Besides, an affiliate deal will end one day. Raising brand awareness to the traffic the affiliate brings is essential to keep customers coming back.

In short, online advertising is better than affiliate marketing, but it’s never a good idea to rely only on one or a few sources of traffic. When it dries up, you’re left with nothing.

3. False advertising on the affiliate’s website can destroy your reputation

Man in predominantly brown image pointing upwards to words The mainstream propaganda mill
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With successive Google updates, it has become more and more difficult for affiliates to use blogging to drive traffic to their affiliate links. Also the competition in the affiliate marketing field has become fiercer and fiercer.

Therefore, more and more desperate affiliates are engaging in false and misleading advertising in order to get sales commissions.

This kind of scheme will reflect adversely on your brand.

4. You can suffer from false claims and promises

While many affiliates work in an ethical manner, some unscrupulous ones may make completely wrong or extremely exaggerated claims and promises about your product and services.

These cases will usually make you receive complaints and lose reputation and potential consumers.

5. Your brand could be at risk

RISK written on ludo cubes
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If you’re an affiliate program, it’s important to do your due diligence on an affiliate’s marketing activities before you partner with them.

If you’re offering your affiliate business through an affiliate network, although they have guidelines that publishers must comply with to join as an affiliate and can be punished for unethical advertising, you still must not leave things to chance.

This is to safeguard your brand, as there is always the risk that a negligent act by a publisher could affect your brand.

In effect, some affiliates may not treat your brand with the respect and care it deserves. In that sense, they may do things such as misrepresenting your offering that could damage your brand imagery.

Other unscrupulous affiliate marketing tactics that could cost you dearly are false advertising, spamming of email lists, and non-compliance with GDPR.

We’re not implying that affiliate marketers are bad nuts who love unethical acts. But some of them have short-term visions that can make them resort to dodgy methods. So you must take your obligation to protecting your brand equity seriously.

6. Must monitor the approved spaces

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If you’ve been working online for some time, you know that despite your best efforts, spam always gets through your spam guards.

The same is true with recruiting affiliates.

Because of the almost zero entry barrier to affiliate marketing, it attracts a lot of dreamers, especially people wanting to earn without having to spend much time and effort monitoring sales or client response.

Many of your affiliates may also not have either the skillset nor the capacity and desire to generate traffic and bring you leads and sales.

These people are certainly of little interest to the brand and if their activities are not checked, may destroy the brand image.

So you should know who you are dealing with.

In that sense:

  • do proper research by going to affiliate communities for information about your potential partners.
  • check their website to ensure there’s nothing suspicious on there
  • see that their content relates to your business
  • do they have a lot of followers on their social profiles compared to the number of engagements they get on their content? (It could indicate they have bought fake followers.)

Know that good relationships and getting the right partners can prove beneficial in the long run.

7. You can suffer from high commission costs

Vice held on purse
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Set up and maintenance of your affiliate marketing business can lead to more cash outflow due to affiliate facilitators/brokers.

8. Can be complicated for you or brands with little margin on the sale

If you offer products which don’t bring you a lot of margin, you may find yourself in cash flow problems.

Yet you need money to create more products, promote, and many more.

9. In some cases, you cannot control the impressions of the ad

This is because the impression of the ad depends on the affiliate and the traffic they may have.

10. Unlawful use of trade names, logos, or brands

A third party might include your brand in an advertising in an unintended manner and with innocuous effect.

But sometimes the use of your brand name and/or logo is deliberate as in the following cases:

  • · in an effort to take advantage of your brand’s reputation
  • · a competitor may use your brand name in comparative advertising or even in ambush marketing.
  • · influencers may tag brands they are not working with a view to increasing their own profile and following.

11. Unscrupulous affiliates can squat on your domain names with misspellings

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