Webster’s Dictionary defines affiliate marketing as… Instead of defining affiliate marketing lets go through some real-life examples, advantages, and disadvantages.
You’ve likely heard of Affiliate Marketing recently as it’s a digital channel that performs well in times of economic uncertainty and is cost effective. If you’re an ecommerce retailer or direct-to-consumer brand looking to acquire new customers and drive incremental online sales, Affiliate Marketing could be the way to go.
As an established brand or retailer, you may hit your ceiling in terms of overall online reach. If this is the case, think of Affiliate Marketing as a way to introduce your brands/products to online audiences that you’re unable to hit through internal, or other digital marketing channels. Your affiliate partners can be looked at as an extension of your internal workforce.
We’re experts in the Outdoor Industry so let’s use brands and affiliates (referred to as publishers) in this space to run through an example. Outdoor Brand X sells technical apparel and camping equipment. They’ve done a great job targeting this audience but know they’re only hitting 50% of the total camping audience online through internal efforts. By partnering with Publisher A they know they can introduce their brand to thousands more potential buyers that have never heard of Outdoor Brand X. Publisher A would love to introduce Outdoor Brand X to their audience through editorial content (think product review.) For every sale that Publisher A refers to Outdoor Brand X they’ll earn a commission on the total order value. Now that you understand the general concept of affiliate marketing, think of how you can scale this with thousands of publishers and a variety of strategies.
Advantages of Affiliate Marketing
- Cost Effective – Traditional affiliate programs use CPA (cost per action) model, also referred to as a revenue share model. An action is typically a sale or lead. Brands/retailers will only pay when an action occurs, rather than models like CPC where you’re paying for every click. Most affiliate programs we manage pay a commission on the total order value.
- SEO – If publishers are writing quality content about your products, it stands to reason these editorials will rank organically with traffic ultimately landing on your website.
- FREE Branding – Banners are a tool often used by affiliate marketers. If an affiliate adds your banner to their website, you’re getting free branding. Remember, you’re only paying if a sale occurs. With Display Advertising you’re paying on a CPM model (cost per 1,000 impressions.)
- Performance in a Down Economy – The top performing (traffic, sales, conversion rates) affiliate business models are Coupons and Loyalty. When money is tight, online customers scour the web looking for the best deals on your products. Coupon and Loyalty websites convert sales when the customer may need an extra nudge to make a purchasing decision. These sites get a lot of extra exposure when the economy struggles as news broadcasts and major publications are reporting on ways for consumers to save money.
Disadvantages of Affiliate Marketing
- Ramp Up Time – Affiliate Marketing is not a plug-n-play solution. Large and mid-size brands can expect ramp up times of 3-6 months, while small brands should expect 6-12 months.
- Management – Affiliate marketing is one of the most complicated digital channels to manage with too many moving parts to count. This is not a DYI project for your marketing intern. In fact, failure to invest in experience is one of our 5 Reasons Affiliate Programs Fail.
- Initial Return On Ad Spend – Most businesses exist to make money, so when faced with the proposition of losing money while the affiliate program ramps up is a tough pill to swallow. Thankfully, once an affiliate program matures, business owners can expect return on ad spend rates from $4 to $10 or more.
If you still have questions about defining affiliate marketing please do not hesitate to reach out through our contact us form.