Affiliates present a double sided coin for business.
Sometimes called ‘the ultimate form of marketing’, affiliate marketing is a commission-based deal between a merchant and a seller. Think of it as pay-per-performance marketing. Internet based affiliate schemes have grown rapidly in recent years mainly in higher priced consumer products, including financial services and package holidays.
Internet based affiliate schemes have grown rapidly in recent years mainly in higher priced consumer products
However, although internet selling offers huge opportunities to brands, there are always caveats to embracing any new online marketing tool. So what are the main benefits and challenges posed by today’s affiliate marketing environment?
The basics
The affiliate model, as shown by the diagram, is based around four players: the merchant, the publisher (website), the affiliate network and the customer.
So for instance, a company offering Italian villa hire could have an affiliate deal with a well known affiliate network such as Commission Junction (www.cj.com), who can place and track Villa adverts and details on leading Italy travel sites. If someone looking to hire an Italian Villa booked a holiday through the affiliated travel site then the company would pay the affiliate company a percentage – typically around 10% of the sale value.
Affiliate marketing is now big business. The latest figures by marketing Sherpa suggest that over £5bn in commission fees are generated each year through affiliate marketing arrangements.
The benefits
The advantages of affiliate selling are closely rated to search engine marketing (which raise visibility in the search engines for your products or services) and include:
- Target niche sectors online including travel, finance, education, health and gaming.
- Reach customers through generic phrases (eg. ‘Italy holidays’) at a much lower cost that trying to gain visible interest exposure yourself.
- Vastly improve your brand reach by displaying your brand adverts on third-party sites.
- Return on Investment – Affiliate schemes are easy to track and measure as it’s a pay per performance model.
- Rapidly improve brand awareness, particular for business new to online selling.
The down side
Marketing and selling on the internet is not easy, despite the puffed–up claims of certain unethical marketers. The affiliate market is characterised by extreme competition as new entrants embrace the online pay per performance model. The main disadvantages of affiliate marketing include:
Management fee: Fees charged by the affiliate network ‘middle men’ vary but can be as much as 30% of the sale. That’s fine if you still have a good margin, but may leave little room for profit.
Limited Effect: There’s a big debate among internet marketers around the real benefits to affiliates. Some marketers avoid or stop using internet marketing because they fear it has a limited actual impact on sales.
The electronic retailer Dabs.com stopped their affiliate scheme because they feared affiliates were gaining too high a percentage of their sales. In 2007, Nick Robertson CEO of ASOS the online clothing retailer famously described affiliates as “grubby little people in grubby little studios.” Ouch!
