Affiliate Marketing – How Does It Work?
Affiliate Marketing
Affiliate marketing creates a connection between two actors – 1) the Merchant (aka the advertiser, or partner), and 2) the Affiliate (aka the publisher). If we consider the Affiliate Program as a whole, we must include a third actor, the Customer, as well.
The Merchant gives the product for sale, and the Affiliate works to sell that product for the merchant and/or drive traffic to the merchant’s website. In return, the Merchant pays the Affiliate a commission for sales and/or established actions.
Commission Arrangements
Payment arrangements are typically performance-based (shifts some of the Merchant’s risk to the Affiliate) and arrangements are often structured as Pay Per Click (PPC), Pay Per Sale (PPS) and Pay Per Lead (PPL) – or some blend.
Affiliate Program Classes
If we separate affiliate marketing in terms of depth, we have three clear classifications: 1) single-tier, 2) two-tier and 3) multi-tier programs.
Single-Tier Affiliate Programs
In a single-tier affiliate program, the Affiliates get the commission, only for sending visitors or sales to the merchant’s website. Pay/performance and pay/click are included in this category.
Two-Tier Affiliate Marketing Program
In Two-Tier Affiliate Program, the Affiliate gets a commission for every action performed by his direct referrals, plus he gets paid additional commission when one of those people he’s personally referred gets paid. Thus, there are two levels to his commission plan and the Affiliate earns both directly and indirectly.
Multi-Tier Affiliate Program
The multi-tier marketing is very similar to Two-Tier Marketing, but here, the Affiliates get the commission for the sales made by their affiliated affiliates in multiple, unlimited, levels.
Residual Income Marketing
In Residual Income Marketing, the Affiliate marketer is rewarded for every sale that is made by a person referred by him.
In this type of marketing, Affiliates get paid for every sale that his referral makes on the Merchant’s site. The only requirement is that on the first time visit, the visitor must come from the Affiliate’s authorized affiliate link. Then, whenever the same person visits the Merchant website (even without using the affiliate link), the Affiliate will get paid for every sale made by the visitor.
Cookies make this strategy work. A “cookie” is placed on the first-time visitor’s computer. This cookie stores the affiliate id of the Affiliate. Cookies usually expire after 3 months; however, some may persist beyond three months.
Whenever a visitor visits the Merchant website, the visitor’s computer is checked for any previously created cookie. If a cookie is found, the affiliate id is retrieved from it and the Affiliate gets credited for any purchase made by the visitor.
Win-Win-Win
Once the affiliate marketing relationship is well-planned and well-executed, everyone wins:
- The Merchant gets increased visibility and market penetration, finding customers that would otherwise be outside the Merchant’s market reach.
- The Affiliate earns a commission for online sales, without needing to establish a full e-commerce site or having to manage inventories and fulfil orders.
- The Customer learns about, and can readily access desireable and useful products that s/he would otherwise not find – at least not easily.
Effective affiliate programs are Win-Win-Win situations.
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