Affiliate Marketing – Definition

Cite this article as:"Affiliate Marketing – Definition," in The Business Professor, updated April 8, 2019, last accessed July 3, 2020, https://thebusinessprofessor.com/lesson/affiliate-marketing-definition/.

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Affiliate Marketing Definition

Affiliate marketing is one of the major components of online marketing. The retailers seeking a way to sell their products and services often create advertisements that are then listed with an affiliate marketing firm. For each click the advertisement receives from a prospective client, the advertiser pays the marketing firm a specified amount. To increase the earnings, the marketing firm tends to promote the advertisements on the popular websites where the advertisement are posted for a large base of viewers. Eventually, the marketing firm and the website share a pre-agreed percentage of the revenue the advertiser pays.

A Little More on What is Affiliate Marketing

Benefits of affiliate marketing:

  1. Affiliate marketing benefits all. The retailers get wider market reach, marketing firm gets commission while the website also gets its share from the affiliate marketer.
  2. It is not essential to pay for the customer service during the campaign.
  3. There is least risk since company enjoys an expansion in terms of market and sales, without any risk of investment damages.
  4. Affiliate marketing results in higher customer satisfaction, which leads to more products referrals and increasing affiliate confidence.

The downsides of the Affiliate Marketing are:

  1. The company and its products need enough promotion.
  2. Since there is an intermediary involved in the shape of an affiliate firm, strong relationships between the advertisers and the websites might be difficult to achieve.
  3. Affiliate marketing is mainly suitable for short term campaigns and outcomes only.

How commission works in affiliate marketing?

There are various approaches for setting  commission structure in affiliate marketing; some are:

  1. CPV (Cost per sale) or cost per acquisition (CPA): In this approach, commision is given based on the number of sales generated from the affiliate’s website banner or ad.
  2. Cost per lead (CPL): The commission is based on the achievement of potential customer via newsletter or similar channels.
  3. Cost per thousand impressions (CPM): In this approach, the commission is charged on per thousand readers who have gone through the ad.
  4. Cost per click (CPC): The commission depends on the visits and the clicks the ad receives.

References for Affiliate Marketing

The Academic Research for Affiliate Marketing

Affiliate marketing and its impact on e-commerce, Duffy, D. L. (2005). Journal of Consumer Marketing, 22(3), 161-163. –The relationship between ecommerce and affiliate marketing  The affiliate marketing has a positive impact both on the advertisers and affiliates. The affiliate marketing is going to be a vital element for many ecommerce businesses’ marketing plan in future.

Assessing the value of online affiliate marketing in the UK financial services industry, Brear, D., & Barnes, S. (2008). International Journal of Electronic Finance, 2(1), 1-17.

Setting referral fees in affiliate marketing, Libai, B., Biyalogorsky, E., & Gerstner, E. (2003). Journal of Service Research, 5(4), 303-315. Setting a referral fees in affiliate marketing is important. Websites generate revenues from the affiliates in the shape of referral fee. PPL works best when both the advertiser and affiliate are on one ground for terms and conditions. PPC, being based on making sub-optimal fees for the advertisers, is not suitable for affiliate marketing. In terms of profitability, PPC is better than PPL since PPL mostly works well when the merchant has a huge pool of affiliates and websites within the same geographical boundaries and conditions since it is prone to fake referrals that can never result into leads.

How to acquire customers on the web, Hoffman, D. L., & Novak, T. P. (2000). Harvard business review, 78(3), 179-188.

Affiliate marketing in Tourism: Determinants of Consumer trust, Gregori, N., Daniele, R., & Altinay, L. (2014). Journal of Travel Research, 53(2), 196-210.

Multi-channel marketing in the retail environment, Duffy, D. L. (2004). Journal of Consumer Marketing, 21(5), 356-359. Cultivating the customers on your website is tricky. Retail sectors employs multi-channel marketing, consisting of marketing activities for shops such as online marketing and catalogs.It makes an important element of an online marketing that becomes more accurate, sophisticated and measurable with the passage of time and exertion of efforts. The case study highlights the multi-channel marketing strategy of REI, an surveyor of specialty outdoor gear and apparel, established 66 years ago, aside from explaining the key components and the way they worked together.

Governance mechanisms in Internet-based affiliate marketing programs in Spain, Fox, P. B., & Wareham, J. D. (2012). In Transformations in E-Business Technologies and Commerce: Emerging Impacts (pp. 222-239). Today’s online marketing highly recognizes affiliate marketing as one of the fastest growing and most effective strategies to acquire customers and increase sales by using websites having a reach to huge and diverse customer base. Affiliate marketing plans have shown increase in website visits; however, it must be kept in mind any inappropriate action happened on the affiliate site can negatively affect the company’s brand image. This research highlights the governance mechanisms through affiliate selection programs in Spain. We have used agency theory and transaction cost as a background study. The findings show that there is a need of more transparency and communication between the affiliates, especially regarding the affiliate behavior.

Assessing the value of online affiliate marketing in the UK financial services industry, Brear, D., & Barnes, S. (2008). International Journal of Electronic Finance, 2(1), 1-17.

Affiliate Marketing: Perspective of content providers, Benediktova, B., & Nevosad, L. (2008). This paper highlights the techniques with  which contact creators i.e. affiliates or publishers achieve a result-driven online marketing strategy. This study has interviewed 3 different creators regarding their usage of affiliate marketing in the past. The conclusion of the study brings various pros and cons of affiliate marketing for the content creators. It also explains the entire process of the affiliate selection. The study presents a typical affiliate marketing model and explains the importance of content for affiliate marketing.

Controlling your brand: Contractual restrictions placed by Internet retailers on affiliate marketing activities in Spain, Fox, P., & Wareham, J. (2007). Controlling your brand: A number of benefits are achieved from affiliate marketing; low cost strategy that has a tendency to reach more visitors with targeted promotional activities, if implemented smartly.

•    Affiliate marketing: An overview and analysis of emerging literature, Dwivedi, Y. K., Rana, N. P., & Alryalat, M. A. A. (2017). The Marketing Review, 17(1), 33-50. Affiliate marketing is taken as today’s modern, result-based online marketing whereby a company pays affiliates for each referral generated by affiliate marketing activities and efforts. The paper briefly discusses the 18 current studies on affiliate marketing and the development done in this area so far. Our review shows the need for more research. Aside from reviewing the 18 studies, this paper also analyzes their benefits, keywords used, limitations, methods and future implications to infer important recommendations. The findings show that there is no significant literature around this topic. The study is a source of providing future directions in this regard.

Internet Marketing or Modern Advertising! How? Why, Nosrati, M., Karimi, R., Mohammadi, M., & Malekian, K. (2013). International Journal of Economy, Management and Social Sciences, 2(3), 56-63. Advertising is a kind of communication used to persuade a target market to take desired action. New technologies are resulting in new kinds of advertisements. This paper brings a quick internet marketing survey. Internet marketing also called online marketing, is the advertising done on the web or emails. This marketing is often used with offline advertising channels like radio, TV, newspapers and magazines for maximized outcomes. This paper highlights the history of online marketing and its types including splay advertising, Search engine marketing , Search engine optimization, Social media marketing, Email marketing, Referral marketing, Affiliate marketing, Content marketing, Inbound marketing, Marketing communications.

•   Affiliated marketing, Akçura, M. T. (2010). Information Systems and e-Business Management, 8(4), 379-394. In our data-sensitive environments, businesses are sending their prospects to their affiliates’ websites to acquire more sales for them. Though it creates choices for the customers but it may also cannibalize the sales. Hence, if customers buy from affiliate, the company may lose its customer base. The study analyzes such strategies’ suitability using an analytical framework. The findings reveal that a company may hike its prices and revenues when its customers purchase from affiliate websites. An assessment of customer excess and welfare depict that such plans may bring negative impacts. Eventually, it shows that these factors may decline due to affiliation.

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