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Affiliate Marketing: what it is and how it works

Monday, August 30, 2021

Find out how affiliate marketing can replace the sales department.

Startup Jedi

We talk to startups and investors, you get the value.

All of us have come across affiliate marketing in one way or another: usually, being the buyers. For example, by paying for auto repair services, you get a discount on a car wash as a bonus. Long story short, affiliate marketing is sales with the help of partners, who can be literally anybody —  another company, a millionaire blogger, or an ordinary user of social networks. For a business, this method of promotion can replace the sales department and for a partner it can become a reliable source of income. In this article I will talk about affiliate marketing and give examples of its use.

What is affiliate marketing

Affiliate marketing is a promotion and sales concept in which the selling company pays for the generation of clients to third-party companies.

As a rule, a brand implements a special program for partners, or affiliates, and the partner receives a commission for each purchase of goods by a client whom he brought. Most often, the cost of the product is the same for both the seller and the partner, and the effectiveness of each partner is tracked by links with tags, which allow you to track the number of conversions of potential buyers and the number of key actions performed. Thus, this promotion model is primarily related to online sales.

The concept of affiliate marketing allows you to reduce marketing costs for a business and expand the scope of its activities. Many large companies now offer partnership opportunities. Statista estimates that the affiliate marketing industry's valuation will reach $8.2B by 2022, compared to the industry's valuation of $5.4B in 2017. And according to Business Insider, 15% of e-commerce revenue can be attributed to affiliate marketing revenue.

Many brands use affiliate marketing. One of the most telling examples is Amazon, which has developed its own affiliate marketing program. Websites and bloggers post links to a product page on Amazon and end up earning a commission on the purchases they make.

Where is affiliate marketing used

Affiliate marketing is used by both large and medium and even small businesses, including startups. This promotion concept is good for the development of a new product, as, thanks to the partner network, it allows the brand to reach an audience that has never heard of it before. In addition, as already mentioned, affiliate marketing is used to scale up a business and increase sales.

Affiliate marketing is used:

  • YouTube bloggers who make content on the topic of unpacking with a detailed story about the product, indicating a link to the online store.
  • In advertising on forums. If a potential partner has already established himself as a person who is listened to and trusted, then his short story about the product can help the business attract new customers, and the partner can get a commission on each sale.
  • In banner ads. Sites or bloggers whose content is thematically related to the product, or sites visited by the target audience of the product, post banners, and each visitor who makes a purchase receives a commission.
  • Bloggers on social networks who share links of the advertised product in both open and native format.
  • In email newsletters, when the partners’ advertised products are included in the selection of recommendations for subscribers.
  • When conducting offline and online promotions with gifts and discount coupons: when purchasing something from one seller, the buyer automatically receives a discount on the partner's product.

In general, this concept can be implemented in most formats. The main thing is to have a reliable system for tracking the results of the affiliate program.

How Affiliate Marketing works
 The structure of the affiliate program is as follows:
"Seller" is  the owner of the business who implements the affiliate program.
"Affiliate Network" is an intermediary platform between sellers and partners that takes care of tracking results and interacting with affiliates.
"Partners" are people who promote the seller's product.
"Buyers" are people who make purchases through affiliate links.
How affiliate marketing works

To launch an affiliate program, you need:

  1. Decide whether you will develop an affiliate platform yourself (collect applications from partners, track the effectiveness of each of them, pay commissions) or use a ready-made product - use the services of an affiliate network or specialized software. As a rule, most brands use ready-made solutions.  
  2. Decide on the system of commission payments for the purchases made. It is necessary to decide what percentage of the sale the partner will receive and how he can get his money. You also need to decide how and through which channels the brand will tell potential partners about its affiliate program.
  3. Select partners. Focusing on your target audience and its interests, select suitable affiliates: here it is important that your target audience and the target audience of a potential partner match. At this point, it is important to review your partner's posts to see how they fit with the brand.
The best affiliate partnerships  

Awin is a large partner network of over 13,000 merchants. In 2017, Awin acquired another major partner network - ShareASale, however they work with different sellers and operate as separate companies. Awin services are used by corporations such as AliExpress and HP.

Amazon Associates is an Amazon program that promotes products sold on Amazon.com. The peculiarity of the program is that the partner receives a commission, even if the buyer, having clicked on his link, bought not the product to which she was leading, but something else, but also on Amazon.

Rakuten Advertising is a platform used by many famous brands, including Walmart and Papa John's.

eBay Partner Network is an eBay affiliate network. Its disadvantage is that many items are temporary due to the auction. At the same time, the eBay affiliate network provides access to 1.1 billion listings. 175 million buyers make purchases there annually, the total amount of purchases is $23B.

CJ Affiliate is a platform that has been operating since 2000 and partners with over 3,000 merchants.

The example of affiliate programs

Tinkoff Affiliate Program: as part of the participation, brand partners can recommend Tinkoff products to their customers and receive a commission. The affiliate program allows you to earn both on the sale of Tinkoff products - a commission is charged for each client who connects the Tinkoff product, and for participation in joint promotions with the brand.

AliExpress Affiliate Program: the program allows partners to receive payments in the amount of up to 50% of the cost of the goods - the cheaper the product, the higher the commission.

Alawar Affiliate Program: invites partners to create a section with casual games on their sites and receive a commission for each sale of the game. Alawar currently works with over 50,000 partners.

Aviasales Affiliate Program: considers website owners, bloggers, community owners in social networks, SEO specialists, travel agencies as partners. The commission can be received both from those who made the purchase of air tickets and those who booked the hotel.

Booking.com Affiliate Program: Allows affiliates to earn commission on bookings made through their resource. 

What affiliate marketing gives to companies

Multi-promotion of the product. All partners are directly interested in product sales, since they receive a commission for each client, and use various promotion methods for this.

Possibility to select partners manually. Potential affiliates apply for participation in the affiliate program, and the seller selects from the available applications those who are of greater interest to him: who, in his opinion, will give access to the audience most loyal to the product and represent the brand better than others.

Access to a "warm" audience. The benefit of working with partners is that, as a rule, they already have an audience that trusts them. This makes it easier for the brand owner to establish relationships with these people, because the partner will present the company and its product in a favorable light.

Pay directly for sales/other targeted activities. By investing in traditional advertising, a business pays for every click or, in the best case, for the contact of a customer interested in buying. At the next stage, traffic / leads need to be converted into a paying customer, and this also requires certain costs. In the case of a partnership, the business pays only in the case of a sale. If an affiliate has an ineffective promotion company, you don't have to pay them anything. This allows the business to make the promotion more profitable.

Low risks. Pay per result, not per click, ensures that such an approach to promotion does not bear the risk of draining the advertising budget, but pays exclusively for customers who have already made a purchase, with whom they can then build long-term relationships and sell products to them in the future. 

Limited start-up costs. Like most other methods of promotion, launching an affiliate program also requires certain costs. At the same time, they are lower than buying advertising and hiring a team of employees in sales and marketing departments.

The affiliate marketing concept is a good and affordable alternative to traditional sales

30 Aug 2021

 

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