What is Affiliate Marketing?

‍Affiliate marketing is one of the hottest trends in online marketing today. But what is it exactly? There isn’t just one single and exact definition for “affiliate marketing”, but within the overarching category, I would define it as a marketing action that:

• Pays the publisher (the source of traffic) a fixed payout for every action they generated (usually called the Cost Per Action, CPA).
• Involves no risk for the advertiser, since if traffic does not convert no compensation is offered to the affiliate.
• The affiliate is in charge of the marketing efforts, thus will pay every cost related to it (i.e. buying traffic).
• The strategy and actions put in place by the affiliate might not give full transparency back to the advertiser.

Why is affiliate marketing so important?

Since search and display channels are becoming saturated, companies willing to advertise their product/services are trying to activate new channels aiming to reduce the average acquisition costs.

How does affiliate marketing reduce the average acquisition cost?

There are basically two reasons, one direct and one indirect. The first one is very easy and related to the definition of affiliate marketing quoted above. By not giving full transparency to the advertiser the affiliates are somehow allowed to be more aggressive. This yields a general cost reduction. This possible lack of transparency comes with a price that we’ll discuss later in this article.

Now, let’s talk about the indirect effect of affiliate marketing. Affiliates bring in much traffic, not all this traffic is going to convert. But the savvy marketer might perform subsequent actions on those visitors who didn’t concert. I’m talking for example about retargeting or email reactivation campaigns. If those visitors will finally convert to a paid action, the average acquisition price will be lower, since with the affiliate channel the first click has not been paid by the advertiser.

So, is affiliate marketing a reliable strategy for companies who want to sell online?

The answer is basically yes, and not only for cost reduction that we already discussed, but also for the incremental nature of this channel. This means that the affiliate channel works on top of the other paid funnels created by the marketer (search, social, etc.), thus it has a very positive effect on the overall volumes of paid acquisition campaigns.

Are there any drawbacks to the affiliate acquisition channel?

Again, the simple answer is yes. I specifically see two possible problems. The first one is again tied with the lack of transparency that is given back to the advertiser. If you don’t know what kind of material is used to advertise your product/service it might be possible that the traffic you’re getting (or the creative that is used) it is somehow dangerous for your company’s reputation and brand. This is why advertisers usually enforce strict rules on the affiliate activity (for examplee, you can bid on Google search but without using my product name – this is usually called the no brand bidding policy and it is generally enforced in every affiliate campaign). These rules diminish the reputation risk to the advertiser (and also the risk of cannibalization of other marketing activities).

Is affiliate marketing good for every online marketing activity?

Reducing acquisition costs is obviously good practice. So the answer is YES! Go affiliate, and you will spend less money for online advertising.
But I must add that the affiliate channel is not the go-to solution to all problems. One is example is if your e-commerce website is not converting for example due to a poor user experience during checkout — this will of course also affect the affiliate channel. And obviously this situation will affect the volumes it might generate (or even kill the volume altogether, generating no results regardless of what the payout is).

What might happen if an affiliate activity goes badly?

There is a risk around the corner, affiliates might be trying to somehow steal your organic activity. This is done through many techniques, for example forcing traffic to your website or stealing attribution (that is using shady techniques to assign the result of an organic activity to a marketing action that basically doesn’t exist). This kind of fraud happens from time to time and if you run an affiliate activity you must be prepared to fight back. For example many affiliate tracking platform offer very advanced fraud detection products. For example they might be able to detect fraudulent credit cards or fake clicks.

How can you exclude fraud from your affiliate campaigns?

Apart from using software products offered on the market, there is another technique that comes almost for free: incremental tests. Basically, switch off your acquisition campaigns for a while and see if the overall volume decreases or not. If volume stays the same…you have a problem!

Is affiliate marketing done manually?

At the beginning, affiliates where actual people running Campaigns manually by placing you links somewhere. This is still the case for some affiliates, but nowadays there are performance campaigns that are fully managed by algorithms. If affiliate marketing might be managed by software and algorithms, what’s the difference with programmatic advertising. In a further article we’ll discuss this difference, but basically programmatic lacks the fixed payout model. If the price is not fixed, the advertiser is facing some risk. So programmatic marketing looses one of the big advantages of the affiliate channel. At the same time programmatic has some advantages over affiliate too. The two channels are basically different and might (should?) be used at the same time.

If performance marketing the same as affiliate marketing?

Performance marketing and affiliate marketing have one thing in common, the fixed payout model. But they are not exactly the same. Performance marketing is at the intersection between affiliate and programmatic, where traffic is generated through algorithms and a software that buys clicks. Mapendo is working in this field, generating traffic with an algorithm that is based on machine learning and automation but at the same time working with a fixed CPA.

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