Affiliate marketing is one of those things that most people have heard of but would be hard-pressed to explain exactly what it is and how it works.
According to the Online Performance Marketing study carried out by PricewaterhouseCoopers for the Internet Advertising Bureau, in the United Kingdom affiliate marketing generated £351 million (NZ $635 million) in 2015 so we felt it was well worth an in-depth look.
Over the next few weeks, we will be publishing a series of articles on affiliate marketing, aiming at giving you all the tools you need to understand how it works and how you can become an affiliate yourself. So make yourself a cup of tea, sit back, and find out whether you want to join the ranks.
First things first, what actually IS affiliate marketing?
Affiliate marketing is when someone (an affiliate) is selling or promoting someone else’s services or products online and receives a commission for doing so. It is easy to see why it would be so popular. For the business trying to sell its goods, it provides a virtual sales team that is only paid when sales are closed, removing the risk of hiring sales staff that they have to pay regardless of their results; for those doing the selling, it is an equally attractive proposition, as setting themselves up is inexpensive and if they are successful, the financial rewards are worth the investment.
What Is Affiliate Marketing Used For?
The explosion of ecommerce and social media have both revolutionised how businesses communicate with consumers and have brought about fundamental changes to companies’ marketing strategies. With websites like YouTube and built-in cameras in every computer, everybody can be an advertiser nowadays.
Peer-to-peer review is also gaining in importance, as evidenced by a multitude of websites dedicated to the sole purpose of assessing products and services. Amazon, TripAdvisor, Consumers NZ, all testify to the fact that consumers trust other consumers’ opinions and perceive them as being impartial and honest.
In that context, it is no surprise that businesses small and large would use affiliate marketing to reach wider audiences. For start-ups and SMEs that can’t afford a sales team, it is a fantastic opportunity to get promoted without any financial risk. While it is very unlikely that a business owner working from their spare bedroom could make much of an impact, the game is immediately changed if they can recruit 100 affiliates to sell and promote his/her products for them, kick-starting their operations.
Affiliate programmes are also beneficial to large companies, as they can be a way to reach audiences that they usually don’t reach on their own.
The different types of affiliate marketing set-ups
Affiliate marketing involves four main parties.
- The advertiser: this is the company looking to sell its products or services and pay a commission to someone for promoting or selling them on their behalf.
- The publisher: is the individual or company willing to promote the advertiser’s service or product in exchange for a commission.
- The network: this is the company providing the technology solutions to enable tracking of the action.
- The consumer: is, obviously, the final component, and is the person either purchasing the advertiser goods and services or completing a specific action such as signing up for a newsletter.
Advertisers usually provide publishers with the creative content for the promotion such as banners. Both parties enter into a formal agreement through a contract defining each party’s obligation and the criteria for payment of the commission.
Becoming an affiliate doesn’t mean that you have to promote every product that an advertiser has to offer. You are free to choose which products and services you will include in your website and the advertising banners you will use. You will then receive a code to insert in specific web pages or throughout your website.
You’ve been cookied!
Now, that’s all very well, but how does affiliate marketing actually work, technically?
We will go into more details about how to set yourself up as an affiliate in the next instalment, but the first requisite is to have your own website and blog.
The company whose products or services you will be selling will give you a unique code to embed into your website, or a promotional code that your audience will use when purchasing. Through this unique code, the advertiser will track your conversions, with the help of some clever cookies.
Have you ever wondered why, after some research for your holidays for example, ads for holidays pop up anywhere you go on the web? You’ve got cookies to thank for (or curse!). Cookies work with web browsers to store information like passwords, user names, settings, user preferences, content of abandoned baskets in eshops, etc…
There are many kinds of cookies, and they can perform various tasks, but the type of cookies that affiliate marketing uses is called a ‘first-party’ cookie. In that context, the cookie’s job is to remember the link or ad that a website visitor clicked on. When a visitor uses a publisher’s website and clicks on the advertiser’s ad, the user’s browser receives the CJ tracking cookie identifying the advertiser, the publisher, the specific content of the promotion and the commission amount. Very cleverly, all this data is stored within the link itself, and even more can be connected to it as required.
Affiliate marketing is a fascinating and vast topic, and we have only scratched the surface. Now that you understand the basics, watch this space for the next instalments, A Guide to Affiliate Marketing for Beginners, and How to Make Money with Affiliate Marketing.
If you want to be sure not to miss them, contact us and we will notify you when they have been published.