Affiliate Marketing

When an individual or company markets another entity or company’s products or services

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What is Affiliate Marketing?

Affiliate marketing occurs when an individual or company markets another entity’s or company’s products or services. If someone buys the product being offered because of your marketing efforts, then you are awarded a commission based on their purchase.


How It Works

The affiliate marketing method provides financial incentives for individuals to work hard on behalf of companies to sell their products through various social media and web-based platforms. It is often considered a method of revenue-sharing and encourages contributions and efforts from the affiliate marketers.

Such a type of pay-per-performance model is highly regarded by some producers and merchants, as they only incur a marketing expense when income from a sold product is gained. Affiliate programs today are largely revenue-sharing-based, which results from a direct cost per action. Some are also cost-per-click, although that model is used less frequently.

There are four key areas in affiliate networks, and they include merchant, network, publisher, and customer. While there are different subgroups that emerge in different affiliate marketing clusters, the illustration below represents the workflow from the four main groups:

Affiliate Marketing - Main Groups

E-Commerce and Affiliate Marketing

in 1996, started offering an affiliate marketing program. Links to books that were placed on websites that would consequently result in a sale on Amazon would result in a commission being paid to the link host. Over the years, the rise of the internet and the development of e-commerce platforms helped to bring about the rise of affiliate marketing on a global digital scale.

The growth of online shopping on mobile is further compounding the growth in affiliate marketing, as it can very well become the new face of marketing in generations to come. Affiliate programs allow companies to minimize their own marketing costs and only pay for results.

Content Creators in the Digital Age

Affiliate marketing’s taken off with the advent of digital content-driven platforms, such as  YouTube. On such platforms, content creators often advertise a certain product or service and then either embed a link in the video or in the description box below, driving traffic to the site and obtaining a commission from any sale.

Such an incentivization strategy is one of the strengths of a content creator-driven platform, which allows for marketing a myriad of products across all age groups and demographics.

Multi-Level Marketing vs. Affiliate Marketing

Several key differences exist between multi-level marketing and affiliate marketing, as the two are sometimes confused. A hierarchical program where individuals recruit and sign up partners or sub-partners, and are, in turn, granted a commission for their business, is a key facet of multi-level marketing, but not of affiliate marketing. The latter can sometimes include two tiers, but it is generally not the case, and they are not referral-based marketing programs.

Issues with Affiliate Marketing in the Digital Age

Affiliate marketing in the digital age can sometimes result in aggressive and intrusive forms of advertising, such as email spam or adware. Often, such aggressive marketing tactics can utilize false advertising, many times with the merchants unaware that their products are being marketed in such a manner.

Spam mail and adware are an ongoing concern as more of the world moves towards online shopping, but email engines and content providers do an increasingly better job of weeding out users that wish to abuse affiliate marketing engines.

Key Takeaways

Affiliate marketing is being used in new ways as we become further entrenched into our digital lives and look at new ways of getting recommendations to buy products or getting them recommended to us by people we trust.

It is taking on new ways of becoming an innovative platform for web-based e-commerce or content platforms to drive business growth and support ambitious advertisers looking for a profit-sharing model to support them in their ventures.

More Resources

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep learning and advancing your career, the additional CFI resources below will be useful:

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