Posted 4. April 2009, 10:27 by Emma Langan
Category : Home   Industry developments

Affiliate marketing is a relatively new concept that has developed as a result of the explosion of the World Wide Web. As the internet evolved the means of targeting people through electronic advertising too evolved and new techniques were developed in order to best pursue them and adapt to their changing media consumption habits. Typically people don’t generally welcome advertising as they perceive it to be intrusive and irritating, however, research has found that when it appeals to them and their specific needs as affiliate marketing is said to then it can be extremely effective at generating responses (Manners, 2007). The total sales generated by affiliate marketing alone in the UK equated to £2.16 billion up from £1.35 billion in 2005 and this is only expected to increase in the future (Wikipedia, 2009).Affiliate marketing to define simply is an agreement between two sites; one site (the affiliate) agrees to feature the advert of a merchant which is designed to drive traffic to the merchant’s main site. In return the affiliate receives a commission, a percentage of the sales made as a direct consequence of the traffic they have driven resulting in a sale.

There are an abundant number of advantages of affiliate marketing for both the company and the affiliate themselves. This blog will focus on the advantages for the company/advertiser wishing to partake in an affiliate program.

1) Cost effectiveness:
Firstly, for merchants an affiliate acts as an extra sales channel and is thought to be the most cost-effective source of customer acquisition due to its pay-for-performance format. If no sales are made then no commission is paid. For the affiliate it creates a steady revenue stream that would otherwise be unavailable to them (Gerace, 1999).

This is a very cost-effective way to generate sales as the advertiser will only pay commission when results have been achieved whether this is a sale, sign-up etc. If merchants are only paying commission for sales generated directly by the affiliate any banner click throughs or visits to a merchant website are seen as an added bonus. Even if a sale doesn’t take place a merchant’s site will receive brand exposure adding value at no cost.

As online advertising budgets are set to increase to reach the growing number of consumers spending more time online affiliate marketing is expected to feature more predominantly. Although search at this point in time remains the top technique used in most online marketing strategies the cost-effectiveness of affiliates has attracted more marketers who want to maximise their return on investment which affiliate marketing can help achieve. Affiliate marketing’s appeal continues to grow as fragmentation in other traditional media continues and the returns that this marketing tool can achieve in the long run are quite phenomenal in contrast.

E-consultancy research has highlighted that 95% of brands say that affiliate marketing is either ‘very’ or’ quite’ cost-effective (Croft, 2007). Affiliate marketing doesn’t need to compete for a hefty part of a campaign’s budget as it is self-sufficient to a large extent unlike e-mail marketing for example and, carries a branding element by increasing brand exposure with its appearance of many sites. Comet is stepping up its affiliate marketing as is John Lewis who state, “Affiliate marketing will become a core area for our marketing strategies. It’s crucial for driving new customers to our site�, it has become a strong revenue driver for the company. (Anon, 2008:29).

P&O ferries were impressed with their affiliate marketing results as they proved to be an extremely cost-effective sales channel and so P&O have now rolled out the scheme across Europe which saw sales volumes grow by more than 670% – for every £1 paid in commission P&O made £12.26 back.

2) Brand awareness:
If affiliates are able to appear in the top positions of generic search engine results which many of them now do, there presence in these positions is very beneficial in creating brand awareness and recognition which is particularly important for smaller merchants who are relatively unknown.
Companies are now beginning to realise the benefits of running affiliate marketing alongside their existing PPC search activity campaigns. This combined strategy incorporates maximum coverage on all search engine sites creating the visibility and large reach that merchants demand. Making it easier for consumers to find what they are looking and gives merchants the opportunity to steal customers away from competitors within similar markets as they are more likely to click through onto results higher up on search engines results (A future blog on possible fraud aspects associated with affiliate marketing will delve deeper into this).
It is very risky for a company to rely purely on a single promotional channel such as organic search when results can be easily maximised with the addition of affiliate marketing to increase brand visibility and purchase intention especially as many sectors have been found to benefit from introducing an affiliate system. The main sector being the travel industry where affiliates feature on major holiday websites promoting courtesy cars, travel insurance etc. Putting everything in one place for consumers, linking companies and customers, helping to create a relationship between brand and customer (Anon, 2008).

3) Effective Targeting:
Affiliate marketing is very effective at targeting niche audiences for advertisers. Affiliates that run niche content and personal interest websites that cater to a certain segment of the population provide an ideal way for merchants to target specific users. The benefit of this being that they can drive quality and highly relevant traffic to a merchant’s site that are more likely to be interested in the product(s) and increases purchase intention. There is also likely to be little wastage as affiliates are able to drive relevant users towards merchant’s which significantly increases conversion rates (the number of customers completing a specified action i.e. purchase). The elaboration-likelihood model by Petty and Cacioppo (1986) deciphers how attitudes are formed and changed. Unlike most online advertising which take the central route of persuasion through mass banner advertising carrying similar information to that of the competition and therefore not cutting through the existing clutter in the marketplace shown by the low response rates of banner advertising. Affiliate marketing on the other hand uses the peripheral route by selecting relevant sites to target the desired niche audiences as Match.com (online dating service) did. Match.com carefully selected affiliates to reach niche audiences such as mountain climbers or ethnic groups that prove hard to attract through other advertising methods at a small cost. This has proved effective for Match.com who has expanded the number of affiliates it uses over recent years (Singel, 2005).

4) Loyalty Potential
Affiliates that use loyalty and reward websites such as Nectar with their air mile point’s scheme can build a loyal user base as people are happy to make purchases in exchange for something back. Affiliate’s market merchants to their users and then simply share a percentage of the sales with them such as offering cash backs as Quidco and Nectar do. Some businesses owe much of their success to this marketing tool for example Amazon who are recognised as being one of the pioneering merchants to encompass this tool and have thus gained a loyal fan base.

5) Increasing sales volumes
Affiliate marketing needs to be strategically managed as part of the overall marketing mix but it has been found that if carefully established and implemented it can incur significant benefits in the long term for both the affiliate and more importantly the merchant in terms of ongoing sales revenue. It isn’t a quick tactic that can be enforced but an effective and long term strategy that will reap rewards in the future, looking at it as a quick marketing tactic exposes the brand to risk as it cannot be depended on as an instant revenue generator (Figg, 2006).

Research on affiliate marketing has found that it can increase volume sales significantly compared to other sales channels alone and is integral to driving traffic to a site and therefore sales. Affiliates have been found to be capable of delivering in excess of 25% of total online business sales. 1/3 of merchant’s in a recent survey found that between five and ten affiliates drove 80% of their sales (Anon, 2008).

Some advertisers are using affiliate sites even if they aren’t sales focused and don’t carry out any transactions purely for the purpose of driving traffic as they have been found to add brand value and recognition.

6) Community/relationship builder
Although search marketing takes the prime focus in most online campaigns many successful affiliates are using social media and blogging more to promote – there is a lot of traffic online that doesn’t necessarily originate from search engines that affiliates can and do make use of (as will be demonstrated through a future case study). Affiliate marketing differs from typical internet marketing methods such as e-mail marketing or search engine marketing. Affiliate marketing uses less orthodox methods such as publishing reviews of products/services helping to build online community forums allowing discussion. The web 2.0 concept of blogging and interactive online communities’ gives affiliate marketing an advantage over other online tools in that it enables consumers to form a bond with a brand. It also means that those within the community can gain good and bad insights from people with like minded people that they perceive to be knowledgeable as they have experience with the brand/product and are seen to be trusted sources of information without bias. Consumers are able to compare products and find reviews and information on company performances and their customer service. BLOG LINK!!

7) Unrestrictive:
One of the biggest advantages of this marketing is that it’s unrestrictive; there can be an unlimited number of affiliate sites carrying a brand’s advertising that are hand-picked by the merchant/advertiser themselves to ensure that they fit the merchant’s criteria and the brand image without merchant’s actually having to seek them out themselves. For the affiliate the core advantages are that is a flexible, low-overhead option as it doesn’t require much initial investment and carries only a limited risk as the affiliate will get out as much as they are willing to put in. A high quality site that can drive relevant traffic will generate a substantial income.

8) Wider Sales Channel:
Affiliate sites extend a merchant’s sales channel as their advertising appears on other various sites, therefore reaching more customers and thus potentially increasing sales. Merchant’s gain more custom without having to spend valuable time or money searching for them and for smaller merchant’s it offers the possibility to sell more to other segments they couldn’t have afforded to reach before. The risk is limited for the merchant as if the marketing efforts fail then it has cost them nothing, it is the affiliate that risks losing a small amount of money (Duffy, 2005).

Marketers began to demand an online method where they could pay when an action was carried out and not just paying out for page impressions/click throughs that don’t necessarily lead to sales of any kind or e-mails that are now perceived to be just spam, therefore affiliate marketing developed to answer this issue (Duffy, 2005).

9) Measurability and Accountability:
Despite the measurability and interactivity capabilities of online marketing many online advertising still operates on the CPM metric and therefore research has found that many sites, “carry advertising on the basis of having no incentive to generate actual, commercial results and at best they trade merely in ‘eyeballs’� (Duffy, 2005:162). Affiliate sites on the other hand as well as generating quality traffic are also focused on generating conversion. For the brand this means that the search terms the affiliate enforces, the position of the brand’s advertising on its sites will all be best placed and geared towards making the promotion stand out and make an impact on audiences as they have a vested interest to ensure that consumers click through in order for them to receive their commission.

Affiliates marketing can be accountable in a way that is impossible in traditional media. The measurability and accountability of this type of marketing makes it very attractive as the advertiser/merchant can see for themselves what sites people have been followed through on due to the cookies implemented to see what does and doesn’t work first hand. With budgets being scrutinised at this present time with the current recession payment made on a performance based method becomes a perfect solution for many merchants and they can see exactly where the result are coming from (Edwards, 2007).
This marketing tool offers merchants huge reach potential with a limited risk attached and free outsourced marketing carried out by the third party. Many big brands are beginning to adopt this scheme to take advantage of the growing internet usage by consumers. Sony effectively have implemented an online strategy, using the internet to generate sales both directly and indirectly using affiliates. By using affiliates this enabled them to pinpoint which sites were working the most effectively as their effectiveness could be tracked via cookies and commission payouts.

Research has pinpointed that merchants have made the mistake online of forgetting about the three principles to successful selling: ‘location, location, location’. Merchants depend on their monolithic, single site and assume that people will congregate to it and when they don’t they try to use various advertising to drive people there. An affiliate site is said to work like direct-sales would by displaying merchant’s products to relevant users that visit certain similar interest sites. These sites are able to catch viewers in context – products are displayed on sites to the desired target audiences, “something that accounts for why the affiliates sales channel having between two-ten times the sell-through rate of ordinary online advertising� (Gerace, 1999).

Conclusion:
Affiliate marketing represents the ultimate in genuine pay for performance and consequently represents one of the most promising long-term marketing strategies for e-commerce in the future. Its emergence as a marketing strategy within the e-commerce marketplace appears to have more durable potential than previous online strategies. It acts as an open marketplace for thousands of brands and merchants where their revenues can be increased by affiliates acting as powerful sales forces. Affiliate marketing is seen as a win-win for both the affiliate and the merchant the merchant benefits from free outsourced marketing and long term sales generation and the affiliate receives an on-going commission. As more advertisers launch affiliate marketing programs and more affiliates emerge in the marketplace it is likely to become the principle mainstream marketing strategy for the future (Duffy, 2005).

Overview of main Benefits: – Cost-effective – Offers unlimited reach to consumers – provides another channel to market through – Limited risk – Increases brand awareness – Opportunity to increase sales volumes – Represents the ulitimate in accountability – results can be tracked – From a sales perspective the merchant has secured a force of sales people – Boosts market penetration – Enhances other sales efforts and marketing channels