A commission-based arrangement where an e-retailer pays sites that link to it for sales, leads (CPA-based) or less commonly visitors (CPC-based).
Affiliate marketing has become very popular with e-retailers since many achieve over 20% of their online sales through affiliates. The great thing about affiliate marketing for the e-retailer, is that they, the advertisers, do not pay until the product has been purchased or a lead generated. It is sometimes referred to as 'zero-risk advertising'. Contrast this with nearly all forms of offline promotion where there is not a direct link between the cost of promotion and the revenue gained. Affiliate marketing also contrasts with pay-per-click search engine marketing, where the retailer has to pay for the visitor irrespective of whether they purchase anything. As a result it is relatively easy to control affiliate expenditure and a company can readily ensure that spend is below the allowable cost of customer acquisition. However, affiliate marketing still has challenges in that affiliates can be potential competitors in search optimisation and pay-per-click (driving up bid prices) and they may harm your brand by association if they refer to pornography or gambling on their site, for instance. Time needs to be allocated to manage these relationships. Affiliates can be rewarded for their loyalty to encourage more referrals by tiered programmes such as that run by Amazon.
Amazon was one of the earliest adopters of affiliate marketing and it now has hundreds of thousands of affiliates that drive visitors to Amazon through links in return for commission on products sold. Internet legend records that Jeff Bezos, the creator of Amazon, was chatting to someone at a cocktail party who wanted to sell books about divorce via her web site. Subsequently, Amazon.com launched its Associates Program in July 1996 and it is still going strong. Figure 8.17 summarises the affiliate marketing process. To manage the process of finding affiliates, updating product information, tracking clicks and making payments, many companies use an affiliate network or affiliate manager such as Commission Junction (www.cj.com) or Trade Doubler (www.tradedoubler.com). Since the affiliate network takes a cut on each sale, many merchants also try to set up separate relationships with preferred affiliates often known as 'super affiliates'. Affiliate marketing is often thought to apply solely to e-retailers where the affiliate is paid if there is a purchase on the merchant site. In fact, payment can occur for any action which is recorded on the destination site, for example through a 'thank you' post-transaction page after filling a form. This could be a quote for insurance, trial of a piece of software or registration for download of a paper.
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