What is affiliate marketing?
Affiliate marketing generates sales by advertising on other people’s websites, or generating commission by advertising other brands on your own site. As such, affiliate marketing is becoming an important part of online marketing culture.
Essentially, if you have a strong brand or plenty of loyal customers, there now exists great potential to build on the work you have done to establish that brand or customer base.
How much is sold online through affiliate marketing?
As a growing trend, affiliate marketing is becoming hard to ignore. According to a recent study conducted by accountants PwC for the Internet Advertising Bureau, UK businesses spent £814 million on affiliate marketing and lead-generation activities in 2012 – a spend that generated £9 billion in sales. According to the study, that income was derived from 100 million direct transactions – transactions that might otherwise not have been leveraged.
“Affiliate marketing is one of the biggest growing online marketing channels,” says Stuart Kilroy, Director of affiliate marketing agency Digital Motive. “The affiliate marketing industry has grown significantly in the last few years and has fuelled much of the growth in the use of the internet. It is a very important part of a business’s online marketing mix, as it can deliver significant web-clicks and sales, with a much lower risk.”
How does affiliate marketing work?
There are two main ways to participate in affiliate marketing. If you have an established customer base, you can advertise other brands on your site, gaining commission for each item sold. Alternatively, if you have developed a strong brand, you can create adverts that run on your affiliate sites. You pay them only when the advert generates a sale.
Tim Prizeman, Director of business development advisors Kelso Consulting, says most people have bought through affiliate programmes online without even realising it. “When you book a flight online and there is an automatic option for car hire, hotels or a recommended taxi firm – this is an example of affiliate marketing in action,” he says. “The airline sells the ticket, but also gets a share of the hotel booking. For the hotel, they are being put in front of travellers to their location at just the right time - while they have their credit card in their hand and are in spending mode.”
So what are some other examples?
Amazon offers commission on the products it sells via its Associates programme, while Stuart Kilroy points out that many well-known companies have been built entirely on affiliate marketing, including moneysupermarket.com, Martin Lewis’s moneysavingexpert.com and Quidco.com. However, this not just for big companies, he says. “Anyone can be successful at affiliate marketing – you don’t necessarily need a big brand. Most well-known affiliate marketing companies started life as small businesses or even from a kid’s bedroom. If you get it right then there are big rewards on offer.”
What is affiliate marketing’s potential for smaller businesses?
Tim Prizeman points out that as smaller businesses don’t typically start out with large customer bases, they need to consider how this might work for them, and to target large businesses where their product or service is a natural upsell. “The biggest advantage with affiliate marketing for smaller businesses is that, frequently, you only pay commission for sales actually made,” says Tim. “However, the brand will look for evidence that there will be strong demand for your product so they get good additional revenue from the sales.”
Stuart Kilroy argues that affiliate marketing can also work for individual bloggers and micro-businesses. “It can be a very effective way of monetising a blog or website. If you have the ability to create an interested audience who regularly visit your website, or read your blog, then you have the ability to be successful from affiliate marketing.”
What is its potential in terms of breaking into new markets?
That affiliate marketing is low-risk and low-cost makes it particularly attractive when it comes to scoping out new opportunities in other territories. Indeed, many exponents claim that using affiliate channels has proven to be one of the most effective ways of entering new markets. The pay-for-performance model means that sellers in the UK, for instance, are leveraging the know-how of marketing experts in new territories.
Sounds like a lot of relationship building to me...
Undoubtedly, you still have to create ties with the right people and with only those brands or organisations that reinforce and complement your brand and market. You will also need to persuade them of your viability. However, this is what companies have always done when they have partnered with suppliers in related but non-competitive areas.
What’s more, there is a whole new and growing industry of agencies that will do the legwork for you in terms of sifting through affiliate programmes and networks.
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