Affiliate Marketing Definition, Controversies, and Origin

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Affiliate Marketing is a performance-based marketing strategy where a business awards individuals or groups (affiliates) for bringing visitors through their own marketing efforts. Affiliate Marketing is commonly confused with Referral Marketing as they both use third parties to drive more clients to a business. Affiliate marketing, in contrast to referral marketing, purely relies on financial motivation whereas referral marketing relies more on trust and personal relationships.

How Affiliate Marketing Works

The affiliate marketing strategy consists of four core players:

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  • The Merchant (retailer or brand)
  • The Network
  • The Publisher (affiliate)
  • The Customer

Over the years, this marketing strategy has grown more complex leading to the introduction of more players, including affiliate management agencies, super-affiliates, and specialized third-party vendors. Affiliate marketers many at times use regular advertising methods among other internet marketing methods.
Affiliates look for prospective clients via internet marketing methods. Mostly, they are paid in a “pay per performance”, in which they get paid commissions after a sale has been made by a client referred by them. However, there are other methods affiliates can be compensated. 80% of affiliate programs today use revenue sharing or pay per sale (PPS) as a compensation method, 19% use cost per action (CPA), and the remaining programs use other methods such as cost per click (CPC) or cost per mille (CPM).

Multi-Tier Programs:

Here is a practical example of this:

The first affiliate signs up to the program with an advertiser and gets rewarded for the agreed activity conducted by a referred visitor. If this affiliate attracts two other affiliates to sign up for the same program using his sign-up code, all future activities performed by his/her referrals will result in additional commission for him/her.

Two-tier programs exist in minor affiliate programs; most are simply one-tier.

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