Affiliate Marketing – Definition & Importance

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What Is {Affiliate Marketing?~Definition of Affiliate Marketing~Affiliate Marketing Definition~Affiliate Marketing}

Affiliate marketing creates an association between multiple players:

1) the Merchant (sometimes called the Advertiser, or Partner),

2) the Affiliate (sometimes called the Publisher), and

3) the Customer – If we look at the Affiliate Program in its entirety, we must include an additional player as well.

The Merchant offers the product for sale, and the Affiliate tries to sell that product or service for the merchant and/or drive traffic to the merchant’s website. As a result, the Merchant agrees to pay the Affiliate a commission for sales and/or established results.

Payment Arrangements

Payment plans are generally performance-based (which effectively shifts some of the risk from the Merchant to the Affiliate) and arrangements are often structured as Pay Per Click (PPC), Pay Per Sale (PPS) and Pay Per Lead (PPL) – or some mixture.

Affiliate Marketing Classes

If we separate affiliate marketing with respect to levels, we have 4 separate classifications:

1. one-tier,
2. two-tier,
3. multi-tier, and
4. residual income programs

Single-Tier Affiliate Marketing Programs

In Single-Tier {Affiliate Marketing}, the Affiliates receive the commission, only for sending visitors or sales to the merchant’s website. Pay/performance and pay/click are included in this category.

Two-Tier Affiliate Marketing

In Two-tier marketing~Two-Tier Marketing}, the Affiliate gets paid commission for every action performed by the people he’s referred directly, plus he gets paid the commission when any of the people he’s personally referred gets paid.  Thus, he has a two-tier commission plan and the Affiliate earns both directly and indirectly.

Multi-Tier Affiliate Marketing Program

The multi-tier Marketing} is very similar to Two-Tier Marketing, but here, the Affiliates get paid for the revenue generated by their affiliated affiliates in multiple, unlimited, levels.

Residual Income Marketing Program

In Residual Income Affiliate Marketing~Marketing}, the Affiliate is compensated for every sale that is made by a person referred by him. In Residual marketing, Affiliates get the commission for every sale that his referral makes at the Merchant’s website.

In order for this to work properly, the first time, the traffic must originate from the Affiliate’s personal affiliate link. Then, when the same person returns to the Merchant website (even without using the affiliate link), the Affiliate will be paid for every sale made by the individual.

Cookies make this strategy work.

A “cookie” is created on the first-time visitor’s computer. This cookie defines the Affiliate’s ID. Cookies usually cease to be valid after 3 months; however, some may be effective longer.  Every time a visitor comes to the Merchant website, his computer is queried for any previously created cookie. If a cookie is found, the Affiliate Id is retrieved and the Affiliate gets credit for any anything the visitor buys.

Everybody Wins

When the affiliate marketing relationship is designed well and well-executed, everybody wins:

1. The Merchant receives greater market exposure and market penetration, unearthing customers that would normally be outside the Merchant’s market reach.
2. The Affiliate generates a commission for online sales, without needing to establish a full e-commerce site or needing to manage product inventories.
3. The Customer acquires products or services that s/he would otherwise not find – at least not readily.

Properly done affiliate marketing is a Win-Win-Win situation.

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