What is Affiliate Marketing?
Who is Involved In It?
How Does Affiliate Marketing Work?
When Did It Start?
Does Affiliate Marketing Work as an Advertising Channel?
Is Affiliate Legit? Spoiler Alert: It is.
What Do You Need to Know About SaS Providers Within the Channel?
Takeaway: What are Some Affiliate Marketing Truths?
5 Reasons Why You Should Leverage Affiliate Marketing
4 Tactics to Improve Your Affiliate Channel Strategy
The Pepperjam Solution: Ascend™
Affiliate Marketing 101
a marketing arrangement by which an online retailer pays commission to a partner for performance-driven action from its referrals.
A reader or consumer then clicks on one of the tracking links and is directed to the advertiser’s site. If the consumer completes an action, like a purchase, submits a qualified lead or downloads a mobile app, the partner receives a commission for that action. Note that in practice, advertisers generally work with more than one partner to get the maximum amount of exposure, provided they’re the right partner for that brand (but more on that later).
It is through this method that the affiliate channel has generated billions of dollars in sales. It has also made it possible for a wide variety of partners—from kids reviewing toys to news publications providing information to social media influencers offering product reviews—to make a significant income without ever having to actually own or distribute the inventory or facilitate the ecommerce transaction.
According to Harvard Business Review back in 2012, affiliate marketing was considerably more valuable (6x!) than conventional marketing in part because the advertisements were targeted to online spaces with traffic types already interested in the specific product or service. Today, affiliate marketing is firmly positioned at every stage of the buyer funnel—from awareness to conversion—offering valuable, quality content to buyers at every touchpoint.
As Investopedia explains, affiliate marketing existed long before the internet (think: word of mouth advertising). However, digital marketing and publishing, along with the ability to track cookies and use analytics, has truly propelled it to a new level—and it’s likely to evolve even further over the coming decades. That’s why, if you’re a brand or advertiser looking to leverage affiliate marketing to promote your products or services or if you’re a publishing partner aiming to generate or increase revenue, it’s important to understand the current state of the industry and how it’s developing.
In this white paper, we’ll look at brief history of affiliate marketing and discuss some important points to keep in mind in relation to SaaS (software as a service) and affiliate services providers. We’ll also take a closer look at what’s really happening in the industry and offer some statistical takeaways to provide an accurate picture of how affiliate marketing is developing and what’s to come.
To many experts, affiliate as we know it today, can be traced back to 1989 when William J. Tobin set up an internet affiliate program for his business, PC Flowers & Gifts. He patented his idea in 1996, and the patent was granted in 2000, as Medium reports.
In 1996, affiliate marketing was then popularized by Amazon when it first started paying bloggers and other partners commission to drive traffic to its site via its Associates’ program. Other affiliate programs soon followed, including BeFree, Linkshare, Commission Junction and the Clickbank Network. Initially, many brands gave commissions simply for driving traffic to their sites. Later, especially after the devastating dot com crash in the early 2000s, affiliate marketing became increasingly driven by viable leads and sales.
Note that the development of cookies—small pieces of data that track what a specific user is doing in their browser—greatly accelerated the use of affiliate marketing, as they made it easier for advertisers to see where their traffic was coming from. This in turn clarified which strategies were and weren’t working as well as which publishers drove a lot of traffic—and which did not—to advertisers’ sites.
Today, more than 80% of brands—including many common household brands—have affiliate marketing programs. So why is this method of marketing so successful? The main reason is that it enables advertisers to diversify their marketing, supplement existing marketing programs and pay for performance rather than paying for access, as found in other paid digital channels. Blogs and social media—including YouTube and the wildly popular TikTok, just for examples—have changed how the public consumes information. Knowing that, it’s not surprising that affiliate partners are also bloggers, YouTube stars, social media influencers and general thought leaders—each with their own vehicle for promoting the product or service—for example blog posts, YouTube videos, Instagram posts or op-ed pieces. And it’s precisely this variety of content that makes affiliate marketing such a resounding success.
Today’s consumers are as savvy as they’ve ever been and hold brands accountable in ways they never have before. Nowadays, transparency is key, so advertisers must find ways to promote products and services without sounding too pushy or salesy. To accomplish this, many modern brands leverage their core values and beliefs as the cornerstone to their messaging. For example, TOMS shoes built their brand on giving back by forwarding portions of their proceeds to provide shoes, sight and safe water to those in need. Working with partners who share the same belief and mission is paramount to TOMS’ awareness, messaging, branding—and conversion success. The ability to be an effective storyteller is also critical for both brands and partners and they need to be harmonious when it comes to the story they’re telling.
Ultimately, the key is finding the right partner for your brand: one that has built a solid audience who is also interested in the products or services you’re selling. Since these partners are able—and highly motivated by potential commissions—to create engaging content while promoting products or services, the traffic generated from their sites is more likely to be high-quality and therefore, more likely to convert.
By incorporating affiliate marketing into their strategy, partners can generate quite an impressive revenue source. In fact, affiliate commissions now account for as much as 20% of partners’ total revenue. At the same time, it’s important to note affiliate marketing is responsible for around 16% of e-commerce sales while being poised to grow to $6.8B by 2020. For these reasons, both advertisers and partners have grown to rely significantly on affiliate marketing networks and platforms—online marketplaces where advertisers and partners can connect, engage and manage every aspect of their programs, from tracking to payments.
And all things considered, in today’s world of commerce, affiliate marketing plays a critical role in the buyer’s journey. To illustrate: A recent Forrester survey cited 83% of advertisers use an affiliate network or platform to coordinate deals with partners. In short, brands understand the power of word of mouth advertising and it’s hard to top the affiliate channel as the digital age’s strongest form of word of mouth advertising.
Unfortunately, despite all the positive impact affiliate has made on modern marketing including being one of the first channels to monetize Instagram and social pages while also infiltrating podcast advertising, there are still several misperceptions that surround it—and in the past, have lent to a less-than-savory misconception about the channel at large.
The first misperception being that affiliate marketing is a scam. In addition, some people believe that the affiliate channel leads to low-value traffic and few sales concluding a “we would’ve gotten the customer anyway” mentality. However, nothing could be further from the truth. As we outlined earlier, affiliate marketing is a mainstream channel that generates a significant portion of all e-commerce sales. In fact, 16% of all online orders can be attributed to the contribution of affiliate marketing.
An additional misconception is that affiliate is a lower funnel, perhaps lower-value channel and this perception was largely devised post-recession when consumers were looking for all the savings they could find. As a result, thanks to these savvy and fiscally-conscious consumers, coupon and loyalty dominated the last-click position and unfairly, the channel garnered a reputation for not really adding any incremental value. Couple that with the fact that brands’ and retailers’ attribution and measurement systems were already generally setup on a last-click model, meaning the last click received the credit for the conversion event and it’s easy to see how the true value of affiliate was missed altogether.
However, we now know that this belief simply isn’t true, and that affiliate occupies all stages of the consumer buyer journey. Thanks to an emphasis on transparency, there is visibility into traffic and sources of referral and reporting is available, easily exportable and usable in brands’ system of record, MTA, etc. Affiliate marketing has gone mainstream with more and more publishing houses are monetizing their digital editorial content with affiliate marketing, a testament to affiliate occupying all stages of the funnel—not just last click.
Brand safety is also a paramount concern in the affiliate channel. How could brands be certain that publishers are representing their products in their likeness? Today, protection tools are in place to provide compliance monitoring, domain monitoring and fraud detection to ensure that proactive steps are taken to understanding how brands are promoted by publishers/partners.
So where do these misperceptions come from? According to Shopify, in the early years of affiliate marketing, fraudsters would often employ harmful methods to increase their commissions or obtain data. Black hat SEO, cookie stuffing, link farms, typosquatting, brandjacking, spyware, spam and trademark infringement were just a few of the strategies they employed. Later, scripts were written that fraudulently generated multiple clicks—and as a result ramped up earnings.
Fortunately, with significant advancements in affiliate technology, these practices have been drastically eliminated—and that means by and large, the affiliate marketing industry of today is transparent, above board and a highly-effective marketing tactic.
That said, along with advancements in affiliate technology, there are also several notable trends in the channel today.
Software as a Service—or SaaS—is a rapidly expanding industry, and due to its fixed-cost model, it’s one that’s attractive to affiliate marketers. According to MarketWatch, the SaaS market will grow at a CAGR of 21% through 2022 and be valued at $117B by the beginning of 2023. Key players in this industry include Salesforce, IBM Corporation, Oracle Corporation, Microsoft Inc., and Google Inc. Think products like Microsoft’s Office 365, which offers business software—such as Word, Excel and Outlook—along with cloud storage to users for a monthly fee. And every day, new SaaS providers are appearing on the market offering everything from CRMs to online bill collection—and affiliate marketing platforms are no exception. But does this SaaS model make sense for everyone? Yes and no.
Traditionally, many marketers who are versed in affiliate marketing, are also accustomed to the channel operating on a pay-for-performance model, which proves attractive for some, but not necessarily for all. Case in point: There is safety in a model where costs are only absorbed upon conversion. But as conversions scale, volume becomes a key consideration—and predictability is lost.
In short, it’s simply not enough for customers to assume an affiliate provider is fine-tuned to their precise needs—so they must do the homework to know what they’re signing up for. And that’s something that both advertisers and publishing partners need to consider when choosing their affiliate technology provider.
To truly understand the present state of the affiliate channel, where it’s headed and why it’s here to stay—firmly planted in any sophisticated marketers’ arsenal—we’ll leave you with some quick and insightful statistics:
If you’re considering incorporating affiliate marketing (also known as performance marketing) into the mix but still aren’t convinced that the impact will be worth the effort, then you’ve come to the right place. Forrester reports that performance marketing is currently a $4.2 billion industry expected to reach $6.8 billion by 2020. Moreover, Forrester estimates a compound annual growth of nearly 10% by 2020.
As brands begin to recognize that traditional forms of marketing are no longer working as well as they once did (hello, sign of the times!), performance marketing commands an increasingly larger slice of marketers’ budgets. Forrester also lends us insight into where marketers are looking to spend budgets citing over 80% of all marketers currently allocate 10% of their marketing budget to performance marketing. But what does this mean for your business?
When compared to more traditional marketing channels including: search, display, email and paid social, one key differentiator that sets affiliate marketing apart is its uncanny ability at relationship creation/optimization. When considering the value that affiliate can bring, it’s important to understand its strength, or what lies at its core. Above all else, affiliate marketing is rooted in the idea of creating and strengthening relationships. These relationships aren’t only between advertisers and partners, but they’re very much about the relationship that consumers have with partners and brands.
Read on to learn about the top 5 reasons why you should leverage affiliate marketing now.
And by design, this is a key differentiator in making affiliate marketing unique. Affiliate isn’t a channel that dwells in a silo—it touches much more than just the last click of a transaction, something it’s traditionally known for. Take for instance content sites, bloggers and influencers who may serve as the greatest point of impact in the buyer’s journey, yet, don’t receive the recognition they deserve. There are also instances where the affiliate channel doesn’t impact the first or that last-click models, yet still resides within the clickstream, still warranting credit. In affiliate marketing, a partner can leverage paid search and SEO tactics to monetize their content through affiliate links, making it unique to other channels. Knowing how affiliate marketing works in tandem with the other channels, is a critical component to your success with this channel.
Proving the value of the affiliate channel brings us to our next point. Perhaps the most attractive aspect of affiliate marketing (at its face value) is that it’s a completely pay-for-performance channel. This is not to imply that it’s an effort-free channel, it’s simply bringing light to an often-overlooked perk of affiliate: partners or influencers only get paid a commission once they make a sale. Additionally, affiliate—despite whether a sale is made or not—still serves as free advertising or additional branding that brands wouldn’t have had otherwise.
As mentioned earlier, one of affiliate marketing’s greatest strengths rests in its ability to create and nurture relationships. One of the most critical of these relationships lies between the partner and their audience. Partners spend considerable time creating quality content that they know their audience will connect with. Knowing what resonates best, enables partners to recommend campaign elements that brands may not have thought of, or perhaps put on the backburner including: certain product offerings to push, ad messaging, etc. Partners also understand well their audience demographics and, in some cases, can target subsets of these audiences to further tailor brand messaging. A great example of this is major apparel and accessories brand, Puma who didn’t realize that a famous pop star’s collection would be so wildly popular within the Asian market. However, top Asian partner, Dealmoon, knew otherwise and highlighted this collection to their primarily-Asian audience to great success! Doing so, skyrocketed the relationship between Puma and Dealmoon and together, they continue to achieve great success.
Remember how we mentioned that partners know their audiences best? This knowledge evolves in large part from the trust that they’ve worked hard at building with them. This means that when audiences trust what partners say—especially about a product—they are far more likely to purchase the products they recommend, essentially building a brands’ credibility. Affiliate marketing is all about partners working diligently on a brands’ behalf to endorse products and services in a way that sounds natural and that resonates best with their established audience. They can bring a new perspective and level of credibility to a brand that the brand isn’t able to do on its own. If this all sounds a lot like third-party validation, it’s because that’s exactly what it is.
While word-of-mouth has been one of the most effective methods of endorsing products or services since (basically) the dawn of commerce, it makes perfect sense that partner sites, bloggers and social media platforms would only intensify this means of marketing. From written reviews to live product demonstration, outlets like these are affording would-be consumers to see and “test” products like they’ve never been able to before. This isn’t the brand directly selling a product to them, but instead it’s someone they trust the opinion of endorsing the product on a brands’ behalf. The partners’ excitement transfers to the audience and with the help of all the proof points or the case they’ve built for why this product is best, consumers make purchases and more importantly, they make repeat purchases. This only strengthens their affinity towards a brand and ultimately, creates loyalty. Loyal consumers loyally spend on product because they can see the value, and affiliate marketing can serve as the catalyst in making this happen.
The affiliate channel just makes plain sense (and dollars)
Over the past 20 years, affiliate marketing has evolved, matured and grown into a well-developed, sophisticated form of marketing that in many ways has given more traditional channels a true run for their money. It’s the perfect low-risk, high-reward channel for both content and influencer marketing.
So, what are you waiting for? Let’s keep this conversation going by reaching out to us here.
To set your brand up for success, consider these four key tactics to boost your ROI. Being well-versed in each will elevate your affiliate marketing plans and ensure they are your most profitable yet.
Marketers should utilize attribution to award each publisher that played a role in the path to a purchase based on their value to the sale. Advanced attribution tools can provide you with insights into how, when and where publishers influence customers across devices and channels so that you know which to reward, and how much to pay them.
Engage consumers and increase conversion rates by offering multiple transaction types:
Buy Online, Pick Up In Store
Card Linked Offers
Online to In-Store Coupons
Not all influencers along the path to purchase are equal—so why would you reward them equally? Dynamic Commissioning enables marketers to define incrementality-based tracking to customize commission rates for:
Publishers can now send their Instagram followers to advertisers’ product pages, driving high quality traffic and revenue through the affiliate channel. By taking advantage of our Curalate partnership, content publishers are able to monetize Instagram posts and make images shoppable.
At Pepperjam, it’s our mission to help advertisers and partners realize their objectives by providing premier technology and leading services. By doing so, we aim to propel like-minded marketers into the future of affiliate marketing.
Introducing Ascend™: An integrated and comprehensive affiliate marketing lifecycle platform that gives performance marketers access to category-defining discovery, recruitment, attribution, commission, fraud prevention—and payment capabilities—in a single-stack solution.
Step 1: Pat wants to make some extra money.
“Hm... I blog about hats that I like. Maybe I can make some money while doing that."
Step 2: Pat joins an affiliate network.
“I can add links to my blog and get paid for it. Now this is what I’m talking about!”
Step 3: Andy wants to get more business.
“Maybe I can get bloggers to promote my products for me.”
Step 4: Andy joins an affiliate network.
“Now I have an affiliate program and publishers will promote my store for me!”
Step 5: Pat joins Andy's affiliate program.
“I can join this program & use the affiliate network’s tools to promote it.”
Step 6: Pat adds a banner to his blog.
“Now people will see this ad for Andy’s Hat Store and maybe they will shop there.”
Step 7: Sue reads Pat's blog & sees the banner.
“Wow, I love Pat’s blog! Oh, Andy’s Hat Store? I think I will check this store out!”
Step 8: Sue clicks the ad & buys a hat.
“This is the cutest hat I have ever seen! I am going to buy it right now.”
Step 9: Andy sells a hat & Pat gets a commission.
“Thanks to Pat, I sold a hat! Now he will get a percentage of the sale.”
Step 10: The affiliate network pays Pat.
“Wow! I got a percentage of a sale from Andy’s Hat Store! That is super!”