An affiliate program is a form of online marketing communication where a partner (the affiliate) communicates a message or promotes products for a company (the merchant) and is compensated for this on a ‘cost-per-action (CPA)’ basis. This action which could be a click, purchase or registration is predefined by the affiliate model the merchant is applying (see types of affiliate models). The affiliate acts as a “virtual sales force” that has to drive traffic to the merchant’s website.1) 2) By placing relevant content or advertising material on his website the affiliate tries to draw attention to the merchant’s offers.3)
The origin of affiliate marketing was Amazon’s partnership- and commission-based programs introduced in 1996. A woman having a website with cooking recipes, recommended her visitors Amazon if they were looking for good cookbooks. She contacted Amazon and demanded a commission for directing customers from her website to them. Amazon started to offer other sites a partnership and a commission on sales that were generated via their website. By 2001, Amazon had about 400,000 affiliated websites.4)
Affiliate marketing has grown rapidly in the past years and will continue to grow. The affiliate market in the UK has increased by 45% in 20075); an affiliate marketing study in the US forecasted an increase to $3.3 billion in 2012 based on a compounded annual growth rate of 13%.6)
If a visitor to an affiliate site clicks through to a merchant’s site, this prospect is tracked by a cookie placed on his computer. The link which directed the visitor to the website of the merchant contains a unique code identifying the affiliate site the visitor is coming from. When the prospect is now or within an agreed period transacting, e.g. purchasing or registering, the affiliate is compensated with the agreed provision.8)
Affiliate marketing offers various benefits for the merchant:
Potential disadvantages that may arise for the merchant:
Regarding the affiliate, the participation in an affiliate program provides only benefits. In contrast to traditional partner or franchise programs, the affiliate has not to procure an initial investment. The partnership is free of charge and is compensated on a commission-basis.13)
Here you can find further information on the implementation of an affiliate program.