Affiliate Marketing 101: What is Affiliate Marketing?

Affiliate marketing is a primary focus here at Rakuten Advertising. Every now and again, it’s good to get a refresher course on the nuances of the channel.

That’s why starting today, we’re launching an Affiliate Marketing 101 series aimed at answering the common question of “what is affiliate marketing?,” as well as dive into why it’s such a crucial part of any successful digital marketing program.

What is affiliate marketing?

Affiliate marketing is a performance-based marketing channel wherein digital marketers pay their publisher partners based on performance, not potential. Affiliate marketing is effective at driving brand awareness, keeping shoppers engaged throughout the sales funnel, and most importantly increasing online – and even offline — sales. It is, essentially, one of the most cost effective forms of online advertising because you only pay for the channel when it performs.

What does an affiliate marketing program consist of?

An affiliate marketing program is effective because it is a pay-for-performance channel where success is dependent on the strength of a relationship between two parties:

  • Advertisers: Advertisers are companies with an online presence that are trying to promote a product or service. Advertisers that leverage affiliate marketing run the gamut from financial institutions to direct to consumer (D2C) brands to retailers. Advertisers use affiliate marketing to find new customers outside their traditional reach, increase traffic and orders on their site, and to stay top of mind with existing customers.
  • Publishers: A publisher is a blog, website, mobile app, shopping platform, social channel, or browser add on that drives traffic to a brand’s site. Publishers publish affiliate links on their sites to drive traffic to an advertiser’s site. Types of publishers include coupon, loyalty, content, charitable, and influencers to name a few. Publishers use affiliate marketing to deliver great offers to their readers, create and build relationships with their favorite brands, and earn commission through their websites and social channels.

How does affiliate marketing work?

At its most basic level, affiliate marketing works like this:

  • Advertisers communicate to publishers in an affiliate network which products they are hoping to sell.
  • An advertiser will work with a publisher to determine which products should be promoted, how those products should be positioned, and how much commission a publisher will receive for hitting certain metrics.
  • Shoppers will then click on links on a publisher site that direct them to an advertiser’s website.
  • Publishers are then paid a commission for the referral, based on goals that an advertiser sets and communicates at the outset of an agreement to work with a publisher

How common are affiliate marketing programs?

An affiliate marketing study conducted by Forrester Consulting and commissioned by Rakuten Marketing shows that 80% of advertisers have reported running an affiliate program. Affiliate marketing generates a 12:1 return on ad spend (ROAS) according to a 2019 report from the Performance Marketing Association (PMA), making it one of the most cost-effective digital advertising investments.

Data from the PMA shows that spending on affiliate marketing is expected to grow from $5.94 billion in 2018 to a projected $6.8 billion in 2020. Affiliate marketing spend has been growing at a compound annual rate of around 10%. As the affiliate channel continues to grow in popularity, we expect to see the amount of money spent on it to increase, as the channel offers more tools that empower advertisers with ways to efficiently acquire and convert customers.

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