Affiliate Programs-Traction Channel #14

Customer Development

Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts. The industry has four core players: the merchant (also known as ‘retailer’ or ‘brand’), the network (that contains offers for the affiliate to choose from and also takes care of the payments), the publisher (also known as ‘the affiliate’), and the customer.”

Weinberg and Mares in their book Traction defines an affiliate program as an arrangement where you pay people or companies for performing certain actions (like making a sale or getting a qualified lead).

Companies like Amazon, Zappos, eBay, Orbitz, and Netflix use affiliate programs to drive significant portions of their revenue. In fact, affiliate programs are the main traction channel for many ecommerce stores, info products and membership programs. To illustrate this area in their Traction book Weinberg and Mares interviewed Kris Jones, who grew Pepperjam to become the fourth largest affiliate network in the world.  At one point, they had a single advertiser generating $50 million annually through their network.

Value of Affiliate Programs

“Whether you’re the brand manager at a Fortune 100 brand or the marketing director/everything else at a startup, setting up a solid affiliate program can open a revenue avenue without much of the hassle usually associated with setting up new marketing initiatives.” says Steve Olenski on Forbes blog.

Compensation

Well-established affiliate programs like those run by Amazon or Netflix have figured out exactly how much to pay their affiliates for each lead. As a startup, you are going to be less sure of your underlying business and should start with a simple approach. The basic approaches are to pay a flat fee for a conversion (e.g. $5 for a customer that purchases something) or pay a percentage of a conversion that occurs (e.g. 5% of the price a customer pays). from Traction book

Why is affiliate marketing a good option for Startups? 

How does the Affiliate marketing work? from Affiliate Marketing for Startups-Yes or No? 

At its very core is about relationships, a relationship between three parties:

Affiliate by Conversant in their article What is Aflfilate Marketing? explains:

Technology, especially the internet, can be pretty daunting to try to grasp, and with terms like malware, cursor and spam, it also seems pretty dangerous. So kudos to the guys who decided e-commerce and affiliate marketing should rely on an innocuous technology called a “cookie.”

A cookie is a technology that works with web browsers to store information like user preferences, login or registration information, and shopping cart contents. Have you ever opted-in to have a website “remember” your password and username for one of your online accounts? That’s a cookie. Ever notice while searching the web for “travel deals” and you suddenly start seeing travel display banners on other websites? Those ads are appearing for you because you’ve been cookied (it’s okay, you won’t get hurt).

In affiliate marketing, one task that cookies manage is to remember the link or ad the visitor to a website clicks on. Cookies can also store the date and time of the click, they can even be used to remember what kind of websites or content you like most. There are many different types of web cookies and uses, but the kind of cookie affiliate marketing relies on is called a first-party cookie.

The affiliates that join these programs vary widely, but generally fall into the following major categories: (from Traction book)

Key Affiliate Companies 

Using a network makes it easier to recruit affiliates (because so many are already signed up on these sites), therefore it allows you to start using this traction channel immediately.  Setting up an affiliate program on an existing affiliate network is relatively easy, though it requires an up-front cost.

The other option is to build your own affiliate program independent of an existing network. With such a program, you recruit partners from your customer base or people who have access to a group of customers you want to reach.

Conclusion 

“For startups that don’t have a lot of money, where you can’t just open a PPC (pay-per-click) account and start throwing darts, affiliate marketing seems to me to be a logical place to start, “says Kris Jones of Pepperjam. ” There’s really no guarantee on that if you spend 10k on Google AdWords you’ll make more than that. If you were to compare affiliate marketing and PPC, the advertiser assumes the risk in PPC. If you set up poorly written and poorly developed campaigns on AdWords, you’re going to have to pay for the click whether or no matter how good or bad your ads are, or whether or not they’re converting well.  With affiliate marketing, you get to define what the transaction or the conversion is, as well as have tools available to mitigate low quality.

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