Definition of Affiliate Marketing
Affiliate marketing is the activity which happens as a result of a connection between two players - 1) the Merchant (sometimes called the advertiser, or partner), and 2) the Affiliate (sometimes called the publisher). If we think about the Affiliate Program as a whole, we must involve another party, the Customer, as well.
The Merchant gives the product for sale, and the Affiliate attempts to sell that product for the merchant and/or send traffic back to the merchant's website. In return, the Merchant agrees to pay the Affiliate a commission for sales and/or contracted results.
Payment Arrangements
Commission agreements are typically performance-based (shifts some of the Merchant's risk to the Affiliate) and arrangements are commonly structured as Pay Per Click (PPC), Pay Per Sale (PPS) and Pay Per Lead (PPL) - or some combination.
Affiliate Marketing Classes
If we look at affiliate marketing in terms of depth, we have three clear classes: 1) single-tier, 2) two-tier and 3) multi-tier programs.
Single-Tier Affiliate Marketing Programs
In a single-tier affiliate program, the Affiliates get the commission, only for the visitor's traffic or sales to the merchant's url. Pay/performance and pay/click fall under this category.
Two-Tier Affiliate Marketing Program
In Two-tier marketing, the Affiliate gets the commission for every action performed by the people he's referred directly, plus he gets paid the commission when one of the people he's personally referred gets the commission. 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 compensated for the sales made by their downline in multiple, unlimited, tiers.
Residual Income Marketing Program
In Residual Income Marketing, the Affiliate marketer is rewarded for every sale that is made by any of his referrals.
In this type of marketing, Affiliates get rewarded for every sale that his referral makes at the Merchant's url. In order for this to work properly, the first time, the person should come from the Affiliate's pre-defined affiliate link. Then, whenever that same person visits the Merchant website (even without using the affiliate link), the Affiliate will get paid for every sale completed by the visitor.
Cookies are what make this strategy work. A "cookie" is placed on the first-time visitor's computer. This cookie identifies the affiliate id of the Affiliate. Cookies ordinarily expire after 3 months; however, some may persist beyond three months.
Whenever a visitor visits the Merchant website, the visitor's computer is checked for any previously created cookie. If a cookie is found, the affiliate id is retrieved from it and the Affiliate gets credited for any purchase made by the visitor.
Win-Win-Win
As long as the affiliate marketing relationship is well-planned and well-executed, everyone wins:
The Merchant gets greater market exposure and market penetration, finding customers that would otherwise be outside the Merchant's market reach.
The Affiliate earns a commission for online sales, without the hassles involved with establishing a full e-commerce site or having to manage inventories and fulfill orders.
The Customer acquires desirable and useful products that s/he would otherwise not find - at least not easily.
Effective Affiliate Marketing is a Win-Win-Win situation.
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