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Definition of Affiliate Marketing

Affiliate marketing creates an association between two players - 1) the Merchant (aka the advertiser, or partner), and 2) the Affiliate (also known as the publisher). If we consider the Affiliate Program in its entirety, we must bring in a third player, the Customer, as well.

The Merchant gives the product for purchase, and the Affiliate attempts to sell that product for the merchant and/or refer visitors to the merchant’s website. In return, the Merchant agrees to pay the Affiliate a commission for sales and/or contracted performance measures.

Payment Arrangements

Payment arrangements are usually performance-based (which effectively shifts some of the risk from the Merchant to the Affiliate) and arrangements are regularly structured as Pay Per Click (PPC), Pay Per Sale (PPS) and Pay Per Lead (PPL) - or some blend.

Affiliate Marketing Groupings

If we separate affiliate marketing based on depth, we have three clear classifications:  1) single-tier, 2) two-tier and 3) multi-tier programs.

Single-Tier Affiliate Marketing

In a single-tier affiliate program, the Affiliates get the commission, only for the visitor’s traffic or sales to the merchant’s website. Pay/performance and pay/click fall under this category.

Two-Tier Affiliate Marketing Program

In Two-tier marketing, the Affiliate gets a commission for every action performed by the people he's referred directly, plus he gets the commission when one of the people he's personally referred gets compensated.  Thus, he has a two-layer commission structure and the Affiliate earns both directly and indirectly.

Multi-Tier Affiliate Marketing Program

Multi-Tier Affiliate Program is very similar to Two-Tier Marketing, but here, the Affiliates get the commission for the sales made by their affiliated affiliates in multiple, unlimited, layers. 

Residual Income Marketing Program

In Residual Income Affiliate Marketing, the Affiliate 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 on the Merchant's url. In order for this to work properly, the first time, the visitor must come from the Affiliate's authorized affiliate link. Then, whenever that same person returns to the Merchant website (even without using the affiliate link), the Affiliate will get paid for every sale made by the visitor.

Cookies make this strategy work.  A "cookie" is created on the first-time visitor's computer. This cookie defines the affiliate id of the Affiliate. Cookies generally expire after 3 months; however, some may persist beyond three months. 

Every time a visitor comes to the Merchant website, his computer is queried 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:

1. The Merchant gets greater visibility and market penetration, locating customers that would otherwise be outside the Merchant’s market reach.
2. 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 fulfil orders.
3. The Customer learns about, and can readily access desireable and useful products that s/he would otherwise not find - at least not easily.

Good affiliate programs are Win-Win-Win situations.

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