Affiliate Marketing

According to Gallaugher et al., affiliate marketing is classified as a type of online advertising, where merchants share percentage of sales revenue generated by each customer, who arrived to the company’s website via a content provider. Content provider also referred to as affiliate, usually places an online ad (for example a banner or a text link) at its website. When visitors click at the ad, they are redirected to merchant’s website and affiliation is tracked by cookie stored on visitor’s computer. Merchants, within online marketing called advertisers, pay for the content providers’ services only when a visitor coming from their website executes a specific action. Such action can be a purchase of a product, filling in a form with personal data, subscription to a newsletter etc.

The affiliates take the whole risk connected with the marketing merchant’s products. The concept is simple. If affiliate’s marketing efforts work, affiliate makes money. If they don’t, affiliate does not make money and pays opportunity costs. There are no limitations for an affiliate how much money it can spend or earn (Duffy, 2005).

For the merchants, employing affiliate marketing is advantageous for merchants from many perspectives. By employing it, merchants can let thousands of independent websites to display ads for its products and only pay them when the ad would actually lead to sale. Advertising costs move from fixed to variable costs, which can facilitate allocating money to advertising (Hoffman & Novak, 2000).