Affiliate marketing may be the fastest-growing form of online marketing today. Driving about 13% of the current online sales market, it's forecast to reach 21% by 2003, according to an October 1999 report by Forrester Research Inc.
Behind that growth is affiliate marketing's ability to leverage the power of the Web and direct customers to partners on a pay-for-performance basis, said Robert Levitan, CEO of Flooz.com, New York, an online gift currency provider with an extensive affiliate network.
That pay-for-performance model is considered the key benefit of affiliate marketing programs. Many affiliate programs charge no enrollment fee, so aside from assigning members of a marketing staff to the project to develop the program, there's little upfront cost.
David Cooperstein, director of online retail at Forrester Research, added: "Unlike banner ads, affiliate marketing only costs something when someone clicks through or buys something... Affiliate marketing opens the door to performance-based marketing where you can get widespread visibility without having to pay for it all upfront."
In the most common models, affiliates are paid a fee by the hosting company for clicks, sales or subscriptions, based on the marketing goal. If the goal is sales, the fee is usually a percentage of the sales; for clicks, it's a flat fee of usually a few cents; and for subscriptions, it's a "bounty" on completed applications.
Commissions on sales range from 3% to 15% of the sale price, said Barry Silverstein,president and CEO of Directech/eMerge, Lexington, Mass., and author of "Business-to-Business Internet Marketing." Some programs, especially in the b-to-b world, also are converting to a sliding scale to reward big-ticket sellers.
Through the right kind of affiliations with e-businesses that appeal to potential customers, the results can be a marketer's dream.
"The bottom line is, with very little commitment on the part of the advertiser, the Web site could be exposed to thousands or millions of individuals through these affiliate Web sites," Silverstein said.
Choose your program
A number of different approaches are available to b-to-b marketers that are considering joining or developing an affiliate program.
Marketers can develop and maintain a program in-house; they can create the program in-house but outsource its management to an affiliate provider such as LinkShare or Be Free Inc.; or they can join another company's affiliate program.
Silverstein urges companies to take a hard look at whether they have the right kind of infrastructure in place before deciding whether to network or to develop an in-house program.
"By the time an affiliate program gets to any serious level, for the most part, the large users are outsourcing because it just takes too much time and money and effort to build a specialized system," he said.
Be Free, which considers itself a leader in the performance-based marketing field (another term for affiliate marketing), charges a $5,000 implementation fee for a new affiliate program, then takes 2% from every transaction that goes through the company's servers, said Tricia Travaline, VP-marketing and communications. That fee is in addition to the fee paid to affiliates for the sale or click-through.
Another tip Silverstein offers those developing an affiliate program is to make sure the program attracts target customers. That means marketers should partner with companies whose goals, audiences and niches are similar to theirs.
Nationtax Inc., Birmingham, Ala., has created a highly targeted affiliate network.
The Web-based business tax filing provider has allied itself with partners such as Peachtree Accounting Software, American Express Small Business Services and BizProLink, a b-to-b network. Small businesses that go to one of those Web sites seeking information about tax filing, for example, will be linked to Nationtax Online.
"From our focus group research, we identified [businesses] that the end business person trusts and that can influence the decision to actually convert the [tax] process from paper to online," said Amy Hughes, manager of affiliate marketing at Nationtax.
Her strategic partner team then recruited the business development teams of those corporations--or "superaffiliates."
Superaffiliates represent the most valuable affiliate partners a company has. Many companies, like Nationtax, have a small number of highly targeted or valuable affiliates, a departure from the pioneering affiliate network of Amazon.com, which has several hundred thousand partners.
Even for companies that do have larger networks, certain affiliates stand out above the rest. For example, Flooz.com lets recipients of its gift currency--such as employees whom a company rewards for exceptional work--spend the currency at any of its 15,000 affiliates. Jack Feuer, director of marketing, said only 20 to 30 are considered "gold" affiliates.
"We don't think the number of affiliates is the key number," he said. "It's really, `How many quality affiliates do you have?' ''
Those quality affiliates then help expand the company's brand recognition through co-branded sites and, affiliate marketers hope, bringing back customers, all for minimal investment. The Forrester report said, "every site that generates more than $10 per month in incremental revenue--enough to cover processing costs--also adds incremental profit while aiding brand awareness."
Be Free's Travaline said: "The greatest challenge for anyone going online is increased reach, increased sales and, most importantly, lower customer acquisition costs. Affiliate marketing, or performance marketing, is the most cost-effective way to acquire customers."