Welcome to our latest blog post! Today, we’re looking at referral programmes vs affiliate programmes. Which one of these is right for your business? Well, we aim to help you get the answer you’re looking for. In this blog post we’ve compared both strategies, highlighting the contrast between them, in order to help you pick one (or maybe both?).
Affiliate marketing has grown significantly over the last couple of years. That comes as no surprise. Particularly with how much the internet, social media and streaming platforms have taken over our lives.
Over half of all companies and marketing agencies now use affiliate marketing. Clearly it’s yielding results for those businesses that rely on it.
But what about those that don’t? What are they missing? What are you missing by not using affiliate marketing and programmes?
Contents:
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Factors to Consider when Deciding on Affiliate Marketing or Referral Marketing
- Choose the Strategy that Benefits Your Business the Most
For many businesses, the lines are blurred between referral marketing and affiliate marketing. Whilst there’s a lot of similarities between the two, there’s also a lot of differences in which we can contrast them.
We’ll take a look at the key differences of referral and affiliate marketing later on. For now, the best way to understand affiliate marketing is to break it down into smaller parts. In the subsequent sections, we’ll look at what or who are publishers, affiliate networks, and advertisers.
We’ll also consider the key benefits and drawbacks of affiliate marketing.
What is Affiliate Marketing?
A performance-based marketing strategy, affiliate marketing sees advertisers or merchants partner with affiliates or publishers. Affiliates promote the products or services of merchants.
The key concept behind affiliate marketing is the commission or fee that individuals or companies (affiliates also known as publishers) receive. Commission is earned for driving specific actions from target audiences and achieving key objectives. These vary from:
- Sales.
- Generating a set number of new leads.
- Clicks on social media and streaming platforms.
- Increased conversions on the merchant’s website or landing pages.
Sometimes, affiliates and merchants liaise on third-party networks. These affiliate networks such as AWIN facilitate collaborative promotion.
What is an Affiliate Network?
Let’s take a deeper look at affiliate networks. Essentially, an affiliate network is a website or app that lets advertisers or merchants (businesses) connect with individuals or other companies (affiliates or publishers). Sometimes, merchants will use an ad agency to represent them on the network.
Advertisers gain access to affiliates’ promotional resources, allowing them to sell their services or products, without the time constraints and labour associated with locating affiliates manually.
Similarly, affiliates earn commissions whenever a member of their audience clicks a referral link and makes a purchase from the advertisers. The affiliate network is also an efficient solution for affiliates to access advertisers without investing huge amounts of resources. Affiliate network providers earn fees from advertisers and sometimes affiliates too.
Who are the Publishers?
Publishers – also known as affiliates – are the partnering individuals or companies who promote the merchant’s products or services to their own audiences or existing customers. Often they promote through various marketing channels, such as websites, blog, social media, email marketing and pay-per-click (PPC or paid) advertising.
Who are the Advertisers?
Advertisers – also known as merchants – are the companies or businesses that offer products or services that they want to promote to untouched audiences. As already mentioned, sometimes advertisers can be represented by ad agencies on the network or participate directly.
Advertisers or merchants can also create affiliate programmes to attract partnering affiliates for collaborative promotions.
Key Benefits of Affiliate Marketing
Affiliate marketing has some incredible benefits. When done correctly, the potential ROI significantly outweighs commission and fees, making the whole programme all the most cost effective. Affiliate marketing also shares some of the benefits that a referral programme offers.
Expanded reach
Affiliates open the door to their audiences, often large scale and devoted. Affiliate audiences regularly visit websites and blogs, are highly engaged email list subscribers, and avid followers on social media and streaming platforms like YouTube.
The expanded reach they offer to advertisers and merchants to new and diverse customer segments is pretty much unprecedented. Even compared to those that brand advocates bring. Bear in mind, brand advocates are loyal customers who can only expose so many people through the power of word of mouth marketing. Whereas a YouTuber can give your brand massive exposure to global audiences the second they press publish.
Trust and credibility
Affiliates build dedicated communities of followers through trust and establish credibility in doing so. This helps sell your offers to their audience, the same way that brand advocates make a successful referral. What you have to offer is endorsed by someone that has influence on other people, and in the case of affiliates, that carries more weight to wider audiences.
Scalability
Affiliate marketing programmes are designed for sustainable scaling. Rather than investing huge amounts of time and resources building up your digital brand, you can partner up with established affiliates. As we’ve seen, these can promote your brand to their audiences.
As your business grows, you can recruit even more affiliates to reach fresh audiences. By expanding your reach, scaling it with your brand’s success, you also drive revenue.
Challenges of Affiliate Marketing
As with anything, affiliate marketing also has its fair share of challenges. As long as you’re aware of these challenges, you’ll know how to negate its drawbacks when your business is ready to try it out.
Commission costs
Brands pay cash commissions on every successful sale made through the affiliate links. Therefore, businesses need to carefully consider that they have the profit margins in place to sustain these outgoings. Especially if the affiliate has huge audiences or the business recruits more than one affiliate.
Businesses need to carefully consider the commission structure or a significant portion of revenue may be lost to affiliates and negatively impact overall profitability.
Control
Bear in mind that your business will have limited control over how affiliates promote your products and services. Although rare, some affiliates can engage in spammy marketing practices and other unethical behaviours. This of course has dire consequences for the brand’s reputation.
In addition to this, businesses need to carefully consider the affiliates they partner with. There needs to be some degree of brand alignment, otherwise what you have to offer may not make sense or resonate with their audiences. Again, affiliate networks can help you align your brand with relevant partners and track your campaigns to maintain quality.
Competition
Affiliate marketing has intense competition in some industries. Competitiveness in affiliate marketing typically manifests as bidding wars for advertising placements which can wrack up costs.
Resource intensive
With an affiliate network, the management involved in running affiliate programmes and marketing can be resource-intensive. There’s a need for consistent support and managing relationships with affiliates, which is also time consuming. Not to mention the complex tracking, necessary for assessing affiliate-generated traffic and conversions.
Tracking the performance of affiliates without the right management tool could also lead to discrepancies. This may ultimately result in disputes with affiliates and partnering publishers.
Key Differences: Affiliate Marketing vs Referral Marketing
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Participants |
Involves partnerships with external, closely aligned businesses or (including bloggers, influencers & content creators). |
Encourages existing customers, employees or brand advocates to bring in a referred customer through word of mouth marketing. |
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Participants’ motivation |
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Relationship with brand |
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Tracking |
Relies on unique affiliate links or tracks performance data through cookies. |
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Payment structure |
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Performance evaluation |
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Brand loyalty impact |
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Factors to Consider when Deciding on Affiliate marketing or Referral Marketing
Deciding between affiliate marketing and referral marketing involves assessing various factors to determine which strategy aligns best with your business goals, target audience, and product or service offerings. Here are the key factors to consider:
1) Business Goals and Objectives:
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Affiliate Marketing: Ideal for rapidly scaling sales, expanding reach, and generating revenue through a network of affiliates.
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Referral Marketing: Effective for leveraging existing customer relationships to drive new customer acquisitions and increase loyalty.
2) Target Audience and Reach
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Affiliate Marketing: Targets a broad audience through affiliates' networks, potentially reaching a wider market.
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Referral Marketing: Focuses on the existing customer base to tap into their network, aiming for a more personalised and targeted approach.
3) Cost & Budget Constraints
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Affiliate Marketing: Typically involves higher costs, including affiliate commissions and programme management, which may be a consideration for budget-conscious businesses.
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Referral Marketing: Generally has lower acquisition costs as it relies on existing customers, making it a cost-effective option.
4) Control & Brand Image
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Affiliate Marketing: Provides less control over the marketing message and tactics used by affiliates, impacting brand representation.
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Referral Marketing: Offers more control over the referral process, allowing businesses to maintain a consistent brand image and message.
5) Trust & Credibility
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Affiliate Marketing: Relies on affiliates' credibility and reputation to influence potential customers, fostering trust in the affiliate's recommendation.
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Referral Marketing: Leverages existing customer trust and relationships to instil credibility and confidence in potential new customers.
6) Ease of Implementation and Management
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Affiliate Marketing: Can be complex to set up and manage, involving tracking technology, affiliate agreements, and ongoing relationship management.
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Referral Marketing: Usually simpler to implement, manage, and monitor, particularly if integrated into the existing customer management system.
7) Product/Service Type and Complexity
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Affiliate Marketing: Suited for products or services with broader appeal, where affiliates can effectively market to a wide audience.
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Referral Marketing: Works well for specialised or complex products/services where personal recommendations and trust play a significant role in the decision-making process.
8) Long-term Relationship Goals
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Affiliate Marketing: Often focuses on short-term transactions and lead generation rather than nurturing long-term customer relationships.
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Referral Marketing: Emphasises building enduring relationships and customer loyalty through ongoing engagement and positive experiences.
9) Compliance & Regulations
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Affiliate Marketing: Requires compliance with affiliate regulations and legal considerations, ensuring adherence to advertising guidelines and affiliate agreements.
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Referral Marketing: Involves adherence to privacy and data protection laws concerning customer information and sharing.
10) Conversion Tracking & Analytics
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Affiliate Marketing: Offers sophisticated tracking and analytics to measure performance, optimise campaigns, and calculate ROI from affiliate efforts.
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Referral Marketing: Provides simpler tracking and analytics, focusing on the number and quality of referrals and resulting conversions.
Assessing these factors will help you make an informed decision based on your specific business circumstances, objectives, and resources available
Examples of Leading Brands Using Both Referral Marketing and Affiliate Programmes
Dropbox
Everyone and their dog knows about the hugely successful referral programme that Dropbox “dropped” a few years ago. In addition to their hugely successful referral programme, they’ve also launched Dropbox Partners Programme. Affiliates are given customer insights, marketing support, and like their user referral programme, drives growth.
Uber
Uber uses a referral programme that incentivises both riders and drivers to refer their friends and family. In addition to this, they run an affiliate programme which rewards content creators with $5USD to their wallet for every new customer that joins via their affiliate link.
Amazon Associates
Amazon’s affiliate programme gives individuals in your network an opportunity to refer customers to vast selections of products. In return, the affiliate receives commission on each successful sale. Although this is not a direct referral programme it serves as an example of how affiliate marketing can complement a referral programme.
Measuring Success and ROI
Measuring and tracking your referral and affiliate marketing efforts requires fundamental steps. You need to set clear goals, track referral sources, KPIs and metrics. These include:
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Return on investment (ROI)
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Customer acquisition costs (CAC)
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Click-through rate (CTR)
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Conversion rates
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Customer Lifetime Value (CLV)
In addition, you need to consider the quality of leads and customers, track each touchpoint of the customer journey, and assess segment data. Latter of which leads to more effective split texting.
In addition to this, you can also request customer feedback to understand the sentiments customers feel towards your affiliate and/or referral marketing efforts.
Choose the Strategy that Benefits your Business the Most
Now that you know the scenarios where affiliate or referral programmes work best, you should be in a better position to pick the best suited marketing strategy (or both!). Also consider the key differences listed out above when choosing the strategy that’s best suited to your priorities and goals.
As your priorities change and your business begins to transform you will be able to build upon your existing marketing strategy. Easily implementing other strategies to work in tandem with your existing efforts will eventually lead to more effective acquisition, engagement and retention.
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