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AFFILIATE MARKETING
Affiliate schemes work on the principle of maximising sales exposure by offering products or services for sale through a network of resellers on a commission basis. This was pioneered by CDNow.com in 1994, and then rapidly adopted by Amazon shortly after. Amazon now have more than 350,000 associates and pay up to 15% commission on sales. They claim that up to a quarter of their revenue is derived in this way.

Large online merchants might set up their own schemes and manage the administration themselves, but mostly this is handled by service bureaus such as Commission Junction (www.cj.com) and LinkShare (www.linkshare.com). These act as clearinghouses, managing click-throughs, sales and commissions, and also helping to recruit new affiliates.

The attraction of the affiliate model for merchants is that it is effectively free advertising, which only incurs a cost when a sale is made (though some schemes reward simple click-throughs too). Thus the merchant has banners or links on all his affiliates' sites, but only pays for results.

Dunn (16) reports that, based on a McKinsey study, the average cost of acquiring a new customer through an affiliate program is $45 (£31), while for normal banner advertising the cost is $125 (£86). Web site owners join schemes in the hope of making money, but as Pescovitz (41) reports, these often fall victim to the wrong end of the pareto effect, with only 20% of a program's members producing 80% of the affiliate sales. In the same article though, based on Forrester Research data, Pescovitz states that 13% of online retailers revenues came from their affiliates in 1999, and this is expected to grow to 21% by 2003.

Affiliate schemes have been a sub-culture of the online environment for some time in the USA, but have been slow to be adopted in the UK. This appears to be changing, with a number of new schemes appearing that have been developed specifically for the UK market - e.g. www.ukaffiliates.com which provides a free and easy recruitment service for affiliates, but charge a monthly management fee of £500 to the merchant plus 30% of all commissions paid out, for an all inclusive service.

Whether an affiliate scheme is appropriate for a business depends very much on the nature of the product/service and the target market. As with all web site promotion, success is critically dependent on the fine detail - and how well the strategy and implementation are managed. If appropriate, and well managed, an affiliate scheme can be one of the most powerful online marketing methods.