Affiliate advertising is a type of web advertisement, where the cost is paid based on the results such as application or purchase of the advertiser’s service or product, known as “performance-based advertising”. For advertisers, it is considered one of the major types of advertising because costs occur based on results, making it a low-risk investment with high cost-effectiveness.

In this article, we will explain the overview, the structural framework, and the process leading up to the publishing of affiliate ads that advertiser should be familiar with.

*This article was transferred from a column on CARRAC’s official note account.
Original article: https://note.com/carrac_note/n/n5d3f34949948

What are affiliate ads?

In affiliate ads, advertisement is published only after an agreement is reached between an advertiser and an affiliate regarding “what kind of results” and “how much” will be paid. After publising, the advertiser will only pay the affiliate a reward (ads fee) if the affiliate achieves the agreed-upon results.

(Figure 1: Ads are published once both parties negotiate and agree upon the terms)

Is it true that affiliate ads are cost-effective?

When discussing results, advertisers and affiliates often use a measure called CPA (Cost Per Acquisition).* 

*CPA, or Cost Per Acquisition, is a marketing metric that measures the cost of acquiring a customer who completes a profitable outcome, such as making a purchase or signing up for a service.

“Profitable outcomes” refer to actions such as product purchases, membership registrations, brochure requests, seminar sign-ups, etc. Instead of using metrics like clicks or impressions, focusing on the specific actions that advertisements prompt users to take and the resulting contribution to profit is clearer.

With such concrete outcomes set as conditions for payment, advertisers only pay for advertising costs when these outcomes are achieved, making affiliate advertising highly cost-effective.

Affiliate ads have other features as well, including the ability to appeal to third parties and the ability to publish the affiliate ads on multiple platforms.

Key features of affiliate ads

Feature 1: Third-party endorsement

When affiliates (media) advertise a product or conduct a sales promotion, they communicate with consumers from a third-party perspective, including their opinions, impressions, and personal experiences of the product. In today’s society, where many consumers express disinterest in or avoidance of traditional advertisements and PR articles, objective information similar to word-of-mouth is relatively easy for users to take in and has a significant impact on consumer purchasing activities. In addition, explaining in detail the differences in function between competing products is something that can only be done through third-parties and cannot be done when advertisements controlled by the advertiser. 

This third-party appeal is unique to affiliate ads, and is a decisive difference and advantage over other forms of advertising on the web.

Feature 2: Diverse promotion channels

Affiliates not only need users to click on affiliate ads contained within their own media, but they also need them to take actions such as making purchases or applications in order to earn rewards. Therefore, affiliates not only focus on creating high-quality content but also put effort into attracting traffic to their content.

You may have the impression that affiliates are synonymous with SEO. While not entirely incorrect, SEO is just one of many traffic acquisition strategies affiliates use to drive traffic to their media.

Today, all platforms except TV are utilized as pathways to site traffic, including search engines, YouTube, social media, and point sites.

How affiliate ads work: A step-by-step guide

Let’s take a look at how affiliate ads are published and look at the flow of money.

(Figure 2: ASPs are crucial in disseminating information widely)

Usually, advertisers place advertisements with affiliates through an Affiliate Service Provider (ASP).

An ASP, or Affiliate Service Provider, is a company that acts as an intermediary between advertisers and affiliates. In addition to its fundamental role of aggregating a vast number of affiliates, an ASP distributes affiliate advertisements collected from advertisers to affiliates. It also offers various other functions beyond this basic role.

The role of ASP 1: Matching media with advertisers

ASP distributes ads provided by advertisers to affiliates.

In this process, advertisers typically want their ads placed on media platforms closely aligned with their products, while affiliates prefer ads that match their expertise and interests. Placing cosmetic ads on a financial media platform may not yield favorable results, and from an affiliate’s perspective, lack of results means no rewards. Therefore, there is no benefit.

To match the needs of the media and advertisers, ASPs improvise to attract media that are attractive to advertisers. ASPs present affiliates with multiple options for advertisements that they can place on their sites. By ensuring a balanced selection of both advertisers and affiliates, ASPs create a mutually beneficial environment that meets the needs of both parties.

The role of ASP 2: The function as a “Lubricant”

It is also the role of ASPs to mediate between advertisers who want to advertise their products and media that want to deepen their understanding of the products and provide good communications.

In order to realize the requests of affiliates who want to hear from development staff to create content with high appeal to users, ASP may negotiate with advertisers on behalf. On the other hand, ASP may also provide necessary functionalities for content creation or negotiate with affiliates to meet advertisers’ desires to utilize channels with viral effects such as SNS.

The role of ASP 3: Media education

There are also many ASPs that provide information on how to operate websites, trends in media, and industry news to media outlets. The growth of media directly contributes to achieving results, and ASPs with connections to healthy media outlets that can deliver results are attractive to advertisers as well. For affiliates who have a certain level of influence on users, it seems that some ASPs even assign dedicated staff internally.

Emergence of ASPs with YouTuber Affiliation

The genres covered by affiliate advertising are wide-ranging, and the platforms on which they are deployed continue to expand. Currently, there is no ASP that perfectly covers all of them, and each company has its own areas of expertise. Recently, ASPs with a strong focus on YouTubers and influencers have been emerging, so it is important to conduct research before choosing an ASP.

Figure 3: Each ASP has its own area of expertise, so choose the one that best fits your needs

End-to-End Affiliate Advertising: From Awareness to Purchase

Finally, let me talk about how affiliate advertising can reach users.

During the heyday of SEO, users interested in products and seeking opinions from others gathered on blogs and personal websites through search engines. These users belonged to the consideration stage of the marketing funnel. The role of affiliate advertising at that time was to push those who already had purchasing intent further along the funnel and ultimately drive them to make a purchase.

Figure 4: When SEO was at its peak, affiliate ads were effective against the “consideration” category

Nowadays, consumers regularly utilize new platforms such as Twitter, Instagram, and YouTube in their daily lives. The way people interact with information has changed, with many now gathering information not through search engines but through social media platforms. Influencers also wield significant influence in this landscape. There’s a growing number of affiliates who seamlessly guide users from presenting needs on social media to gathering users on media platforms, promoting understanding of products, and facilitating purchases, thereby achieving a consistent approach from awareness to purchase.

Figure 5: All layers of the funnel are now approachable due to the emergence of social media

Summary

• Affiliate advertising, with its focus on CPA, is highly cost-effective.
• Third-party endorsement is exclusive to affiliate advertising.
• Given that each ASP specializes in different genres and strategies, it’s important to check them beforehand.
• Affiliate advertising can be utilized not only to make purchases but also to raise awareness of products.

With the emergence of new platforms and the ever-changing channels and pathways for information gathering by consumers, affiliate advertising is present everywhere online. Even major online shopping sites have built their own affiliate systems and have a strong presence in this advertising method.

Due to the significant impact on consumers, it’s crucial to ensure proper management and operation for products.

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Irep Inc. is an award-winning global digital marketing agency based in the San Francisco Bay Area. Our headquarters are in Tokyo and our network spans more than 20 countries. In Japan, we are ranked No. 1 for performance-based marketing. We also offer highly specialized market entry, as well as integrated marketing and localization services. Since 1997, our data-driven solutions have effectively led our diverse international clientele to continuous success in Japan, Asia, and beyond.

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