Referral Programs vs Affiliate Programs: Understanding the Pros and Cons
Referral and affiliate programs are two different strategies that reward a person for bringing customers to the business. Here, we’ll discuss the major differences between both programs in detail. Digital marketing comes in many forms. Every business has to develop its online marketing strategy based on core values, long-term goals, industry standards, and customer expectations. While strategies like SEO, SEM, SMM, PPC, etc., are easy enough to understand, many businesses tend to mix up referral and affiliate programs. After all, both methods use another person or entity to bring leads and customers to the brand. However, there are distinct differences between referrals and affiliate programs. Some brands use both programs to further increase their reach in the market. Other brands might choose to use only one of these strategies, depending on their niche. For example, DataToBiz has an affiliate partner program to expand its AI products and services in the global market. But what exactly do referrals mean, and how does an affiliate program help a business? What are the main differences? Let’s find out more about affiliate vs referral programs. What is a Referral? A referral program is where existing customers of a brand refer its products and services to others. Customers get store credits, one-time discounts, gift cards, or coupons when their referral generates a sale for the business. For example, you purchased health supplements from a brand. The company provides a unique link to share with your family, friends, and acquaintances. When they use your link to check the brand and place an order, you will get a thank-you gift for referring a new customer to the business. Referral programs are designed to encourage existing customers to bring more customers to the brand by offering them an incentive or gift. Statistics show that referrals grew by a whopping 425% during the first wave of the Covid-19 pandemic. In fact, 92% of customers trust referrals from people they know, and the customer retention rate is 37% higher when they come through referrals. Pros for the Business Pros for the Customer Cons for the Business Cons for the Customer What is an Affiliate Program? An affiliate program is where the brand ties up with a third party to promote its products and services in exchange for a commission or reward. Here, the third party can be bloggers, website owners, influencers, freelancers, content creators, and even small business owners with an existing audience base. The affiliate doesn’t have to be a customer. For example, if a website owner is interested in earning additional income, bonus, or commission through profit-sharing networks, they can join affiliate programs to use their platform and audience for the same. The publisher will earn a commission depending on the terms and conditions of the affiliate program. The affiliate marketing program is a source of additional income for many publishers. Around 81% of advertisers (brands) and 84% of publishers (website owners) use affiliate marketing. Close to 65% of affiliates strongly agree that joining an affiliate program brings more customers. About 26% of affiliates earn between $81K and $200K per year, while 20% of affiliates earn between $21K and $80K, with 19.5% earning more than $1000K per year by being an affiliate. Pros for the Business Pros for Affiliates Cons for the Business Cons for Affiliates Referral vs Affiliate Program Here we’ll compare referrals and affiliate programs to highlight their differences at various levels. Bringing New Customers Referral programs are a type of word-of-mouth marketing. It targets current customers, brand advocates, and customers who give high satisfaction ratings to the business. They are provided a unique link and asked to share it in their network. The sales that happen through the link are attributed to the customer, who becomes eligible for a reward or gift. Affiliate programs are developed for content creators and website owners who have already established themselves in their niche. The brand aims to attract the affiliate’s audience through the program. Each affiliate is also provided with a link, used by the audience to know more about the brand they promote. The affiliate earns a flat fee or a commission (or both) for generating leads and bringing customers to the business. An affiliate may or may not be a customer. Relationship with the Target Audience Referrals are usually successful because the customer has a closer relationship with the other person. There is a direct relationship between both parties, and this benefits the brand. You are more likely to convince your friend or cousin to buy a product if you know their preferences and have a positive relationship with them. In affiliate marketing, the affiliate doesn’t need to have a direct relationship with the target audience or website visitors. Any person who visits the website can click on the affiliate link. However, even affiliate marketing will be successful when affiliates or publishers inspire trust in their subscribers. A good example is an influencer or podcaster. They don’t personally know every one of their followers but have some amount of influence on them and can encourage the followers to try a product or service. Approach or Strategy Referrals use a direct approach with a clear intention. Customers send referral links to people in their network as chat messages on social media platforms or texting apps. The customer explains the product or service to their friend and convinces them to try it. They play the role of a salesperson but with a personal connection to the prospective lead. Referral links are not usually posted in blogs as customers have a better chance of convincing the other person with a direct approach. Affiliate marketing is less direct in its approach. The links to the affiliate products or services are included in informational blogs, social media posts, newsletters, etc. Unlike referral links, affiliate links are not sent as direct messages. Affiliates don’t always directly promote the brand. They hint or provide options, adding a disclaimer about their connection with the business. Moreover, some affiliate links visitors to a landing page where they have to complete an action. In such instances, the affiliate earns
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