Khóa luận tốt nghiệp Hệ thống thông tin: Khóa luận tốt nghiệp Hệ thống thông tin: Constructing an affiliate marketing model for cosmetics

Amazon AMZN popularized the practice by creating an affiliate marketing program whereby websites and bloggers put links to the Amazon page for a reviewed or discussed product to receive

VIETNAM NATIONAL UNIVERSITY — HO CHI MINH CITY

UNIVERSITY OF INFORMATION TECHNOLOGY

ADVANCED PROGRAM IN INFORMATION SYSTEMS

NGO PHAN PHUC NGUYEN

NGUYEN TAN PHUC

BACHELOR OF ENGINEERING IN INFORMATION SYSTEMS

HO CHI MINH CITY, 2023

VIETNAM NATIONAL UNIVERSITY — HO CHI MINH CITY

UNIVERSITY OF INFORMATION TECHNOLOGY

ADVANCED PROGRAM IN INFORMATION SYSTEMS

NGO PHAN PHUC NGUYEN - 18521159

NGUYEN TAN PHUC - 18521258

CONSTRUCTING AN AFFILIATE MARKETING

MODEL FOR COSMETICS

BACHELOR OF ENGINEERING IN INFORMATION SYSTEMS

THESIS ADVISOR

Ph.D CAO THI NHAN

HO CHI MINH CITY, 2023

LIST OF DEFENSE COMMITTEE

Defense committee of the capstone project, established under Decision No dated of Rector of the University of Information Technology

= cee cece eee e eee eee ene eeaeeeaeeneennees — Chairman

cence nee e ee ence eee ene enaees — Secretary

Bocce cece cece cece cece eee eeeeeeeebeeeeeeees — Commissioner

For this graduate thesis, first and foremost, we would like to expressour most profound appreciation to our supervisor, Ph.D Cao Thi Nhan,who generously took her precious time to guide and pass on herexperiences to me Her immense knowledge and plentiful experiencehave encouraged us in all the time of my academic research and dailylife We feel very fortunate to have the opportunity to enrich ourknowledge with her, her guidances, and also suggestions have provided us

with much needed insight into this thesis Without her tremendous

support and advice, it would be impossible for us to complete this thesis

Additionally, we would also like to thank all the lecturers and teachingassistants in the University of Information Technology — VietNamNational University — Ho Chi Minh City, especially the lecturers in theFaculty of Information Systems, who have imparted invaluable

knowledge to us during these four years here Our appreciation also goes

out to our family and friends for their advices and support all through our studies

This is a significant turning point in our education and development,

in our opinion We will do our best to make the best use of the abilitiesand knowledge we've gained in the future and we'll keep working to getbetter we want to express our sincere gratitude to everyone for theirassistance over the years once more

UNIVERSITY OF INFORMATION TECHNOLOGY

ADVANCED PROGRAM ALF

Advisor: PhD Cao Thi Nhan

Duration: Aug, 2022 to Jan, 2023

Students: Ngo Phan Phuc Nguyen — 18521159, Nguyen Tan Phuc - 18521258

Contents:

1 Overview:

e The internet has increased the prominence of affiliate marketing Amazon

(AMZN) popularized the practice by creating an affiliate marketing program

whereby websites and bloggers put links to the Amazon page for a reviewed

or discussed product to receive advertising fees when a purchase is made Inthis sense, affiliate marketing is essentially a pay-for-performance marketingprogram where the act of selling is outsourced across a vast network

e Affiliate marketing predates the Internet, but in the world of digital

marketing, analytics, and cookies made it a billion-dollar industry A

company running an affiliate marketing program can track the links that bring in leads and, through internal analytics, see how many converts to

sales

e An e-commerce merchant wanting to reach a wider base of internet users

and shoppers may hire an affiliate An affiliate could be the owner ofmultiple websites or email marketing lists; the more websites or email liststhat an affiliate has, the wider its network The hired affiliate thencommunicates and promotes the products offered on the e-commerce

platform to their network The affiliate does this by running banner ads, text ads, posting links on its websites, or sending emails to clientele Firms use

advertisements in the form of articles, videos, and images to draw an

audience’s attention to a service or product

e Some best Marketing and Business Affiliate Programs:[6]

- Commission: 50% per sale

- Cookie life: 45 days

3 AWeber:

- Commission: 30% recurring

- Cookie life: one year

4 Sendiblue:

- Commission: €5 when a referred user creates a free account

€100 if that user buys a subscription

- Cookie life: 90 days

5 ConvertKit:

- Commission: 30% recurring

- Cookie window: 30days

e Aspects of Affiliate Marketing for two kinds of business in nowadays:

I Small Business:

As we've made clear, affiliate marketing is not just a tool that can

help large companies increase their profits In fact, it can beparticularly useful for smaller businesses, for several reasons Forexample, affiliate marketing programs:

Are low-risk and low-cost You don't have to spend a lot ofmoney to get the word out about your business That makes

this type of marketing especially helpful for up-and-coming

businesses that don't have a large budget

Boost growth and brand awareness An affiliate program can

help increase traffic and grow your online audience It's also

a great way to create brand loyalty, as your affiliate marketers

will have a vested interest in your success

Put you fully in control You can set your own commission levels, for instance, and supply whatever marketing materials you want to your affiliates.

II Big Business:

In the Amazon Affiliate program, associates earn commission bycreating unique product links, promoting the links on their website,and driving referral traffic back to Amazon Here’s how it works:

Website owners create an Amazon Affiliate account on the platform.

Amazon gives each website owner a unique Associate ID

Once the application has been approved, associates canbegin creating affiliate links in their Amazon portal

Associates then place the links in blog posts or other parts of

each sale If you sell three car parts at $1,000 each in one day,

you’d make $135 from those three transactions If you sell the sameproduct 30 times per month, you’d make $1,350 every month

The main reason for constructing this website is spreading the responsibilities

of product marketing and creation across patties, it leverages the abilities of a variety

of individuals for a more effective marketing strategy while providing contributorswith a share of the profit To make this work, three different parties must be

involved:

1 Seller and product creators.

2 The affiliate or advertiser

3 The consumer.

The process of this website may follow:

Affiliate signs up for the

How Affiliate Marketing Works

@ (*) wy visit Merchant's we :

NS Bio 8 ilct aioe to

Nc @ 2 S e guyen's Computer

At the end of each

payment period (usually

monthly), Merchant sends

Nguyen buys Affiliate uses an affllat something from the link whenever they Merchant's website Affiliate rent for all the

mention the Merchant " sẽ: sabe

on their website Ẩ

a” a ww

As Nguyen completes the > I vị

checkout process, Merchant

checks for an affiiate cookie @ | al © `

on his computer

Merchant finds a cookie that belongs to Affiliate and logs a credit for the sale commission according to the affiliate agreement

Merchant makes reports

available that show the Affiliate all the traffic and

sales from the affilete link

2 Project objectives:

The goal of this website is to increase sales and create a win-win solution

for both merchant and affiliate The system is unique and profitable andbecoming increasingly popular

The internet and improving technologies are making the model easier to implement Companies have improved how they track and pay commissions

on qualified leads Being better able to track leads and sales contributes tohow they can improve or better position their products

Those interested in pursuing affiliate marketing will benefit from

understanding what's involved, as well as its advantages and disadvantages.Companies seeking affiliates will benefit from properly vetting andqualifying their partners Overall, it is a low-cost, effective way of

advertising products and services, increasing brand awareness, and

expanding a consumer base

3 Technologies:

Frontend: HTML, CSS, React.

Backend: Node.js, Express.js

Database: Mongo DB

Cloud: Microsoft Cloud (Azure)

SendIndex: API (Application Programming Interface)

4 Main content:

Research related technologies

List out expected requirements

Design UI/UX, prototypes for Websites

Design data library.

Build Website based on documents

Test on real social network

Implementation plan:

Research Topic:

+ Planning (Nguyen)

+ Research related technologies (Phuc)

+ List out expected requirements (Nguyen)

Aug 2, 2022 — Aug 5, 2022 (3 days)

Design:

+ UI/UX, prototypes for Websites (Nguyen)

+ Data library (Phuc)

Aug 6, 2022 — Aug 15, 2022 (7 days)

+ Frontend (Nguyen)

+ Backend (Phuc)

+ Merge

Test Product (Nguyen) Dec 6, 2022 — Dec 15, 2022 (9 days)

Push Cloud (Phuc) Dec 19, 2022 — Dec 27, 2022 (7 days)

Write Report (Nguyen) Nov 30, 2022 — Dec 28, 2022 (3 weeks)

Approved by the advisor Ho Chi Minh city, / /

Signature of advisor

Cao Thi Nhan

Signature(s) of student(s)

Ngo Phan Phuc Nguyen

Nguyen Tan Phuc

Chapter 1 INTRODUCTION oo cece cecccceseceneeceneeceaeeeeneceseeceaceceaeceaeceaeeceaeeseaeeaes 3

1.1 Evolution of Cybermediaries and Content Providers « s++ 3

1.2 Online A(VeTẨISITE - c2 11H ng TH kg 5

1.3 Regarding Affiliate Marketing - -c++S+ 3+3 seekesirsrsrerrereree 7

1.4 Problem Discussion cic 2G G11 TT ng nh ng nh 9

Chapter 2 LITERATURE REVIEW AND THEORICAL BACKGROUND 11

2.1 Online Advertising 7 11

2.1.1 Affiliate Marketing - óc «+ ệt 12

2.1.2 Benefits of Online Marketing - + c s1 ke 13

2.1.3 Drawbacks of Online MarketIng - + xe seereereerseree 15

2.1.4 Kinds of Online Marketing - - 5 + + + **sksserseeeeeseeerrre 17

2.1.5 Traffic Acquisition by Content PTOVIC€TS 5 5S ss+sssssesesess 22

2.1.6 Compensation model for online adverfISing - «<< <<<<++ 24

2.2 Affiliates Business Models << << 1111 11x xvvvkvkkerreeeeeree 28

2.3 Select Suitable Affiliate Program Ăn kg ngư, 32

2.3.1 BUYING DFOC€SS eee ch kt 32

2.3.2 BUYING SItUALION 0n 33

2.3.3 Supplier selection DTOC€SS - c1 321139 1 1 111811111 8 1g rệt 34

2.3.4 Supplier selection and supplier management sysSfem 35

3.1.1 Czech’s Current AfẨillaf€S - -Ă SàLSnS*S SH HH Hệ, 40

3.1.2 UK’s Current Afillaf€S - - c1 E13 23139111111 111 1E ng rệt 44

4.1 System Analyze And DeSign cccceesccsseeeessesesceeseeeseeeeseeeeseeeeaeceseeeeeeeaes 59

4.1.1 Use-case modelo ceeccesccessessseeescecececsseessneesseeesseecsaeecsseeeaeeseaeessneeee 59

4.1.2 Use-case specification and Activity Diagram - -‹ ««+ss<++s+ 64

4.1.3 Sequence and Class [D1aðTam -. 5 + + E9 kE+sEEseersseeeeseeee 118

LIST OF FIGURES

aos LL] >>>

Figure 1-1: Basic model of online advertising [7] - - 5s + +seesseerseeeress 7Figure 2-1: Relationship between online marketing and affiliate marketing 18Figure 2-2: Buying process [Ê 6 6 +1 3 23 9 9 ng Hàng HH giờ 33Figure 2-3: Supplier selection process [29] - - c- - xxx 9v g nrêy 35Figure 2-4: Supplier selection and supplier management system, Lee, 2001 [28] 36

Figure 3-1: Air ticket guide website(letenkar.cZ) ccecceesceeseeceseeeeceeeeeeseeeeeneeeaes 40

Figure 3-2 Tourist website(dovolena.cZ) ccccceesccesseeesseeeteeeeeeceeceeeaeeeeaeeesneeneeesas AlFigure 3-3: The biggest online travel agency 1n Czech(Inv1a.CZ) .-« 41Figure 3-4: Regional online newspaper website(i-NOVINY.CZ) - ««<<+s+2 42Figure 3-5: Czech Republic's restaurants, bars, and pubs websites(schuti.cz) 43Figure 3-6: Grocery store website(Nakuptesi.CZ) cceeceesseesseceeeeeeseeeeaeeesaeeesneesaes 44Figure 3-7: Apply loans website(https://www.brandable.co.uk/loanexplorer-co-uk/)

¬—- ÔÔ AMID 37 se case TOO Meena ẽ ốốốỐ 44

Figure 3-8: Shopping website(https://shoppingday.cO.uk/) ««+-«<<+<«+ 45Figure 4-1: Admin Home page with Total Orders, Revenue, Discount, Sales By

Link eae saa ESI coos venvenscccccccccocsoesceesesacenssastssecaceateoeensencensene® 124Figure 4-2 Admin Home page with User Analytics 0 ccceecccssseeeseeeeeeeeeeeeneeees 124Figure 4-3 Admin Home page with Behavior Analytics — View Product 125Figure 4-4 Admin Home page with Behavior Analytics — Concern Product 125Figure 4-5 Admin Home page with Behavior Analytics — Want To Buy Product 126Figure 4-6 Admin Home page with Behavior Analytics — Buy Products 126

Figure 4-7 Admin Home page with Behavior Analytics — Existent Keyword 127

Figure 4-8 Admin Home page with Behavior Analytics — Inexistent Keyword 127Figure 4-9 Admin Home page with New Join Members and Latest Transactions 128Figure 4-10 Admin Page with User List ccc ceeeceeeeeeeeceeeeseeseseeseseeaeeseeaes 128Figure 4-11 Admin Page with User List sorted by Chip -«<+s<<x++ 129

Admin Page with User Profile - VendOr ««+sss++x+sss2 132Admin Page with Product List - 5 5 55 =+s£+++sevserseeeereke 133Admin Page with products filtered by pFICe -«+«+s<c<«2 133

Admin Page with products filtered by status -.-‹ -«<- 134Admin Page with product details «5s £+sceseeeeeeske 134Admin Page with Orders List cecceeccesceceseeeseceeeeceeeesneceseeeeaeeeses 135

Admin Page with filter by desired vaÏue ««++-«<++ss++s+2 135Admin Page with filtered status of OFd€rS - -. «++<<++<++2 136Admin Page with search function(order id, customer name, vendor) 136

Admin Page with orders in details - «++s«£+s£ese++eeesxs 137

Admin Page with history :ccccccessccssceeseceseceeeeeeeeesaeeeseeeesneeeaeeeeas 137Login page for Vendor/ CUSfOIN€T- - 5 5+ + £+++se++se+sss2 138Sign-up page for Vendor/ CuSfOIN€T - 55+ +s£++sss++sex+sexs+ 138

Home 0s 139Home Page with New ATTIVAÌS - - Gà SH nhiệt 139

Home Page with Best SŠaÌÏe§ - c HH ng ngư 140Home Page with Trending ProdUCS - 5555-55 <+++sex+sesesss 140Products Page - LH TT TH TH ệp 141

Products Page with Filter EunCtION - 255 +ss++svssseessee 141

Products Page with Sort Function eeeecsceeceteeseeseenesseeaeeeeens 142

Products Page with Search FuncfIon «+ +-<cs<cssssseeske 143

Product Details Page 0 ecesccessceeseceseeceneeceseeeseeceaceceaeeesaeeeneseaeeeas 144Products Details Page With Comment . 5 «+ << «+++s+2 144Customer Profile Informatfionn << << << << << + + *‡‡ xa 145

Figure 4-41 Customers Orders Information With Filter Eunction 145Figure 4-42 Customer Orders Information with Search Function 146

Figure 4-43 Customer’s Introduced Link Information - «<< =+s++ 147

Figure 4-44 Vendor Analytic (Product Analytic In 20 days) 147Figure 4-45 Vendor Analytic (Top Affiliate) ee ceceesccessecesceceeeeeeaeeeseeeenneeees 148

Figure 4-46 Vendor Shop Products :.ccccccsscccsssceseeeeseeeeseeeseeceeeeeaeeesaeceseeeeeeeegs 148Figure 4-47 Vendor Shop Products With Filter Function (Stafus) 149Figure 4-48 Vendor Shop Products With Filter Function (Category) 149

Figure 4-49 Vendor Shop Products With Search Function -‹ -«<- 150

Figure 4-50 Vendor Product Details << +3 1E vn re 150

Figure 4-51 Vendor Shop Products With Creating New Product - 151

Figure 4-52 Vendor Shop Products With Import Function -«‹- 151Figure 4-53 Products data eXaimpÏe - «1E ng net 151

Figure 4-54 Vendor Shop T€TS 5+ << E241 E3 1 11 1H ng rệt 152Figure 4-55 Vendor Shop Orders With Filter FunctIon - « -««<s«++ 153

LIST OF TABLES

« —< LL] =>

Table 2-1 Characteristics of Buying situation [28]| « «+ << s+++sexsseexseess 33

Table 3-1 Advantages and issues with affiliate marketing [28] - 45

Table 3-2 Affiliate marketing revenue share compared to business model [28] 47

Table 3-3 Target market size compared to business model [28] 48

Table 3-4 Benefits and drawbacks of respective commission models [39] 49

Table 3-5 Selection process of an affiliate program [26] - - -«+<<+<++ 50 Table 3-6 Benefits and drawbacks of affiliate marketing [28] - 51

Table 3-7 Affiliate marketing revenue share compared to business model [28] 52

Table 3-8 Target market size compared to business model [28] 52

Table 3-9 Benefits and drawbacks of respective commission models [28] 53

Table 3-10: Selection process of affiliate program [11] .««-+-«<++<es+>ss++ 53 Table 3-11: Benefits of affiliate marketing [8] - - 5s + + s++sexsseexseesseers 55 Table 3-12: Target market related to affiliate marketing revenue share [11] 56 Table 3-13: Compensation models [ Ï Í] - «+ <+ + ‡++*++ve+eeeeeeeeseeeeseeers 56 Table 3-14: Types of affiliate marketing program [ Ï Ï] -««++-«<++se+ss++ 58

LIST OF DIAGRAMS aos LJ] =>

Diagram 4-1 Use-case diagram as an administrator «<< «<< £+sss++ 60

Diagram 4-2 Administrator use-case diagram in đetaiÌS - - «<< «<++ss++ 61Diagram 4-3 Use-case diagram as a user (Customer and Vendor) 62Diagram 4-4 Customer use-case diagram in đdefalÌS -« «+ +sss+++se++seesssess 62Diagram 4-5 Vendor use-case diagram 1n-defalÏS s5 s- «+ + +++sexsseesssess 63Diagram 4-6 Analysis revenue for AmIH - + + svEeeeeerserrersersee 66

Diagram 4-7 Analysis revenue for S€ÌÏ€T < 11v HH g ng re 67Diagram 4-8 Sign-In for Adminstrator s5 <5 3+ E333 E+EESeEeeeeeeersrsere 69

Diagram 4-9 Insert ACCOUTI( - 5 5 10199 TH ngư 71Diagram 4-10 Update account 0 ceeceescescssceseesessceseeseesessessecsessessessaeeeseaseaseaeens 73Diagram 4-11 Delete aCCOUTIH G22 1201113111833 18911 1891111 11 811181 1v ng 75Diagram 4-12 Search account for Admin - - «+ + sseEeeeeeeesereerseesee 76

Diagram 4-13 Update products for ÀAmITn -. 5 5 + * + E*sEE+sEeseeseeeee 78Diagram 4-14 Delete products for Admin - - 5 5S + + +sveEsseeeeersreers 80

Diagram 4-15 Delete products for Admin - - 55 5< < + +*seseeeeeeerseeers 82Diagram 4-16 Delete orders for AdmIn - - 5 + + + x**EvseEEeereeeeereerseeske 84

Diagram 4-17 Search orders for AImIT 5 «5 + +2 1E EEsEesEeekerskeree S6

Diagram 4-18 Received orders for Admin - + x xen reereerske 88

Diagram 4-19 Sign-up for CUSfOTN€T - 4 5 + + E311 1 1E ng tr 90Diagram 4-20 Sign-in for CUSfOTN€T - 5 c5 1 E311 8391 13 11 11 1v re 92

Diagram 4-21 Search product for CuSfOTT€T s5 5 SE * + E+*seEseeeeeereeeers 93Diagram 4-22 View DTOdUCC - t1 TT TH TH HH HH ng tiệt 94Diagram 4-23 Comment product 26 5 51 1 931 119 1 991 ng ng tr 95Diagram 200.00 7 97Diagram 4-25 Purchase DrOdUC - -. 5 + E111 9 911 ng ng 101Diagram 4-26 Order histOry - c1 1911931911191 HH 102Diagram 4-27 Receive order for CUSfOTT€T - 5 +5 + E++sEE+veeeeeeeeereree 104

My order for 3i: 115Search my order for S€ÌÏÏeT «+ +<£++* + *svseserskrskerkrrke 116Accept my order for SeÌÏ€T 5 5+ + x3 siererek 118

Analysis revenue for Admin sequence điagram 119Analysis revenue for Admin class điagram -« ««+ 119Analysis Revenue for Vendor sequence điagram - 120

Analysis Revenue for Vendor class điagram - -‹ -«<+ 120Product processing state điàTa1m - 55c + £++vsseeseessee 121Order processing state diaØTAI - 5-55 55 + vskeersrrrrke 121

LIST OF ACRONYMS

Acronyms Meaning

MMO Make Money Online

CPA Cos Per Action

CTR Clickthrough Rate

CR Conversion Rate

CPS Cost Per Sales

CPI Cost Per Install

CPL Cost Per Lead

CPQL Cost Per Qualified Lead

CPO Cost Per Order

AP Approval Rate

AOV Average Order Values

EPC Earning Per Click

CPC Cost Per Click

ROI Return On Investment

SEM Search Engine Marketing

SEO Search Engine Optimization

LC Last Click

Globalisation and technological upgrades are coming near and people thatinclude it nowadays might be higher organized for tomorrow E-advertising isdeveloping at a dramatic tempo and is impacting purchaser and marketplacebehaviours This has pressured companies to begin incorporating e-advertising as theprimary shape of advertising and attempt to meet their centered customers' desires tothe satisfaction Affiliate advertising is a cost-powerful answer that allows you toadvantage earnings via way of means of selling different people's merchandise andservices This method is commonly achieved thru an associate network Mostimportantly, it is notably much less time ingesting while as compared to maximumdifferent advertising methods, and it allows you to decorate your incomes from theconsolation of your personal home

This thesis shows how content providers (also known as publishers oraffiliates) operate an affiliate marketing model (performance-based internetmarketing) In addition, we surveyed three different content providers for more

information on their affiliate marketing usage

The thesis also identifies the main pros and cons of affiliate marketing forcontent providers and the conditions under which affiliate marketing is moreprofitable than other forms of online advertising Furthermore, we discuss the process

by which content providers select affiliate marketing programs

PROBLEM STATEMENT

Affiliate marketing has developed rapidly over the past few years, and we believethat we can expect even greater growth in the future Today, many businesses havestarted affiliate programs to efficiently acquire new customers A major onlineretailer, Amazon, he has over one million affiliate partners, and more than a quarter

of his Amazon revenue is said to be generated through affiliate programs [1] Starting

an affiliate program can improve any online business, but competition is fierce and

constant improvement is necessary for your affiliate program to be successful and foryour affiliates to remain loyal There are many factors to consider when developing

a program.

Affiliate programs can be set up in affiliate networks or managed internally [2].The development of affiliate networks has provided an opportunity for manycompanies to launch affiliate programs to provide technical solutions for managingaffiliate programs [1] Companies that choose to create their own affiliate programrather than outsource it face a variety of challenges, including program developmentand management

The main reason for creating this website is to distribute product marketing andproduct creation responsibilities among multiple parties We leverage the skills ofdifferent people for more effective marketing strategies and give our contributors aportion of the profits

Chapter 1 INTRODUCTION

The Internet has been around since the late 1960s, but its rapid growth began onlywith the emergence of a new medium for publishing information: the World WideWeb Since then, the Internet has become the fastest growing medium in humanhistory It took Parker lots of years for radio to reach over twenty million users, butthe Internet only took him five years to reach this milestone [3] WWW’'s strength lay

in its ability to provide an easy-to-use medium that allows consumers to findinformation through his network of websites [4] However, constructing a website is

only the first step in establishing a company's online presence, which must befollowed in order to get Internet his users to visit her website [5]

After the introduction of the World Wide Web, it was not long before companiesrecognized the marketing opportunities of the Internet [6] Chandler says that from aretailer's point of view, the Internet presents not only many opportunities, but alsothreats

Companies can take advantage of new technologies to improve their competitiveness,but they also have to face new start-ups, some of which are purely virtual Companiesmust adapt their business to new trends otherwise it will not survive [6] Carl Kleinargues that one such trend he argues is the emergence of new and diverse

intermediaries in the value he chain of existing firms [7]

1.1 Evolution of Cybermediaries and Content Providers

With the rapid development of the Internet since the 1990s, many authors have argued

that the introduction of the Internet will lead to the elimination of intermediaries in

the value chain between manufacturers and end customers — the elimination ofmiddlemen Claus argues that distribution channels in the new economy are moving

from two or he three intermediaries to zero or he one intermediaries due to new means

of communication that allow both cost reduction and customization [8]

However, even if the Internet were able to reduce the number of intermediaries in

some areas, businesses would still need to leverage their expertise and adapt their

activities to new conditions in order to remain competitive in the market has been

As Carl points out [7], while cybermedia introduces new ways to manage channelsand is a potential competitive advantage for the companies with which they partner,

it also introduces new levels of complexity Managers must therefore understand newways of managing electronic channels in order to make good decisions

According to Carl et al [7] Cybermedia offers the following services to its customers:

e Search and Ratings - Facilitates the selection of merchants, products or

services

e Needs Analysis and Product Matching - Identify customer needs and select

products or services that meet them

e Customer Risk Management — Mitigate perceived risks

e Product Distribution - The physical distribution of products or services

Dealers also benefit from cybermedia activity in a variety of ways, purchasingcybermedia services such as: It has a great influence on purchasing decisions

e Provide Customer Information - Provides detailed information about

customers and their buying behavior

e Vendor Risk Management - Mitigate vendor risk associated with selling

products or services in electronic marketplaces

Despite the increasing importance of cyber mediators [9], their role in promotingproducts and services online has not been well investigated A report on the impact

of commerce states that the role of intermediaries in future development is importantand needs further research [7] Carl also notes that marketing on cyber media hasbeen poorly written in the area of communications and that more research needs to

be done in this area

Cybermedia that provide online advertising (via links or product listings) tomerchants are referred to as content providers They are defined as individuals orcompanies that "distribute copyrighted content over the Internet." B Website owners,bloggers, or forum members Content providers are sometimes called publishers [10]

Content providers come in all sizes They range from large companies such asmagazines and newspapers to individuals such as blog owners According toBenjamin, content providers large and small can use online advertising as a revenuestream Large websites have large audiences, while smaller websites can usuallyreach niche audiences [11] Benjamin also notes the sheer number of his small content

providers They are made up of small businesses and individuals familiar with theopportunities

1.2 Online Advertising

There are many definitions for the term Internet advertising It was debated whetherthe Internet was another form of classical advertising or a direct marketing effort.According to Carl [7], over the years this debate has led to compromises

“Internet advertising is a fusion of traditional advertising and direct response hismarketing” [7]

Benjamin calls online promotion a traffic-building campaign, a way to increase his

website's audience According to him, advertising occurs when “an advertiser pays a

fee to place advertising content on another of her websites” [11]

As in each industry, companies can be divided into categories based on their role inbusiness transactions [12] Ted mentions three parties that take part in on-lineadvertising They are:

difficult to sell alone, so they quickly formed ad networks The network offers

experienced sales representatives and is easier for advertisers to manage

Amos describes the simplest model of online advertising in Figure 1-1 [14] In thisexample, the ad appears his 1000 times on the ad page and is clicked by 10 visitors(hence the clickthrough of 1%) These visitors are redirected to a landing page whereone of them actually buys the advertised product In this case, the ad spend perpurchase was £20, as spending £20 to display an ad resulted in a sale [14] More

information on online campaign efficiency and how it is calculated is provided later

in this document

Ad site Destination site

Figure 1-1: Basic model of online advertising [7]

As Carl points out [7], the first web advertisements on the Internet copied the worldoffline A portion of your website has been assigned to your ad Ads were typicallyrectangular and only took up about 10% of the page area Since then, website visitorshave grown accustomed to standard banners and new forms of online advertising havehad to be used to attract Internet users

Carl also points out that as the proportion of advertising dollars spent on onlineadvertising has increased [7], businesses have begun to look at the number of visitorswho have become customers after being drawn to ads on other of his websites.increase After calculating all the costs, the amount of money required to acquire acustomer was often higher than the customer's average lifetime value This situationwas not sustainable in the long term, so more efficient customer acquisition methods

had to be used Based on these needs, the concept of affiliate marketing was born.

1.3 Regarding Affiliate Marketing

According to Scott [15], Affiliate marketing is categorized as a form of onlineadvertising, in which the merchant shares a percentage of the sales revenue for eachcustomer who visits the company's website through his provider of content Content

providers, also known as affiliates, typically place online advertisements (such as

banners and text links) on their websites When a visitor clicks on an ad, they areredirected to the merchant's website and the affiliation is tracked through her cookiesstored on the visitor's computer [15].

Online marketing merchants, called advertisers, pay for the services of their contentproviders only if visitors from their websites take specific actions Such actions

include purchasing products, filling out forms with personal data, subscribing tonewsletters, etc [16]

Scott cautions that the affiliate bears all risks associated with marketing themerchant's products [15] The concept is simple Affiliates make money when theirmarketing efforts are successful If not, the partner will not make any money and willpay the opportunity cost There is no limit to the amount an affiliate can spend or

ear.

Affiliate programs are contracts between retailers and content suppliers According

to Scott [15], the Affiliate Program is a contract between his businesses and a number

of his affiliate businesses to drive traffic and produce revenue, much like "immediateaccess to thousands of sales agents." It is described as having a deliberate, one-wayrelationship [15] According to Scott, affiliate marketing is a transactional businessthat does not share future success or place restrictions on exclusivity Affiliate

programs involve little time and money, and they are simple to leave

There are many benefits for merchants using affiliate marketing Scott uses affiliatemarketing to ensure that merchants see thousands of independent websites, alsoknown as content providers, displaying ads for their products, and only if those adsactually lead to sales [17] It claims that it can be allowed to pay the fee Advertisingcosts will shift from fixed costs to variable costs, making it easier to allocate funds toadvertising

In revenue sharing mode, the ad price is a function of the desired market reaction [3].Measurable market responses include key marketing goals such as sales, software

downloads, qualified leads, and product inquiries Results-based models are thereforethe answer for marketing managers who are challenged to justify the amount allocated

to Internet advertising within their budgets

As Scott has demonstrated [15], affiliate marketing improves the targeting andefficacy of online advertising Due to the opportunity cost associated with forgoingrival programs, content providers must choose their affiliate programs very carefully

As a result, they are even more exact in their advertising targeting than the shops

themselves

Product or service recommendations on affiliate websites can create a halo effect andencourage customers to purchase Aside from increasing sales, employing contentproviders for online advertising is also beneficial for expanding reach and generatingbroader exposure [17] In addition, content providers allow businesses to attractcustomers who are typically very difficult to reach, saving them administrative costsassociated with buying advertising when planning his campaigns online If managedproperly, this program can enable advertising on more websites than you wouldotherwise get

However, it is crucial to encourage content providers to join the affiliate program andoffer enough incentives to keep utilizing it in order to create a merchant advertisingpresence on a lot of websites [17] However, the thesis lacks answers to more complexconcerns on this subject, such as what acceptable incentives are and why contentproviders favor affiliate marketing over other revenue streams

1.4 Problem Discussion

Affiliate marketing has grown rapidly in recent years As a pioneer in affiliate

marketing, Amazon, a leading online retailer, has worked with the company since the

launch of its affiliate program in 1996, attracting over ten million content providers

Today, more and more companies are starting affiliate programs to efficiently acquirenew customers Affiliate networks are emerging and establishing themselves asintermediaries between content providers and merchants who provide technical

solutions for managing affiliate programs [18] Such networks are, for example,HubSpot, Elementor, Aweber, Affiliate networks introduce several new programsevery day Although the content providers themselves choose which advertisers toinclude on their websites, merchants can choose which content providers to offer tojoin the affiliate program Content providers have a wide range of options because tothe expanding number of affiliate programs that are readily available online.

These intermediary affiliate networks are highly valued by merchants for their goodaccess to content providers that can generate desirable traffic on the merchant'swebsite and significantly increase revenue The importance of affiliate networks is

highly valued in the market and is growing all the time In 2019, affiliate network

Commission Junction was valued and sold for just $42 million [13] In January 2020, AOL acquired Elementor for his $900 million Elementor is a German-based affiliate

network of similar size This proposal was not accepted by shareholders because they

considered it too low

The main purpose of the thesis is therefore to characterize the use of affiliate

marketing by a content provider and provide a sample of affiliate model

10

Chapter 2 LITERATURE REVIEW AND THEORICAL BACKGROUND

Reviews of the thesis show the ideas and models that are currently in use to addresssample concerns We first examine affiliate marketing in the context of onlineadvertising as a whole, define the most often used terminology in both affiliate

marketing and online advertising Additionally, we explain the advantages and

drawbacks of online advertising and affiliate marketing, as well as how content

producers see them

Forms of online advertising and their relationship to affiliate marketing are presented,followed by available compensation models, and insights into various ways tomeasure the effectiveness of online advertising and affiliate marketing

Finally, we discuss concepts related to provider selection in order to explain theprocess of selecting providers for affiliate programs

2.1 Online Advertising

Running a company's website on the Internet is itself considered a form of advertisingand is no longer online advertising Instead, advertising is a means of attracting

customers to website, a form of traffic acquisition [16].

Online advertising is an important revenue stream for content we provided Affiliatemarketing is a unique approach of selling advertising space that is based on success-oriented payment systems, as is discussed in Section 2.1.6 below To understand

when it might be beneficial, we need to understand the strengths and weaknesses of

other content provider options

According to Chandler [6], content providers have four options for selling ads space

e Direct sales: sell advertising space directly through sales representatives

e Site representative company: websites hire companies to sell advertising

space Such companies charge around 35-40% and often require minimal pageviews, verifications, and demographics to represent their website

lãi

e Advertising Networks: Ad networks group websites together for easy access

to advertisers

e Auction: Websites may offer free advertising space in auctions

In addition, Carl et al [7] Added another option:

e Affiliate Marketing

2.1.1 Affiliate Marketing

As explained in the introduction chapter, affiliate marketing is a contract between a

merchant and a content provider to promote the merchant's products and services ontheir website [20] Content providers are paid only when visitors to their website

perform certain actions

Therefore, the content provider's task in affiliate marketing is not only to deliveradvertisements, but also to convince users to become customers Affiliate marketing

is therefore sometimes called performance marketing

According to Chandler [6] , affiliate marketing he can be divided into two groups:

one-to-one affiliate marketing and one-to-many affiliate marketing In a 1:1 program,

the merchant contracts with a partner of their choice Contract terms are negotiableand do not affect contracts with other affiliates Large market players that have theability to bring in a lot of new customers to the merchant's website use this form ofaffiliate program

With a one-to-many affiliate program, businesses establish the same rules for allaffiliates who decide to sign up for the program [20] When a merchant has numerousaffiliates and it would be too expensive to negotiate every detail of the agreement,one-to-many schemes are often used

According to Glazer, affiliate marketing is especially beneficial for smaller business[13] In particular, these business may use affiliate networks Companies can choose

to build a private HIM affiliate program on their own HIM website or join third-partynetworks to leverage their own technology solutions [12] Affiliate networks are

12

“value-added intermediaries that offer services, including aggregation, to affiliate merchants and affiliates” While individual programs allow traders to tailor their

terms to different partners, third-party networks typically offer the latesttechnological solutions and reporting tools, and have a broad content base of hisprovider We're here [13]

2.1.2 Benefits of Online Marketing

Online Advertising has following four advantages [21]:

e User's language

e User's location down to city level

e Google.com and its partners including AOL, Netscape Netcenter,

Shopping.com, Ask.com, etc Keywords searched on site

e Depending on the context and topic of other websites

e Specific websites that contain website categories or website-related ads

(Google AdWords Learning Center, 2021) [22]

Google's AdWords service is highly adopted, with Google's revenue reaching

$282,133 million in 2022, and its stock price at $1,000,000, three years after Google's

IPO in the spring of 2019 increased tenfold [22]

13

Affiliate marketing offers even more targeting options According to Ivan [21],

affiliates utilize marketing to identify which merchants and products are mostappropriate for their audience In conventional internet advertising, the merchantdetermines how to target the advertisement whether or if merchants are still able tochoose which content suppliers to collaborate with [21]

Interactivity

A brand or product promotion is the aim of advertisers, according to Scott Onlineusers can virtually interact with the product, for example, by downloading and testingout a software demo The easiest medium for turning information seekers intocustomers is the internet [21]

Because content providers are only compensated when the transaction or other stated

activity is really carried out, according to Ivan [21], affiliate marketing takes this ideaeven further Therefore, it is their responsibility to look for creative ways to boostengagement and urge their visitors to purchase a linked good or service

Tracking

Scott says measuring ad response in traditional media has always been difficult, butonline advertising is relatively easy and accurate Advertisers can measure thenumber of times their ads are viewed, clicked, to the actual number of sales contactsgenerated [21]

His package of software that can track ad performance is now available For example,Google Analytics not only allows users to track the performance of his web ads, butalso correlates them with various factors such as user location, language, and searchqueries By directly linking performance to products and their prices, advertisers canoptimize their advertising campaigns to deliver the best performance (GoogleAnalytics Product Tour, 2020) [23]

Affiliate Marketing not only provides the above information, but also monitorscustomer activity after clicking on an ad through cookies that are stored on the

14

customer's computer Merchants typically track customer activity over days or weeksand pay commissions to content providers if sales are made during that period [21].

Deliverability and Flexibility

Online advertising is much more flexible than traditional advertising Campaign

results are visible immediately and you can change the campaign if the results are notwhat you expected Additionally, campaigns are delivered non-stop [21]

Benefits of Affiliate Marketing

There are two ways that affiliate marketing can be beneficial for merchants: byproviding merchants with products and services to promote, and by affiliatemarketing affiliates, who present products and services on merchants's websites [21]

Increased visibility and sales are just two of the many advantages affiliate marketingmay provide to retailers [24] Affiliate marketing allows content providers new ways

to monetize their websites and gives them the chance to work with many different

merchants, both of which are things that are not feasible without affiliate marketing

Websites are most benefited from affiliate programs if they have a close connectionwith the products or services offered through the program There is a strongconnection between website orientation and brand perceptions

2.1.3 Drawbacks of Online Marketing

Online marketing is a big step forward over traditional advertising and addresses

many of the issues advertisers have had to contend with, but it still has somedrawbacks [21]

Pricing Models

Noah wrote in 2017 about poor pricing models used in online advertising [19] Heargued that pricing is derived from traditional advertising media such as magazines.Instead of making prices dependent on the number of readers, online contentproviders charge according to the number of visitors, or advertising (PPI, pay per

impression) While this model seemed fair, large advertisers quickly realized that they

15

were paying too much for the profits and lifetime value of the customers theyacquired.

Affiliate marketing pioneers, he is one of his CDNow.com case In his study, Noah

found that a typical online advertising price is $90 found an average CTR of 1% and conversions of 2% for his CPM on rate, they paid a new customer about $900 [20].

Not many online retailers can afford such costs With a gross margin of about 25%,

a lifetime customer would have to spend over $4800 just to pay the initial cost After

launching CDNow.com's affiliate program called "Cosmetic Maintenance Network",affiliate marketing accounted for his 40% of customers with only 10% of the

marketing budget [20]

As Evgenii notes that the content provider may be concerned about the merchant's

ability to force visitors coming from the content provider's website to perform thedesired actions [24] If the trader fails, the content provider loses the commissioneven if they were unable to influence the terms [24]

The Expensive Prices Of Goods

In the early days of online advertising, the supply of advertising space vastlyoutstripped the demand for online advertising by retailers, but that is changing in

2021, according to Noah [20] Prior to 2017, online advertising was consideredrelatively cheap 2017 saw significant media buying, especially in some industries,resulting in a shortage of advertising space and, of course, higher prices for onlineadvertising

This price increase has forced advertisers to overhaul their advertising spend and takecomplex measures to measure results Merchants are aware that some of theiradvertising dollars are generally wasted and are looking for more effectiveadvertising models Meanwhile, the overall growth of online advertising is givingcontent providers more options on how to sell free advertising space, making it harder

to attract them [20]

16

Banner Blindness

Banner blindness is a condition where people frequently overlook banners and can'tremember the message they were intended to convey Wikipedia, which initiallyidentified the problem, claims that while a person is performing certain tasks or justcasually perusing the web, there is a greater likelihood for banners to vanish [25]

Content Affiliate can deal well with banner blindness in marketing because contentproviders know their customers best and know which ads are effective Also, sinceaffiliate marketing campaigns are pay-per-action (PPA), it's best for content providers

to avoid vanishing banners

2.1.4 Kinds of Online Marketing

Overview of online marketing types

As discussed below in Section 2.2, online advertising can be effectively the sole

source of income for content providers To understand a user's preferences regarding

online advertising, it is necessary to outline what types of advertising content herproviders can use

Carl describes the many advertising tools that have been in use since the dawn of the

Internet, grouping them into his four main categories [7]:

e Advertising via Web

e Advertising via Email

e Advertising via Social Network

e Advertising via Ad Model outside the Box

Other "out-of-the-box advertising models" such as cursors, screensavers and toolbarsare outdated today or have become the standard medium for web advertising and arenot covered in this thesis [20] Noah provides a comprehensive overview of the types

of online advertising and how they relate to affiliate marketing The diagram shows

all forms of online advertising that retailers can use to attract customers The colored

17

boxes draw on our network of content providers, and the dark green boxes showwhere affiliate marketing can be applied.

You may use affiliate marketing in your email advertising by including related links in the body of your email or newsletter, as indicated below Affiliatelinks can be combined with banners, text links, articles and interstitials whenadvertising over the internet Affiliate marketing is also applicable to search enginemarketing, as discussed below (Noah [20]; Carl [7])

affiliate-Robert notes that a specific use of affiliate marketing is a storefront where hisprovider of content can sell other companies' products and services on his websiteunder their own brand using technology solutions provided by advertisers said Awebsite visitor is not required to leave the content his provider's her website beforecompleting a purchase [13] Storefronts are often called white labels

Advertising vie the |

Figure 2-1: Relationship between online marketing and affiliate marketing

Advertising via Web

Common advertising media such as banners, buttons, and interstitials are called web

ads [6] According to Chandler, web ads are rectangular areas on or between pagesthat display text- and graphics-based ads When a user clicks on her web ad, they aretaken to the linked target website

18

Text Links

Unexpectedly, text links or text ads, the most basic kind of advertising, are one of themost successful forms of web advertising Text links are also more user-friendly andless invasive [7]

Sponsorships

Noah shows that website sponsorship is more than just placing a banner on yourwebsite [20] Such campaigns are usually aimed at attracting visitors to her websitefor advertisers as well as branding his image By sponsoring a website, the advertiserchooses to integrate their brand with that of the sponsored website If our sponsoredbrand is trustworthy, our customers will trust us

Microsites

Microsites are a special form of advertising When a user clicks on an ad, instead of

being redirected to the advertiser's her website, they are redirected to the current herwebsite subpage, which displays detailed information about the advertiser or itsproduct In this case, the user does not leave her website of her provider of content[6]

According to Chandler et al Web advertising, especially the traditional bannerformat, is slowly disappearing in favor of other forms of online advertising.According to Amazon's report, the market prefers smaller sizes to large quantities ofsmaller sizes (Amazon, 2022)

19

According to Noah, an advertorial is an editorial with a clear promotional purpose.Advertisement articles like this get a higher response rate because users are morelikely to trust the editorial However, if users feel cheated by the editorial team, thisapproach can backfire and tarnish the brand's image [20]

Interstitial

Pop-ups, e-merchals, over-the-page expansions, superstitions, screen breaks, andother contemporary multimedia advertisements are collectively referred to asinterstitial Interstitials, according to Noah [19], frequently occupy a sizable amount

of the screen, occasionally the whole screen, and block consumers from accessing thepage until a particular action is completed or the ad popup expires

The benefit of interstitials is that they guarantee the user's attention and prevent themfrom being diverted by other website content Interstitials are able to communicatequite complicated signals, including audio and video Usually, there is a button or

link that the consumer can click to avoid the advertisement However, the user cannot

anticipate when the interstitial would occur again [20]

A drawback of interstitials is that they can irritate users and choose not to visit the

server again Interstitials can also create a negative brand image because the format

is much more intrusive than regular online advertising

Advertising via Email

According to Wikipedia, email is usually the first thing users check when theyconnect to the Internet In the UK, his 94% of internet users used email regularly inhis 2022 (Wikipedia 2022) Although email advertising is now considered

synonymous with unwanted email, or spam, there are legal and ethical ways to use

email as an online advertising vehicle

Discussion Lists and Newsletters

20