Affiliate Marketing in the Offline World

By Alex Tran

Affiliate marketing is a term used online to mean selling someone else's product or service for a commission. Let's take an online jewelry store as our example. We'll call the store Fantastic Jewelry dot com. (The domain name is taken but no website exists as of this writing. I have no affiliation with this domain.). Fantastic Jewelry has an affiliate program where they pay a percentage of the sale price to the affiliate marketer that drive traffic to their site. The commission rate can range from 1% to 100%. It depends on the program. It could also be a fixed fee for every qualified lead. For this example, let's say that the online jewelry store pays a fixed commission of $5 per qualified lead.

If an affiliate marketer wants to drive traffic to Fantastic Jewelry's website, they would first sign up as an affiliate under the terms and conditions of the program. Then the affiliate would use their marketing skills to drive traffic to the website. If the traffic that they drove makes a qualified action -- like filling out their email or buying an item -- the affiliate marketer would get paid. All this sounds very high-tech, modern, and Internet'ish, doesn't it?

Well, it is and it isn't. Affiliate marketing is high-tech in that traffic and commissions are handled electronically. Marketers who conduct business this way don't have to talk to potential customers directly. They typically do it via written communications like blogs, articles, ads, emails, and reviews. Some affiliate marketers use video a la YouTube and audio a la podcasts. In almost all cases, the communication is one way.

The commissions are tracked by cookies or small programs that tags each visitor that comes to Fantastic Jewelry's website. In addition, these cookies can last anywhere from 24 hours to over one year. This means that the affiliate marketer can get paid for the traffic that they sent even if the customer doesn't buy right away. This is high-tech, indeed.

On the other hand, affiliate marketing is as old as commerce. Merchants have used this method of getting qualified traffic to their stores for centuries.

Let's use the same jewelry store to illustrate my point. Fantastic Jewelry sells their products via a nice fancy store. The problem is, they can't always rely on walk-in traffic. Their location is fixed. So what can they do? How about getting traffic from other parts of the city to come to them?

Fantastic Jewelry sets up an affiliate program where they would pay marketers to send traffic to their store. They decide to pay $5 for each qualified lead. In the offline world, traffic needs to be physically driven to their store. So Fantastic Jewelry targets taxi drivers and tour companies as their ideal affiliates.

The taxi drivers comb the cities looking for qualified leads. If the drivers operated in a touristy city, they would be on the lookout for tourists. They offer a cheap taxi ride tour of the city if the tourist would agree to stop into Fantastic Jewelry "just to look." Most of the time, the tourist agrees to this deal. The taxi driver ends up making more by literally driving traffic as an affiliate rather than just transportation.

Let's take a look at some numbers to show what I mean.

Scenario 1: Drive tourist from point A to point B charging standard fare. Standard Fare = $6

Scenario 2: Drive tourist from point A to Fantastic Jewelry to point B. Discounted Fare = $2; Affiliate Commission = $5; Total Amount Earned = $7

We see from Scenario 2 that the taxi driver is ahead by $1 if they discounted their fare to $2. They would be ahead by $2 if they charged $3 for their fare instead of $2 -- an increase of only $1. Most tourists would be delighted to pay a taxi fare of $3 instead of $6 so conversion rates would remain high.

But this gets better for the taxi driver. Typically, taxi drivers would sign-up for several affiliate programs. Based on the tourist demographic, the taxi driver would sign-up for the following affiliate programs: jewelry, clothing, sight-seeing tours, and souvenir. Each program pays out about the same commission.

So here is how Scenario 2 could look for the affiliate marketer:

Discounted Fare = $2; Affiliate Commission From Jewelry Store = $5; Affiliate Commission From Clothing Store = $5; Affiliate Commission From Sight-Seeing Tour Office = $5; Affiliate Commission From Souvenir Store = $5; Total Amount Earned = $22.

Compare that amount to just driving a tourist from point A to point B. The lifetime value of each tourist just went from $6 to $22 for the taxi driver.

Now, we'll look at how affiliate marketing helps offline store owners.

If Fantastic Jewelry pays $5 per lead, what do they get in return for that investment? Let's take a look. The owners of the store calculates that out of every 100 tourist that gets dropped off by the taxi driver, 5 buy something from their store. The conversion rate is 5%. Furthermore, 4 of the 5 customers spend $20 and the 5th spend $2,000. So the average customer spends $416. For every 100 tourists, Fantastic Jewelry pays $500 in commission to the affiliates. But for every 100 tourists, 5 become customers who spend about $2,080. This gives Fantastic Jewelry a gross margin of 76%. Even after paying the cost of goods sold and the fixed costs of the building, the net profit margin should still be decent.

Where in the world does this happen? Everywhere you look, if you know what to look for. The next time you go on vacation, pay attention to where your taxi driver and/or tour bus takes you. That pit-stop at the liquor store slash petro station "just to get gas" may just be an affiliate stop.

Alex Tran writes about sales and marketing on his website http://www.alextran.com Visit his website to discover how you too can take advantage of his over 16 years experience selling and marketing over $100M worth of products and services.