Affiliate Marketing vs Referral Marketing: What is the Difference?

As the transition to a more online-focused earning happened during the difficult times of the pandemic, the rise of people trying to capitalize on that had risen too. Turns out the trend is here to stay due to lifestyle changes and the change in the overall outlook of earning from home.

Both affiliate marketing and referral marketing have been around for quite a while; however, to catch up with the trends and the increased options to do both, it would be wise to know the difference between the two and what requirements are there to achieve some level of success.

What is Affiliate Marketing?

Affiliate marketing is a multi-billion-dollar industry that focuses on purchasing and promoting goods and services that are created by other companies. This could be done by a few means, such as having a website or an app where you can list items from affiliated partners.

The earnings in this field come from the partnerships that are created with different companies. As an affiliate marketer, you would strike deals with various retailers and would list whatever they are offering on your choice of medium (online store, cashback service, specialized shopping sites, and many more). For each purchase of the affiliated products that are made on your service, you will gain a commission, and that is how the earnings from affiliate marketing come.

It benefits both the affiliate marketer as well as the business with which the deal was struck. If, say, the affiliate marketer’s website generates a lot of traffic and purchases, it means that whoever is the owner of the said website will get a large number of commission payments.

Source: Honeygain

On the business side of things, these purchases make money for the company itself. It is especially helpful if the company at hand is a smaller one and does not generate enough traffic to make a large number of sales themselves. By using affiliates to market their products, they can increase the purchase count and revenue with it.

What is Referral Marketing?

Referral marketing makes use of the fact that people, by their nature, are social creatures. The simple act of spreading the news about some product or service via word of mouth can be considered referral marketing at its core.

Although the aforementioned act happens spontaneously and without any forcing or tricks, referral marketing strategies, especially online, tend to create more elaborate systems on how to spread the word about a certain product, service, website, or anything else that needs to be advertised.

Today, a lot of encouragement to invite your friends or colleagues to join a certain service or to make a certain purchase comes from the added incentives for both you and the person you are referring to. For example, you could get a certain percentage of cashback for a purchase that your referral makes, whereas your referral gets a discount for being referred by you.

 As you may understand, true referral marketing is not spontaneous by any means. Marketing specialists in their companies create full campaigns that help them not only keep their existing customers but also to increase the count of newly acquired users. The benefit for both sides is a tactic that creates a core for the idea of referral marketing.

What are the Key Differences?

The key differences between affiliate marketing and referral marketing can be spread into different categories.

Firstly, the social aspect of it all. Technically speaking, referral marketing is based on communication between the business, the existing customers, and potential new customers. A business creates a campaign, existing customers notice it and start to spread the word about it themselves, and the referred new customers join.

Source: Honeygain

The social aspect (despite the talks and emails it takes to create partnerships) is pretty much eliminated in the affiliate marketing sphere. The key here is advertising overall, without the focus on attracting new customers or keeping existing ones. The main thing is making a purchase, creating a view that the product you are selling is attractive and that the customer needs it.

Secondly, the incentive values are completely different between these two types of marketing. Referral marketing focuses on creating an incentive for both the customer that is already there and the customer that could potentially join. There needs to be a strategy created at hand, analyzing what the needs of customers are and what they seek out the most. This is true both for potential customers and existing ones.

Affiliate marketing, on the other hand, focuses on incentives that are focused on the purchase rather than acquisition. That is, the end goal for an affiliate marketing specialist is that a purchase of a good is made on the service rather than to create incentives for people to invite others. It could be said that, in this case, a word-of-mouth approach that may occur naturally is more desirable and more likely to happen.

Examples of Both Marketing Types

It does not take long research to find a great example of affiliate marketing. Take Amazon – the world-famous company worth almost a trillion dollars. They have an affiliate program in which they strike deals with bloggers and other websites where the bloggers or reviews can provide reviews for certain products and put a link to Amazon there, linking directly to the product that the article is written about. For this advertising move, the owners of those websites get a commission for each purchase of the product that is provided in the review.

Source: Honeygain

Another example would be various email-based advertising services. A company strikes a deal with an owner of such a website, and, in their newsletter, they provide a link to the product on the company’s website. For each purchase, once again, a commission payment is provided for the distributor of these emails.

As for referral marketing, incentives to keep existing users and to bring in new ones are as vast as they can be, ranging from investment apps to passive income applications. For example, an earning app that gives you money for letting them share your internet bandwidth, called Honeygain, has a referral system that incentivizes both sides of the field. 

Source: Honeygain

The referral gets a $5 sign-up bonus if they use a referral link, while the referee gets an equivalent of 10% of their referrals’ earnings. If earnings in money that can be transferred to a PayPal account is not an option for any side, a partnership with JumpTask, a gig economy-based platform, will turn those earnings into a cryptocurrency called JumpToken (JMPT).

Other examples of referral marketing work in similar ways to the aforementioned app. Usually, a certain reward is provided right after referral registers using a referral link, whereas a certain advantage is given to the referee just for referring someone. The end goal is getting users, not making a sale.

All in all, although both of these fall into the marketing category, they are quite different both in their end goals as well as in the methods to achieve them. The type that works better for you can be evaluated when considering what type of website or service you are running and what is more important – the sale or the count of loyal users.