Affiliate Marketing vs Referral Marketing – Which Option to Choose?

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In today’s world where brands have a strong online presence, there is intense competition, with companies vying for the attention of literally every potential customer. Many business owners are forced to allocate large sums of money to marketing to promote their products and services to increase sales and boost revenue. And while there are many marketing directions, referral marketing and affiliate marketing are now proving to be the most promising in terms of audience reach and effectiveness in dealing with potential customers.

We wrote this article to compare affiliate marketing vs referral marketing head-on, outlining the features, advantages and disadvantages of each method. While some marketers use both terms interchangeably, there are actually important differences between the two. So, read our referral vs affiliate marketing post to better understand how these marketing strategies work and choose the best option for yourself.

Referral Marketing and Referral Programs

Before we compare a referral program vs affiliate program, first we want to give you a clear understanding of how each method works. So, referral marketing is a strategy based on the recommendations of satisfied customers. According to this strategy, business owners reward their customers in the form of discounts or bonuses for referring new customers. So, instead of employing marketers, you entrust the job of advertising your brand to your users.

So, let’s look at an example to better understand how referral marketing works. Let’s say you have an online casino offering both real money games and various bonuses and incentives. You can offer your customers a cash bonus or a package of free spins for each friend who follows the referral link, registers with the online casino and makes a deposit of a certain amount. Your customers share the referral link on social media or email it to their friends. Your customers’ friends follow these links, create user profiles, and fund their casino accounts with, for example, $20. As a gratitude, you give the client who referred the friend a 100% bonus of up to $50.

So, referral marketing can be a highly effective way to attract new customers. Here are a few things that make this method very attractive to business owners working in various fields:

High level of trust. People are more likely to believe the recommendation of their acquaintance or friend than traditional advertising on the Internet.
Small budget. Since you do not need to spend money on paid advertising, you can increase the return on your investment in marketing.
Viral effect. This is when the example of friends and acquaintances can be contagious for good measure.

Also known as the invite-a-friend method, referral marketing shows its effectiveness 83% of the time. What’s more, recent studies have shown that people are 4 times more likely to make a purchase when recommended by friends than when clicking on links from paid advertisements.

Knowing the person recommending something to us, we are more likely to believe them than faceless marketers. Such recommendations work as social proof that the goods or services you offer have real value and bear benefit. By setting up a referral program correctly, you can achieve a word-of-mouth effect where each new customer spreads the word about what you offer and gives an honest assessment of quality.

How Affiliate Marketing Works

Now, to understand the difference between affiliate vs referral program, let’s look at what affiliate marketing is and how it works. Unlike referral marketing, affiliate marketing is a strategy based on cooperation between a company offering products and services and affiliates, which are website owners, bloggers, opinion leaders or webmasters. According to this marketing method, the company pays remuneration to the affiliates for attracting new customers and their purchases or other targeted actions.

So, let’s look at the algorithm of affiliate marketing by the example of a gambling affiliate program:

The online casino operator creates an affiliate program or enters into a partnership with an affiliate network promoting several brands. The casino affiliate program sets the terms of work for gambling affiliates regarding GEO, traffic, marketing tools and materials, ways to track performance and results of work, as well as the size of the commission (payment model).
Gambling affiliates sign up with a casino affiliate marketing program by accepting the terms of cooperation. The affiliate program provides affiliates with access to creatives (advertising materials) and marketing tools.
Affiliates place promotional materials containing an affiliate link on their resources, such as a blog or social media.
Visitors interested in online gambling entertainment follow the promotional links, register on the promoted iGaming platform and make deposits.
Gambling affiliate program tracks the results of affiliates’ work and pays commissions according to a pre-agreed payment model.

Thus, affiliate marketing is a strategy where several parties are involved including the company (advertiser), affiliate program being an intermediate link, affiliates placing advertising materials and potential customers performing targeted actions. Thus, affiliates do not sell anything but only use various tools to encourage potential customers to go to the promoted online platform and make a purchase.

How is Affiliate Marketing Different from Referral Marketing?

So that you don’t confuse these two different marketing trends, let’s look at the things that distinguish them from each other:

While affiliate marketing targets a wide audience of potential customers, referral marketing utilizes existing users who have already purchased from you.
Affiliates are interested in receiving commissions while referrals are looking to earn discounts and bonuses.
Affiliate marketing provides less control over how affiliates promote the brand. However, on the other hand, affiliate marketing utilizes tools to track affiliate performance more easily.

Thus, affiliate marketing is suitable for those who want to reach more potential users and increase their user base. As for referral marketing, it is the best option for improving the loyalty of existing users.

Common Features of the Two Marketing Methods

Although different parties do the bulk of the work of getting new customers, referral marketing has a lot in common with affiliate marketing:

They both utilize a win-win model where the company (advertiser) gets new customers and sales while affiliates and referrals receive monetary rewards or bonuses.
Tracking traffic sources and referring potential customers through links.
Focus on building brand trust and user loyalty.
Relatively low marketing costs, making both methods affordable for companies of all sizes.
High efficiency for businesses operating in different niches.
Measurable results. You can track performance to make necessary changes and improvements.

To maximize marketing effectiveness, some brands use both methods simultaneously. For example, many online casino and sportsbook operators partnering with iGaming affiliate marketing programs also offer invite-a-friend bonuses for their existing users.

Pros & Cons

If you want to try affiliate marketing, you can derive its benefits such as wide audience reach, low marketing budget costs, ease of implementation and flexibility in working with affiliates. However, keep in mind the risks of fraud, high level of competition and possible difficulties in tracking affiliate performance.

As for referral marketing, it helps to increase user loyalty and build trust in your brand. In addition, referral marketing provides a viral effect and does not require major investment. Like affiliate marketing, referral marketing has its disadvantages including limited audience reach, a rather slow growth rate of user base and highly unpredictable results.

Picking the Right Program

So, if you still can’t decide which marketing method is best for you, here are some tips to help you make the right decision:

Define your goals. So, if you want to get more new customers, affiliate marketing is the way to go.
Set a budget. While both marketing methods are affordable, referral marketing tends to be less expensive.
Evaluate your resources. While referral marketing requires more time to achieve results, affiliate marketing requires more staff.
Analyze your competitors. Find out which marketing method they use most often.
Test each method. By testing referral marketing and affiliate marketing in action, you will be able to decide which works more effectively for you.

Finally, use both methods in combination to attract new users and increase the engagement and loyalty of existing ones.

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