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Setting Referral Fees In Affiliate Marketing
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Category : Business » Affiliates
Affiliate marketing is becoming an important source of. customer acquisition. . Many online merchants use affiliate marketing .
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Content Summary :
Affiliate programs offer affiliates referral fees in return fordirecting potential customers into a merchant’s Web site.Affiliates are commonly paid based on the number of leadsconverted by the merchant into customers (pay-per-conversion) or based on the number of leads referred to themerchant (pay-per-lead). Given the prevalence of both, in-teresting questions for research are as follows: Why doboth formats prevail? Under what conditions is one formatpreferred over the other? The authors find that pay-per-lead is more profitable when a merchant negotiates a sepa-rate deal with an affiliate. In this case, pay-per-conversionis not optimal for the affiliation alliance because it leads tosuboptimal pricing by the merchant. In contrast, pay-per-lead is less profitable than pay-per-conversion for a mer-chant that works with a large number of affiliates all underthe same terms because it is susceptible to bogus referralsthat cannot be converted into customers.
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