Word-of-mouth marketing is by far the most cost-effective form of advertising a business can have. Statistics demonstrate that the average person has at least 350 people in his sphere of influence. Granted, the average person is not going to talk about your business to all 350 people they know, but having them talk positively to even one can translate into a powerful, free ad that has a great return potential for your business. A friend telling a friend or acquaintance about your business is a bit like pushing a snowball down a hill. One friend tells another, who tells another, who tells another and soon, you've gained a valuable customer or two.

The psychology of affiliate marketing

Think about it. Would you be more likely to go to a new restaurant you saw advertised in your local paper, or go to a new restaurant recommended by an acquaintance or friend? Most people choose friend. Why? Even in an acquaintance-type relationship, there is a level of trust that has already been established. There is psychological value that stems from getting information from another person. We tend to believe that "real" people have our best interests at heart. Enter affiliate marketing. Affiliate marketing can be likened to word-of-mouth marketing via the internet. Although this is not strictly the case, there are similarities that do exist. Affiliate marketing is a marketing practice in which a business rewards people and/or other entities for creating customers or sales for that business via affiliate's marketing efforts. In essence, the affiliate is spreading the word about a company's product or service, usually using the internet.

Capitalizing upon word-of-mouth marketing

Referral fees have been standard in business practice for years. Affiliate marketing simply capitalizes on the concept, while expanding it to a world-wide marketplace. It's the electronic commerce version of the traditional agent/referral fee with a twist. Businesses have taken the concept of revenue sharing and answered the question, "What's in it for me?" Because you no longer have to be a marketing or advertising executive with a degree and a slick campaign to cash in on the World Wide Web, companies now have access to an affiliate's sphere of influence - an affiliate can be anyone with time, access to a computer, and a passion for promotion.

Affiliate marketing could be viewed as taking word-of-mouth marketing to its outer edges. Often times, an affiliate marketer has what could be deemed as an acquaintance-type relationship with the person to whom he is promoting a product or service. This means the affiliate has attracted a database of warm leads who are looking for a particular type of product or service. Because of this "soft" relationship, affiliate marketing may seem to be less of a "sales pitch" to the consumer than traditional types of advertising. While this is not actually the case, it shows that affiliate marketing with its word of mouth twist is highly effective.