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Right now, Apple is pretty much the coolest brand on the planet.

The iPod was this Christmas's must-have gadget and, with more than two million of these and 3.7 million iPod minis sold worldwide, it's no surprise Apple recently announced its best Q4 sales figures for nine years. It's a far cry from the dark days of 1997 when losses were $878m and, if it hadn't been for the egg-shaped iMac, the product that transformed Apple from the machine of choice for anti-Microsoft computer geeks to a mass-market technology, the story could have been very different.

What has characterised its success is desirability. Like all cool items, Apple products are difficult to get hold of. Until the opening of its first European store on London's Regent Street a few weeks ago (something that brought the street to a standstill), Apple had no high street retail channel of its own. PC World and independent resellers got a smattering of products, but nowhere near enough to meet demand.

Before this, consumers could only buy through its online UK store. Yet, with no real press advertising or direct mail, drawing people to Apple has always been a problem. Until that is, the company began its key marketing push - an online affiliate marketing scheme. The scheme is headed by Apple online store director for Europe Francois Duquesne, and the channel has come into its own last year with the launch of the iPod mini.

Affiliates are members of an advertiser's club (in this case, that of Apple) that earmark their banner ad positions solely for that advertiser.

Unlike traditional banner ad locations, which may be billed on a cost-per-click basis or even a flat rate regardless of hits, Apple works on a strictly pay-per-purchase model. The upside is that the website from which a person clicks to the Apple Store gets a royalty proportionate to the value of the product people go on to buy. The downside is that if they click through and buy nothing, the banner ad yields nothing.

Driving traffic

"Last year we really wanted to try to drive up traffic," says Duquesne.

"This means getting the customer to stay on the site, getting them to spend money and then getting them to spend more money after that. We knew we had to concentrate on getting people and then converting them. But after the launch of the original iPod we saw we had a lack of reach. So, for iPod mini and our other product releases, we decided we needed to begin affiliate marketing."

Affiliate agency TradeDoubler was appointed in 2002 to source and manage new websites to generate the right sort of traffic. By the time of the iPod mini, affiliate numbers had swollen to 1,800. But while recruiting sites was easy enough, it was only a small part of the project.

"Affiliate marketing is still in its infancy," says TradeDoubler CEO Will Cooper. "With base commission about 2.5 per cent the value of the sale, many sites will apply to join a programme because there's real potential to make £10,000 a month. But while most advertisers will accept any site, because they only pay if a sale is generated, Apple rejects 70 per cent of applicants. It wants to protect the brand and only channel the best clickthroughs."

The key was to make sure Apple was attracting only brand new customers.

"If we're not getting new customers, we're simply paying commission to website publishers for customers we've already got," says Duquesne. For the iPod launches, the campaign concentrated on music sites, and included mass-market sites in the digital technology arena - including Kelkoo, latestdeals.com and macworld.co.uk.

TradeDoubler attaches cookies to consumers' PCs to record a visit from a scheme member site to the Apple Store. It analyses the visits and pays the commissions on Apple's behalf. But it is also the hub that holds all the different versions of Apple's banner ads.

In the build-up to the launches of the new iPod models, there were nine creative executions of banner ads in four different sizes. New Apple banners were also added on a weekly basis with any price updates and special offers.

As soon as they were updated on TradeDoubler's site, they were automatically uploaded to each affiliate store, with an email sent to the affiliate manager to tell them about the change.

Hands-off relationship

In many ways the relationship after this is as hands-off as affiliates want it to be. "From here it's largely up to the affiliates to manage their own page," says Duquesne. "However, it quickly becomes apparent who is keenest to make it succeed, and we work with them to see how they can test which banners are better than others."

Each affiliate can log into TradeDoubler and see how many people click through from their site to make a purchase. In the last iPod campaign, such testing has already revealed several factors. "The traditional 468x60 pixel banners performed most strongly in terms of sales generation, but a 200x200 pixel, five-frame creative converted the most as it incorporated the brand as well as a sales message," says Cooper. Home pages rather than sub-pages within an affiliate site are also the most hard-working.

Affiliates have even invested their own money in bidding for search engine phrases to get their websites listed higher in a search engine result to boost traffic. "The affiliate gets the pay-off in the end," says Duquesne.

"The money they invest in their own site benefits us and then benefits them back. It's a very circular model."

Because product launches are ongoing, Apple can only report crude average results, although in the period of the iPod mini launch, Duquesne talks of conversion rates from click to sale of between 6-8 per cent, and says Apple's UK affiliate marketing is now responsible for around 20 per cent of total sales. It's a major result to counter those who criticise banner advertising as something that doesn't work.

Here is where the rest of Apple's online marketing begins. "As soon as these people originate from banners and buy Apple products they enter Apple's existing database management programme," says Duquesne. "This is where we'll start regular email blasts and newsletters."

Nor are the affiliates forgotten. "We're seeing how well spikes in brand TV advertising can be fed back to affiliates to make the sites work harder," adds Duquesne. "We'll actually meet the largest ten affiliates in person to thank them and see what they think we can do to help them more."

The bottom line? According to Cooper Apple receives tens of thousands of hits to its store every month, a high proportion of which buy. "Apple is genuinely surprised at our reach, but affiliate marketing really works."

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