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Affiliate marketing was ‘invented’ ten years ago, and generates UK sales of over &£1.5bn. It’s not all ‘win-win’, however – if badly managed, it can damage your brand equity, says Martin Croft

Affiliate marketing can be a cost-effective way for marketers to drive traffic to their websites – but any affiliate programme must be well-managed if it is to deliver results. And marketers must also be aware that poorly managed programmes can result in significant costs, and even cause damage to brand equity.

Online bookseller Amazon.com is credited with being the creator of affiliate marketing – according to the e-tailer’s website, Amazon Associates “was the first online affiliate programme of its kind when it launched in 1996”. Since then, affiliate marketing has grown exponentially, and become a widely accepted part of the online marketing mix.

Today, it works like this. On one side, you have an advertiser with a product or service to sell; on the other, you have a website owner or publisher with space to carry advertising; and in the middle, you have an affiliate network, acting as a kind of marriage bureau, bringing together brands with ads to place and places with space to sell.

The advertiser creates a selection of online ads for a brand (for example, text links or banner ads); the network puts those ads into an online library; affiliate sites then browse the ads and select the ones they want to have on their pages. Advertisers pay affiliates commission. Sometimes they pay only for actual sales made, sometimes for genuine leads generated or sometimes just for traffic to a website.

Cause and effect

From the brand owners’ point of view, using affiliate marketing should be an all-round winner, as it is supposed to be payment by results. The fact that advertisers should only pay when an ad link has been converted to a desired action is supposed to make the system cost-effective and accountable.

According to market research company E-consultancy, UK sales generated by affiliate networks totalled &£1.6bn in 2005.

Will Cooper, chief operating officer of affiliate network Trade- Doubler, says: “It is now common for sales generated through affiliate marketing to constitute more than a quarter of an advertiser’s total online sales. [It] offers huge potential to advertisers wanting to drive cost- effective online sales.”

Many affiliate websites are happy just to have a little extra revenue from carrying ads which are likely to be relevant to their target readership. Others, however, generate huge amounts of money from commissions.

Meanwhile, many marketers who do use affiliate marketing may just see it as a useful and cost-effective way to get added traffic and increased sales, without having to bother too much.

And that is where some of the problems which can hit brands using affiliate marketing can occur.

Experts say that some affiliates can abuse their position, in effect hijacking web traffic that should have gone directly to a brand owner’s site, redirecting it through their affiliate site and then charging commission that frankly the brand owner should never have had to pay.

Andrew Burgess, managing director of digital direct agency Equi=Media, says: “It’s a fact that some affiliates will attempt to generate income through committing fraud. Some affiliates do not work within legal frameworks. Affiliate marketing is like the old Wild West. It’s about establishing the law, managing your brand and policing it.”

In some cases, affiliates have set up sites using a brand’s name or slogans to generate extra traffic.

Every little helps?

Recently, Tesco, which uses the TradeDoubler network to handle its affiliate marketing programme, had to take legal action against one of its own affiliates, which had registered a number of websites – all including the Tesco’s name – and linked them to other sites it owned. However, these sites were effectively hidden from view, so when web users typed any of the supermarket’s addresses, they were taken directly to Tesco’s sites, but the traffic was registered as being generated from the affiliate’s own sites.

There is no suggestion that the affiliate was deliberately setting out to break any laws or infringe anyone’s right: indeed, the judge who ruled on the case in favour of Tesco accepted that the affiliate might have honestly thought that what it was doing was allowed under its relationship with Tesco and TradeDoubler.

Marketers are starting to realise that affiliate marketing is not something they can set going and then forget about: just as with any marketing technique, it requires an investment of time and effort to ensure it delivers the best results.

Jo Malvern is marketing director of online consumer offers site Pigsback. Pigsback launched an affiliate programme last year via the Perfiliate Technologies network, and Malvern says: “I’m very happy with how successful it has been. We’re getting 3,000 to 4,000 subscriptions a month from it.”

The past six months have shown that it is the content of the ads which Pigsback supplies to its affiliates that is most likely to drive traffic from an individual site, rather than the commission on offer. Malvern says: “We originally paid &£1.50 commission, but we cut that back to &£1 without seeing any appreciable difference in the volume of traffic. Content is critical.”

Adopting a long-term approach is important. As Cooper says: “Affiliate marketing should be viewed as a long-term sales strategy and not a short-term fix.”

Alison Guise, UK manager for affiliate networks Commission Junction and Mediaplex, agrees that setting up an affiliate programme is a long-term investment of time, effort and money: “It takes time to build up relationships, and for affiliates to test your campaigns, before rolling out fully-fledged campaigns for your programme. Don’t pull the budget just as it is about to ramp up for you!”