Affiliate marketing is going from strength to strength. Once perceived to be a “wild west” where affiliate networks were “cowboys” operating in a murky – often underhand – industry, the affiliate channel is gaining momentum. Yet like most digital disciplines when they’re in their infancy, true understanding of the discipline is patchy at best and skills are in short supply.
This is, perhaps, no surprise. While business and national newspapers are full of stories and analysis of Web 2.0 and social networking sites such as the phenomenon that is Facebook, affiliate marketing sits quietly in a corner – working hard to get results with little fanfare for its achievements. Yet, its ability to drive traffic and ultimately sales means it is a hugely successful channel – and the technology available means advertisers and their brands can track performance and, most importantly, maximise return on investment (ROI).
Pay for performance
Briefly, affiliate marketing promotes a merchant’s website or product via a display ad or link on a third-party site, and the publisher/affiliate is rewarded on a “pay for performance” model for each customer provided. If a visitor to the affiliate’s site clicks on the advertisement and goes on to perform a specified action (usually a purchase) on an advertiser’s site, then the affiliate earns a commission.
While the concept is basic, the means of achieving success are not. Advertisers, or merchants, must monitor performance, data must be collated and analysis applied to determine which ads work best on which affiliates.
It is not just brands that want to know what works best, so do affiliates – they are, after all, being rewarded for performance and also want to know which brands and advertising content work best to achieve results.
Geraldine Tosh, managing director of online coalition loyalty programme iPoints, agrees: “Affiliate marketing is not particularly complex. It is the age-old model of paying someone an introduction fee. However, one of the reasons people become confused is because it is an evolving market so the way people work in the market at one point is likely to change over time.
“One of the key issues driving this change is the opinion of some clients who believe they are paying affiliates for traffic coming to their website that would have come to them directly otherwise at no cost. ASOS.com chief executive Nick Robertson has publicly pulled out from affiliate marketing activity for this reason.
“For some big brands this may well be the case – consumers are becoming savvy about how to make the most of their online shopping and may well visit a big branded site via an affiliate as they’ve noticed they get an extra discount for doing so. However, for smaller brands, affiliate marketing can drive customers in volume to their website. Those customers would never have visited them otherwise.”
David Hall, head of communications at Affiliate Window, whose clients include Comet, The Body Shop and Vodafone, explains: “New affiliate programmes are launched every week, yet 51% of affiliates promote ten merchants or less (UK Affiliate Census Report, January 2007).
“Getting your programme promoted ahead of all the others is down to one thing – you need to be able to convert more affiliate-generated customers into actual sales than anyone else.
“That is easier said than done. To create an affiliate scheme with a high conversion ratio comes about through knowing your strengths and weaknesses and marrying these with an understanding of the affiliate market.”
He explains how the network has devised a scale to help calculate the best-performing programmes – the AWin Index – which gives each merchant a score out of 100. Merchants can access a graph charting their AWin Index performance over time and see which elements can be improved.
“Armed with this knowledge,” says Hall, “merchants can compare themselves with other merchants in their sector and carry out actions to improve their AWin Index and consequently improve the financial returns from their affiliate marketing.”
It is essential to not only crunch numbers, but to understand what they mean. There also remains a considerable lack of knowledge about the affiliate channel.
As Hall, points out, the proliferation of courses on affiliate marketing is clear evidence of this. For instance, the E-consultancy offers workshops on the subject, the Internet Advertising Bureau is due to hold a search and affiliate marketing workshop in late August, the IDM recently launched a one-day course on affiliate marketing, due to run for the first time in October.
IDM’s professional short-course programme director, Joanna King, says: “Affiliate marketing has been a strategic option for some time and one that many organisations use to great effect.
“That said, our research suggests that to make affiliate marketing and affiliate networks truly perform requires real understanding of the dynamics of the discipline. We also found that there was an urgent need for marketing managers from businesses not yet taking full advantage of the discipline to gain a more in-depth understanding. The new course covers all key aspects of developing an effective affiliate marketing programme and includes the latest industry case studies to enable practical application back in the workplace.”
The knowledge gap is across the board, from brands and advertisers to their agencies and also affiliates, which can be anything from a “super affiliate” such as Nectar and online mum’s club Bounty, or an individual’s blog.
Sarah Escott, head of consultancy at TradeDoubler, whose clients include Dell, eBay and John Lewis, says: “Nine out of ten advertisers new to affiliates have limited or no experience of the channel. They are often blown away by the data capture that is available to them, and not being from a data mining background, they do not know what to do with it.”
Escott continues that while helping brands to interpret and understand the data, much effort is taken to train and educate them and affiliates. Most agencies take the effort to train all parties involved: brand/advertiser, agency and publisher.
Escott says TradeDoubler offers in-house and external training as well as consultancy services, while Affiliate Window’s Hall points out that his network holds training days for all new merchants or employees responsible for the company’s affiliate marketing. “The days cover how to launch and maintain an effective affiliate marketing strategy through the network and includes a presentation from a merchant who has been there.”
He adds that a new central London office will house a dedicated training suite and that more programmes and courses are to be added for training.
Most networks offer training for advertisers and agencies, yet Oli Matthews, managing director of OMG Network, which services affiliate clients including Alliance & Leicester, Marks & Spencer and Virgin Money, says his network does not run in-house seminars because “there’s no set way of doing things” but does use E-Consultancy programmes.
He adds: “We introduce clients to the pressures and challenges affiliates face and we do work with merchants to explore which affiliates work best and help them to understand why. We adopt a holistic approach, encouraging merchants to come in and see an account manager at work.”
He says the same strategy is adopted when dealing with agencies – a group of stakeholders which he says are becoming increasingly important.
One worrying factor is the fact that few graduates studying digital marketing have heard of the affiliate channel, according to Escott.
She says graduates entering the profession often have creativity at the forefront of their minds. “We do want creative people, but essentially we recruit bright execs with a focus on performance. There are ways to be creative, but there has to be a commercial focus – identifying trends such as how seasonality can affect a programme.”
She adds that when recruiting graduates, they are asked to analyse data. But their response is not judged on the results they identify, rather what questions they ask and how they identify the trends they think exist.
The affiliate networks’ efforts appear to be paying off. The consensus is that the knowledge gap is narrowing. Brands and media agencies are setting up dedicated affiliate teams and while it is mainly digital agencies that are taking the lead, it is not their realm exclusively.
Matthews says: “Agencies are playing a more important role in the affiliate channel and therefore their skills and knowledge base are improving.”
But advertisers and agencies should be wary of assuming that once they’ve attended a workshop or two they are armed with the skills they need, say the networks.
Matthews continues: “It may be a fairly straightforward concept, but understanding the nuances is something that happens over time and only with continued interaction will a genuine depth of knowledge be achieved.
“Undoubtedly merchants, agencies and affiliates are becoming more knowledgeable and we are having to evangelise less, but there remains a shortage of experienced talent.”
For affiliate programmes to work, all agree that relationship building is essential – which takes time and is something many brands and their agencies just do not have.
Meanwhile, issues such as which content drives the best traffic and sales – especially when content is evolving so much – and what impact Google’s change in pricing models will have on the future of affiliate marketing are complex. It takes great skill and analysis to ensure merchants have the most effective programme, and the skills to achieve that have to be learned. It seems the networks themselves are the best sources of education – at the moment, at least.