Of all the digital marketing channels open to brands, affiliate marketing has to have the simplest sales pitch; if a third-party site, known as an affiliate, drives a sale to you, you pay its owner a commission.
With no upfront fees and payments based purely on results, affiliate marketing has gone from strength to strength in recent years. The total size of the channel is unknown, as the Internet Advertising Bureau (IAB) only measures display affiliates which, although they account for 10% of all online display advertising, are just one of several channels affiliates use to drive sales to merchants. Anecdotally, though, it is clear affiliates are increasingly relied on. Argos e-commerce promotions and advertising manager Dave Harding credits the channel with driving a 30% rise in online sales last year, summing up the channel as “low risk and high reward/ it rewards sales, not just expressions of interest”. Similarly, when Red Letter Days appointed an internal affiliates manager a little over a year ago, affiliates accounted for a low, single-digit percentage of online sales. Today, they account for nearly one in three (30%) sales.
All you need to know about affiliate marketing
- What is affiliate marketing?
It is a way for marketers to pay for successful referrals of customers from third-party sites or affiliates. These push customers to merchants (either direct from their site, through email marketing, search or display) and when a desired action is completed (a sale, a consultation booked or maybe a brochure request) the affiliate receives a predetermined fee.
- How does it work?
Typically, marketing managers use an affiliate network. These provide access to thousands of internet sites and have the tracking and payment technology needed to run a campaign. Some brands use an agency to run the relationship with affiliate networks and, very occasionally, some also go it alone and deal directly through their own intermediary tracking and remuneration software.
Perhaps surprisingly, then, one of the main driving forces for this growth is now seen as a force that needs to be checked. Top voucher codes and cashback sites are now major shopping destinations and the most popular claim to have e-mail subscriber lists numbering more than 1 million bargain hunters.
However, although traffic volumes and sales are high, many marketing managers fear such sites do not introduce new custom but instead provide deals for people who may have shopped with them anyway. By so doing, they serve the last cookie and win the last click – upon which commissions are paid out by the merchant. More worryingly, content sites that may have educated the customer earlier on in the decision making process will not be rewarded – this is known as cannibalisation.
When Orange looked in to the problem and published research on its typical online purchase paths earlier this year, it found that one type of affiliate (which it did not name but can reasonably be assumed was voucher code sites, or possibly cashback or loyalty schemes) has a cannibalisation rate of 25%.
Clipping the wings of coupons
This is leading brands, and their agencies, to try to curtail the power of voucher sites and loyalty shopping schemes so affiliate payments can reward loyalty and not just quantity. However, with the power of such sites to drive huge volumes, most are too scared to go beyond just thinking about fairer attribution, explains Chris Russell-Smith, sales and marketing director at affiliate network dgm.
“The problem is everyone knows that they need to move beyond paying for just the last click alone and to reward sites more fairly at different parts of the purchase journey,” he says.
“We can do this in our system but nobody’s ever used it. Brands are scared of scaling back payments to voucher sites and then losing volume to their competitors, or fear having to pay several sites, which would push up their fees, and cutting back on margins.”
With the last-click model entrenched as the standard, Red Letter Days is seeking to reward providers of quality leads by extending its strategy of distinguishing between affiliate channels and different sites. It works with operators individually and seeks to protect content sites’ commissions from voucher operators, explains the site’s affiliates manager, Joshna Patel.
“We’ve got the best results from working with sites to offer content and incentives around their speciality rather than just blanket affiliate deals,” she says.
“We also give content sites a URL which is exclusive to them. When a content site sends us a lead we then ensure that there is no voucher box on the checkout page so people aren’t encouraged to search for a code and give the last click to a voucher site.”
Similarly, Comet affiliate manager Steve Rogers reinforces the advice that marketers need to distinguish between different types of affiliate and work with those that suit them. This has led the brand to work individually with content sites which has, in turn, seen basket sizes from affiliate leads rise 15% annually. At the same time, Rogers argues, marketers need to make voucher sites work harder for their money.
“We work mainly with content sites as well as voucher and loyalty operators, but for different reasons,” he explains.
“Voucher sites are good for attracting people who’ve decided to buy. They prevent them from going to a rival store. The content sites are very good at pulling people in early on in the purchase cycle and encouraging them to consider higher-range purchases, so it’s important to work with them to provide rich content.
“However, we’re just about to tier payments for voucher sites so they are tied in to what we are promoting. So the latest specific offers on items we’re pushing will get better fees than generic offers of money off any product at any given time.”
Nearly all major brands work with an affiliate network that collates appropriate sites for the merchant and takes care of tracking sales and remunerating sites (nearly always on a last-click model). Some also appoint a digital marketing agency to liaise with the network on their behalf.
Sarah Emerson, online marketing manager at John Lewis financial services brand Greenbee, explains: “We only got going on affiliates in January and we don’t have staff with anything like the experience of an agency, which can run the relationship with the networks on our behalf,” she says. “We’re aiming to go through our figures with our agency so it can help us pick out any sites we should be working closer with. We would not have been in a good position to do this ourselves from scratch.”
Big boys cut out the middle man
Some sites, particularly voucher and loyalty operators, have become so large they are dubbed “super affiliates”, which are large enough for marketers to deal with directly.
This is certainly what Adam Kirby, business development manager for affiliates at 3, has done to ensure the brand is in better control of who it works with.
“We found that affiliate networks weren’t built around our business model and so we built our own,” he says.
“We needed quality leads from people who would pass a credit check and weren’t just wasting our time. We knew where our better-quality traffic was coming from and so we knew we could deal with those sites direct and ensure we built our relationships around paying for quality leads.”
Nonetheless, Mark Joseph, head of affiliates at digital agency Steak, says super affiliates generally trust a network’s tracking technology more than they would a brand’s, so direct deals may remain the exception. He suggests the truly interesting direct deals of the future will be between brands and their customers who, via social media, will be able to publish links to brands of their choice and so become affiliates.
“I’ve seen the technology and it looks exciting,” he says. “It means marketers will be able to encourage word-of-mouth marketing that benefits both parties, just as affiliate marketing always should.”
A slice of the pizza
Certainly this is the idea behind a venture launched by Domino’s this spring. Facebook users can use a widget which, if clicked on by a friend, earns them 0.5% of the value of the resulting order.
This is a rare, stand-out example at the moment. If one were to identify a current, common theme among marketers using affiliates it would have to be a more general search to distinguish between volume and value.
They have been encouraged to do this now because of fears over cannibalisation from the all-powerful voucher sites. Many marketers expect the result will be a move to rewarding value through higher fees to content sites or lowering fees to voucher operators although, as Veronica Brown, e-business commercial manager at Virgin Atlantic, points out, nobody wants to be first.
“We’re using tags across all our media so we can map purchase paths better,” she says. “We’ll definitely use the data to guide us on where budget should go and we’d look to see how the results will show us how we can reward different types of affiliates better so we’re not just focused on volume but on the sites that bring us new people. The trouble is, nobody really wants to be out on a limb, moving first.”
This conundrum is common to all marketers using affiliates and how it is dealt with will start to unravel this year and next.
IN THE MARKET
10 Suppliers You Need To Know
- Affiliate Window
The largest affiliate network in the country. It bought buy.at from AOL in spring 2010.
Claims to deliver more than 50 million web users to advertisers every year. Part of Progressive Digital Media, which is active in email marketing and publishing.
dgm, or Deal Group Media, claims to have the technology to move beyond “last click” and reward affiliates throughout the journey to purchase. However, no client has yet used it.
A major network that claims to have been founded on the premise of providing greateropenness and transparency between affiliates and merchants.
Major affiliate network originally set up in Sweden. The company makes a major selling-point of its ability to offer campaigns across 18 European territories.
Digital agency that helps advertisers including eBay to run affiliate programmes, claiming to better understand where value is provided in customer journeys to purchase.
- Arena Quantum
Havas-owned agency that runs affiliate programmes such as Domino’s widget on Facebook through which site users earn commissions on pizza orders they generate.
- Media Contacts
Also part of Havas, Media Contacts prides itself on being able to manage international accounts with global account managers.
TagMan’s tagging technology can be used across all types of electronic media to deduplicate data as well as to find where value is created in purchase paths.
- Summit Media
Summit Media’s technology enables brands (such as 3) to build their own affiliate networks by dealing direct with affiliates. www.summit.co.uk
Source/ newmediaage Marketing Services Guide 2010
- IAB figures for display affiliates (it does not measure other types) show a 38.7% growth in the market from £52.4m in 2008 to £72.6m in 2009.
- 44% of affiliates fear Google entering the market, 43% fear the rise of voucher sites and 36% the rise of “super affiliates”.
- Orange found that one (unnamed) affiliate channel has a cannibalisation rate of 25%.
- Was affiliate marketing overhyped historically? Affiliate Window purchased buy.at for $17m (£12m) from AOL which had paid $125m (£68m) for it in 2008.
- eBay says its move to Quality Click Pricing, rewarding sites for the value of referrals, is leading to 20% more valuable customers with commissions rising 14%. However, it is not currently considering rolling out the technology more widely.
Sources: IAB, Affiliate Window, Orange, Wall Street Journal and eBay
What does the next year hold?
General manager, Commission Junction Europe
“I envisage another positive year for affiliate marketing. The recession has forced extremely fast growth within the channel (as well as putting it firmly on the marketing radar due to its pay-as-you-go nature).
“Developments over the past year mean that we now have solutions to a number of key challenges such as the monetisation of social media and mobile, and how to link offline and online through technologies such as pay-per-call tracking solutions or online vouchers which are redeemable offline. Another critical progression has been the development of technologies to ensure fair remuneration for all. There will also be increased focus on service, which has been made even more vital given recent mergers and the resulting misaligned expectations.”
Managing director, Affiliate Window
“I believe the cashback model that is so significant in the UK will gain traction in mainland Europe and the US as more consumers become aware of the opportunity and value from such a proposition. This in turn will cause merchants to reflect on their strategy regarding acquisition and the lifetime value of their customers. Far from being ’discount hunters’, cashback users are proving to be serious purchasers who spend significant amounts online.”
“Recessionary times often bring out the best in entrepreneurs, keen to push the boundaries even further. We’ve seen an increase in the number of third-party applications being developed by affiliates. New initiatives from innovative businesses are taking performance marketing to the high street.
“Elsewhere, product feeds are finally getting the attention they deserve, while the ’payment on influence’ debate will continue with some early adopters making waves in the market. However, I also have a feeling that social influence is going to be massive later in the year, and this could add a completely new type of affiliate that the market has never seen before.”
Managing director, R.O.EYE
“We are due to see a greater focus on quality. As an affiliate programme matures and merchants become more educated about the channel and the potential it can bring, thoughts quickly turn to making the most of the channel and ensuring the best possible return on investment is achieved.
“The focus on quality over quantity is now a big subject as merchants large and small analyse the effectiveness of affiliate marketing against other online marketing channels in generating new customers. This is forcing the industry to discuss moving away from a ’last click’ model and adopting a more complex multi-attribution model. With no definite solution in sight, affiliates need to be aware that added value and quality are at the top of the agenda.”
Head of affiliates, Arena Quantum
“In the past few years, proprietary click path technology and reporting has enabled us to see not only the value affiliates can add, but also at what point in the sales journey they are essential and what other channels they influence. This has enabled us to look at multi-attribution models, moving away from the traditional last-click mentality. With other agencies and networks adopting similar technology and techniques, 2010 looks like the year where we can collectively agree on a best-practice approach on remunerating affiliates beyond the last click, while ensuring that the activity remains cost-effective from the advertiser’s point of view.”
Head, IAB Affiliate Council
“Multi-attribution is a hot topic and while a few companies have taken tentative steps, the wider industry is lagging. The biggest stumbling block is the sheer complexity of rewarding multiple affiliates for a single sale. The industry would benefit from paying publishers more intelligently but with every merchant and sector so different, a single payment model rewarding multiple affiliates is unlikely to be the best way forward. However, with the growth of the affiliate market, publishers are under pressure to perform better and one simple way to ensure this is with tiered commission structures based on possible factors such as publisher type and consumer engagement.”
Top tips you need to know
- Recognise the effect of the different routes affiliates will take and consider which will work best for you. Search gives good results but can push up the price of terms you will also bid on and you may not like the way your brand is presented on an affiliate’s landing page. Voucher sites give huge traffic levels but may cannibalise sales.
- Look at who is driving quality, incremental sales and seek to encourage this by working with them individually to tailor exclusive deals which will appeal to their audience.
- There is a general move afoot to reward content sites over and above voucher sites. So consider higher premiums and better offers for good performers and maybe cut back on voucher commissions or at least move vouchers away from blanket deals to specific goods you are promoting.