24th June 2008
Marketing
Keen to take advantage of affiliate marketing, but don’t know where to start? Whether you act via a network or prefer to go it alone, Adam Woods presents the benefits and pitfalls of making web partnerships work for your brand.
Affiliate marketing refers to a relationship between an ecommerce website (known as the merchant) and a network of affiliate websites (or publishers), who operate as a virtual sales force. The role of the affiliate publisher is to drive useful traffic to the merchant’s site using relevant content or advertising material.
In recent years, the model has caught on and affiliate marketing has grown with incredible speed. The UK affiliate market grew by 45% in 2007, according to E-consultancy’s Affiliate Marketing Networks Buyer’s Guide 2008, taking the total value of sales in this channel to £3bn.
Much of the appeal of the platform, according to Mike Glegg, sales director at affiliate network TradeDoubler, comes from the fact that advertisers pay only for the leads they receive or the sales they generate. ‘The most attractive part of it is that it is purely performance-based, so it is the most cost-effective channel there is,’ he says.
Affiliates feeding consumers through to merchants’ sites are rewarded on a ‘cost-per-action’ (CPA) basis, which is agreed in advance. This ‘action’ could be a purchase or a registration, or it might be the click-through itself. The process is monitored using affiliate-tracking software, which ensures publishers are properly paid for the leads or sales they provide.
Over the next few pages, we will divulge some of the trade secrets behind successful affiliate marketing.
- What kind of marketers are going for it?
Historically, the main proponents of affiliate marketing have been ecommerce merchants, particularly those operating in the retail, travel and finance categories. When the purchase chain begins and ends online, it is far easier for affiliates to ensure that they are properly compensated.
Amazon founder Jeff Bezos is generally held to have created the model and Amazon remains a major affiliate marketer, along with fellow web pioneer, eBay, retailers such as John Lewis and HMV, and all the major travel and financial brands.
However, the effectiveness of affiliate marketing in recent years has seen the practice spread more widely. ‘Because it is performance-based marketing, we are starting to see new sectors coming through, such as automotive and a little bit of fmcg,’ says Glegg.
An estimated 80% of affiliate marketing is conducted on a cost-per-sale basis, so marketers who do not have a transactional website need a very good alternative solution if the practice is to be worth their while.
- Who are the affiliates?
Any site that is capable of pushing targeted traffic to a merchant can be an affiliate, and numerous publishers build their entire business model around affiliate marketing, in a variety of ways.
The IAB’s Affiliate Marketing Guide identifies six main types of affiliate: niche-content and personal-interest websites; loyalty and reward sites; PPC (pay-per-click) and search affiliates; email marketers; co-registration affiliates and affiliate networks.
A merchant may use only a small number of hand-picked affiliates, or it may extend a general invitation to the entire affiliate community. Typically, the affiliate network will comprise something in between the two.
Software publisher Adobe, for instance, has a global network of no more than 2000 affiliates. ‘We are not about the volume of publishers, but rather the quality of them,’ says Adobe’s worldwide online marketing manager, Tiffany Betis-Lopez.
Online ticket reseller Seatwave has a shifting set of affiliates, depending on which artists have tickets on sale. ‘A lot of our affiliates are fan sites and fan communities for hundreds of different artists,’ says online marketing director James Hamlin. ‘A Leonard Cohen fan website would have had no interest in selling tickets until recently, but now that he is touring again, it can sign up to our affiliate programme and make some money,’ he adds.
- Should a merchant launch its affiliate programme on a network or go it alone?
This is a decision that needs to be made before activity can begin, but is not one that needs to be final. A client can adopt either of these solutions; each approach has its pros and cons.
An affiliate network will not only build and manage your circle of relevant publishers, it will also supply the tracking software that underpins the entire platform. This will be in return for a set-up charge, plus a monthly account-management fee - or, in some circumstances, a straight commission. Different affiliate networks have strengths in different areas, so it is worth establishing who their existing clients are.
‘There are a number of models, so it’s a question of getting a few affiliate platforms to really pitch to you,’ says Scott Holmes, joint head of media at TBG London. Companies that elect to do it themselves have a reasonably long checklist of start-up tasks. They need to implement their own software system, identify the affiliates they believe will generate traffic for them and check the kind of affiliate promotions their competitors are running (including the commission that rival merchants are offering publishers), all while maintaining those relationships and keeping the entire operation up to date. ‘If you establish direct relationships with an affiliate, it means that you can reduce your costs, because there is no middle-man,’ says Holmes. ‘But it also means that you devote more time to managing that activity. If you have a skilled marketer in-house who knows your product and knows of sites that could generate decent volume for your website, and if you as a company have a good tracking solution, there is no reason why you wouldn’t approach affiliates on your own, in the first instance.’Some corporates, including BT and Amazon, maintain their own affiliate marketing units. Others liaise with a network through their online marketing department. But it is worth bearing in mind that some powerful publishers, including certain big financial aggregators, prefer to deal direct with clients in order to maximise their own commission.- How should I launch my first affiliate-marketing initiative?
There is nothing wrong with starting small, but the proper approach from a merchant’s perspective is to plan for the long term and treat affiliate marketing, not as a stand-alone channel, but as part of the wider marketing mix.
According to Spencer Gallagher, managing director of digital agency Bluhalo and head of strategy at Mighty Mouse Digital, affiliates are going to act as a virtual sales force, so they need the same respect and materials as a merchant would give its internal sales force. This means they need up-to-date promotions, creative and product details with which to work, as well as extra content to make their pages sticky, not forgetting regular communication about offline and online brand developments.
In addition to establishing the goals of the campaign and agreeing a commission structure, a merchant must ensure that its affiliates understand and agree to be bound by reasonable terms and conditions. Affiliate networks can be constructed in three main ways: they can be big and open to more or less any affiliate; they can be invitation-only - meaning the merchant vets every website involved - or they can be closed and carefully controlled. Many high-end brands take the third option, as they want to maintain maximum control of their image, but in any of the three scenarios, the merchant reserves the right to enforce its terms and conditions, which can cover areas such as keyword bidding and the nature of the web pages on which affiliate ads can run.
- What is the secret of an effective affiliate marketing campaign?
Setting aside the crucial element of technology, there are three keys to success in this discipline.
The first, from a merchant’s point of view, is to know exactly what your objectives are, and to choose your network partner and affiliate sites carefully on that basis. ‘A merchant needs to have a clear idea what the goals might be and to find someone who understands what they are trying to achieve,’ says Alison Guise, general manager, Europe, at affiliate network Commission Junction.
The second is to communicate with affiliates and supply them with up-to-date content, product details and promotions. If a particular offline promotion is running, affiliates need to know so they can tailor their search terms and brace themselves for heavy traffic. Merchants who don’t relay this type of information are leaving their partners to work in the dark.
Emma Church, account director at digital agency Mailtrack, says: ‘Affiliates will take on as many people as they can, but they are only going to look after the ones that work for them, because that is the way it goes.’ The third key to success, and perhaps the most important, is to pay close attention to competitors’ offers and rates of commission. If an affiliate can earn more money making a sale for the competition, it will do so; if the commission a merchant pays is ostensibly more generous, but its rivals’ promotions routinely outperform its own, the outcome will be the same.
- How should I budget?
Affiliate networks can charge anything from nothing to several thousand pounds to get you started, while for those who are going it alone, the internal resource and infrastructure represent significant fixed and variable costs. Once things are under way, however, the commission a merchant pays out to publishers should more than pay for itself in the sales or leads the affiliates provide.
Partly because of its name, affiliate marketing is often assigned as a marketing expense, but many experts will tell you it should be treated as a sales cost, simply because the amount invested is reflected directly in sales.
A successful affiliate campaign can swiftly devour a finite marketing budget, and most specialists agree that affiliate marketing should not be turned on and off as budget allows, not only because it alienates affiliates, but also because it stems valuable sales.
‘One thing affiliates really don’t like is change overnight,’ says Holmes. ‘If you launch an offer and it is performing fantastically well, you want to have sufficient budget to ensure that you don’t have to pull that campaign.’
- I only have a limited budget. What can I expect to achieve?
The currency of affiliate marketing is almost always sales, at whatever level. The hype of affiliate marketing tends to point to runaway sales and huge returns, but affiliate networks don’t need to be enormous, and campaigns can be short-term and tactical, provided affiliates know where they stand. For a brand with a limited budget, the best approach may be to operate a small, closed network. ‘You might only recruit one affiliate, or maybe three or four, but you wouldn’t necessarily extend that into the wider marketplace,’ says Mark Kuhillow, managing director of specialist affiliate marketing agency RO Eye.
- I’m concerned about having people I don’t know representing my brand. How can I protect it?
The affiliate-marketing space is no longer the lawless frontier it once was for brands, and as long as they are careful and attentive, no harm should come to merchants, although it is imperative that they state their requirements upfront. The terms and conditions they agree with their affiliates should establish where branded material can be placed and against what type of content, and they should also set strict rules about the use of search and the way links may be set up.
‘Terms and conditions should protect the brand, even if it is an open campaign,’ says Jen Brain, senior affiliate manager at digital marketing agency Bigmouthmedia. ‘Often, they will state that affiliates aren’t allowed to link directly to a client’s website - they need to go to a landing page instead. They might not allow general affiliates to bid on brand terms, or they might allow a smaller, closed group to bid on those terms.’
- How do I manage the payment to affiliates, and what is the going rate?
Payments to affiliates vary widely, depending on the product and the agreed ‘action’. According to Louise Green, client services director at AOL-owned affiliate network buy.at, etailers typically go for a deal that gives publishers a percentage of the basket value if the consumer makes a purchase after clicking through. Finance brands are more likely to use a flat cost-per-sale model - say, £45 for a new car insurance policy.
Other actions, such as cost-per-registration, can pay significantly less. ‘Cost-per-registration programmes can be quite low-value - a publisher might get £1.25 for a sign-up,’ says Green.
The limitations of the tracking technology can also mean that a registration that results in a sale will not see the publisher appropriately rewarded - a clever saving for the merchant, you might think, except that affiliates are unlikely to keep plugging away if they find that there is no money to be made.
- What are the downsides of affiliate marketing?
Online and off, big brand names have a big commercial advantage, and affiliates will tend to support those that are most recognisable. ‘If you don’t have a big brand name, you can struggle,’ says Brain. ‘If you are an unknown insurance company competing with the big names, when it comes to the comparison sites, the chances are that you are not going to appear very high up in the comparison tables.’
Moreover, while affiliate marketing is no longer a free-for-all, Bluhalo’s Gallagher says affiliates still need precise boundaries. ‘They are there to make money and, unless you or your network set some guidelines and standards around your brand, they can be a law unto themselves,’ he says.
- What are the common mistakes that are made?
Maintaining communication with affiliates and providing them with the tools to support your business is a cardinal rule of affiliate marketing, although it is one that is frequently allowed to slide.
‘On the advertiser’s side, there can be a tendency to think, “I’ve signed up with my agency; now I will sit back and watch my sales roll in”,’ says Holmes. ‘But there does need to be some level of resource coming from the advertiser to keep the fire burning, in terms of creative, offers, syndicated content, newsletter content and generally just keeping publishers up to date with changes.’
In a similar vein, merchants who pull the plug on a campaign unexpectedly after publishers have invested significant resources in driving traffic run the risk of alienating good affiliates.
According to Sky director of online and partnership marketing, Scott Gallacher, getting to know your affiliates and treating them well makes the best commercial sense.
‘The key thing about affiliate marketing is that it’s a people business, not a technology business, and that is the way we look at it,’ he says. ‘There is a temptation just to look at the search pages and the networks and their reporting systems and not actually deal with the people that are running these operations. They have a lot of knowledge about their own particular areas and I find that when I engage with them, I learn a lot about what is going on in our markets.’
- Where can I get impartial advice?
An affiliate-curious client can, of course, approach the established affiliate networks in the first instance. However, buy.at’s Green recommends newcomers first visit the forum of affiliate portal Affiliates4U.com - and then attend an affiliate event to meet people from the industry in the flesh.
‘They will get a lot of information there from the horse’s mouth, from the affiliates themselves,’ she says. ‘For some clients, an affiliate network isn’t always the best option - they might be a bit small, or they might not be ready for it in terms of their website. What the affiliates will do is give some free consultancy.’
- How can I measure the success of the campaign?
As complex as affiliate marketing might seem to a newcomer, the beautiful simplicity that lies at its heart is that its success is almost always measured in sales. In terms of data, all the reporting material a client needs should be gathered by the affiliate tracking software it uses.
- What are the latest technologies in affiliate marketing that I should be aware of?
Affiliate software technology advances all the time to provide better product feeds, targeted ad placement and better accounting, but one key technological development is the emergence of increasingly sophisticated cost-per-call technology. Previously, an affiliate could claim a commission on a sale only if it were completed online, but various attempts are being made to factor follow-up telephone sales into the reporting process. ‘The pay-per-call model was identified a year ago and now everyone has some kind of solution - some a lot better than others,’ says Green
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