A recent article in the New York Times highlights the plight of the Santa Claus Christmas store in Santa Claus, IN. After joining an affiliate network, the store saw a surge in affiliate sales, but discovered their affiliates were largely cannibalizing their existing customers – and earning a commission doing it.
Savvy heads of acquisition marketing and chief marketing officers of larger e-commerce brands have been looking under the hood of their affiliate marketing programs for a few years now. After finding they were full of fraud, off-brand promotion and affiliates who bring existing–not new—customers, they re-aligned their programs.
We’re proud to say many turn to Acceleration Partners to assess and revise their affiliate programs – or re-launch them completely – with an emphasis on eliminating fraud and increasing transparency and profitability.
Being blindsided by the “dark side of affiliate marketing” is really only a risk for businesses that aren’t managing their programs correctly.
The Old Way: Gen 1 Affiliate Marketing
Unfortunately, as poor Santa Claus found out the hard way, most Gen 1 programs are too good to be true and tend to fall short in the following ways:
- Program management: Gen 1 programs tend to be managed by very junior people in-house and/or an affiliate network being paid a percentage of all transactions, a serious financial conflict of interest.
- Success metrics: They prioritize quantity over quality and measure success by the number of affiliates and overall revenue.
- Payout: They place a high value on referral volume and the ‘last-in’ always receives the commission, encouraging affiliates to manipulate their tactics.
- Affiliate make-up: 80% or more of their affiliates are low-value coupon sites or loyalty/toolbar software tools, many of which use deceptive tactics to generate clicks and set cookies.
- Transparency: They have little to no transparency; e-retailers don’t know where affiliate traffic originates or what the affiliate did to get the click.
These problems have been resolved by savvy retailers and affiliate program managers in the emerging Gen 2 affiliate marketing programs.
Transparency & Profitability: Gen 2 Affiliate Marketing
Gen 2 programs are less about volume and direct revenue and more about affiliate value and brand awareness. While they seem smaller, they actually create more incremental demand and new customer acquisition. Here’s what sets Gen 2 programs apart:
- Program management: Gen 2 programs are overseen by experienced in-house managers or specialized firms focused on the program’s bottom line.
- Success metrics: They are measured by new customer acquisition and/or incrementality, with a multi-channel attribution model identifying overlaps with other channels.
- Payout: They compensate affiliates based on who the affiliate is, the type of promotion they do, brand relevance, and the value they bring, not simply their volume.
- Affiliate make-up: They strive for the top 20 affiliates to comprise less than 50% of the program, excluding or severely limiting traditionally high volume – but low value – affiliate sites and actively recruiting content sites, such as blogs, and business development partners.
- Use of networks: Programs tend to use fewer networks and eschew the bigger-is-better philosophy. Many Gen 2 retailers have also transitioned from using traditional integrated affiliate networks that include management to independent tracking platforms that offer tracking de-coupled from program management.
- Transparency: They make it a priority to know what each affiliate is doing, especially the top 25 in the program. Getting referring URL data is mandatory. When an affiliate’s activities and results don’t add up, they ask simple questions such as “Can you show me an example of this campaign and where it’s promoted?” to root out bad apples. They also ensure that affiliate reporting overlaps with other marketing channels to identify which customers are new and which overlap with other channels.
Don’t let horror stories about Gen 1 affiliate programs scare you away from the channel as a whole. Just be sure to seek out a high-quality affiliate program that follows the tenets of Gen 2 affiliate marketing.
The changes overtaking the industry are finally delivering on the original promise of affiliate marketing. It now has the potential to deliver the highest return on investment of any online marketing channel, but only if you avoid the dark side of Gen 1.
For more information about Acceleration Partners’ Gen 2 programs, please visit our Affiliate Program Management page.
Photo via Stéfan on Flickr.