In the early days of affiliate marketing, affiliate programs appeared to be a source of easy revenue for online retailers. Because the affiliate channel is a pay-for-performance model, merchants saw it as a simple way to connect with a vast community of bloggers, coupon sites, and other affiliates around the web while scaling their investment.
Unfortunately, however, mismanaged Gen 1 programs were fraught with problems, including fraud, off-brand promotion, and high commission payouts on non-incremental revenue. After experiencing these negative effects many retailers decided to shut down their affiliate programs altogether. Unfortunately, that deprives marketers of what can be one of the most effective tools in online marketing.
Affiliate marketing can deliver on the promise of incremental and performance-based revenue. It’s an incredibly profitable digital channel for merchants, generating 5-15 percent of online revenue at some companies, and a proven way for them to gain new customers and strengthen their brand. But in order to get better results, retailers have to run their affiliate program differently than they did just five years ago.
Here are the a few reasons why some merchants may feel like they’ve been burned by affiliate marketing and what can be done to prevent those issues from occurring if they decide to revamp their affiliate programs.
- High Cost/No Incremental Revenue –Low-quality affiliates frequently cannibalize other marketing channels as well as high-quality content affiliates, forcing merchants to pay them a commission for revenue that would have come in anyway. This meant that many Gen 1 affiliate programs were expensive retention programs masquerading as a new customer acquisition channel. When many discovered that the revenue from their affiliate programs was non-incremental, they realized that the cost per conversion was actually much higher than they had originally thought.
- Fraud – Mismanaged affiliate programs also tend to be full of fraudulent activity. This includes everything from PPC trademark bidding and hijacking, in which the affiliates bid on the brand’s name in paid search and steal traffic from its branded campaigns, to fraudsters sending in large numbers of fake orders from a single IP address and then taking the commissions. In some extreme cases it can even mean affiliates pretending to be the brand through various channels.
- Off-Brand Affiliate Promotion – Without proper screening, retailers are likely to encounter affiliates who are promoting their offers in a way that is not aligned with the retailer’s brand. This could include affiliates using old or inaccurate logos, promoting out-of-season products, or promoting old or nonexistent sales.
What many merchants who have been burned don’t realize is that the affiliate channel doesn’t have to be this way. Plenty of top consumer brands use the affiliate channel to drive profitable, brand-supportive sales. What are they doing differently?
- Better Management. Instead of being managed by whoever is available in-house (typically very junior people with limited experience) or the affiliate network (which is now seen by e-commerce players as a serious conflict of interest since they are also being paid for network services as a percentage of all transactions), profitable affiliate programs are managed by experienced professionals – either in-house or at an OPM.Quality affiliate program management includes:
- Prospecting and evaluating affiliates before recruiting them into a program to ensure they are brand aligned and engage in the right promotional activities
- Knowing what each of the top twenty-five affiliates is doing to promote the brand
- Having clearly-defined, established fraud management and prevention processes to protect the merchant’s brand integrity and ensure compliance
- Conducting a conversion rate analysis to look for abnormalities
- Ensuring that affiliate reporting overlaps with other marketing channels and identifies the percentage of new customers. Ideally new customers should make up more than 50 percent of affiliate sales and other channels should claim less than 30 percent of these new customers.
- Using sophisticated attribution tools to alter payouts to affiliates based on individual order attributes, instead of just paying affiliates the same amount for every transaction.
- Monitoring. They use independent brand/trademark monitoring services to ensure that affiliates are not using the brand in paid search.
- Auditing. They have their affiliate program audited by an expert to assess affiliate and network activity and value.
- Data Analysis. They depend on data to figure out which affiliate model works for their business.
- Looking Beyond the Sale. In the absence of a sale, affiliates are often seen as failures. But good affiliate programs recognize that the affiliate channel also adds great value in other ways, namely positive brand awareness.
For more information about second generation affiliate marketing versus first generation, download our free e-book, Affiliate Marketing Grows Up.