As concerns around the coronavirus (COVID-19) heighten, so does fear that a recession – and tightening consumer habits— in the global economy will be a foregone conclusion.
Anticipating reduced sales, some businesses are inclined to cut back on variable costs, including marketing. However, what we know from decades of experience – as well as what numerous research studies have shown – is that companies that cut their marketing spend during a recession are not only in a far less competitive position when the economy recovers, they typically see significant sales and income decline in double figures.
Many leading brands, especially those who have gone through at least one recession and come out the other end a stronger, more successful company, have learned that shifting their marketing dollars toward performance-based marketing channels, including affiliate marketing, is the most strategic approach to managing costs, capturing lost in-store traffic and maximizing their return on ad spend (ROAS).
In addition to being a model built on long-term relationships, scalable ROI and one of the lowest cost per action (CPA) options across marketing channels, there are three key reasons why companies are prioritizing affiliate marketing and other pay-for-performance marketing in an uncertain economy:
1. Spend is based on results
In the affiliate marketing model, an affiliate or “partner” promotes your brand’s products or services on their site. For example, a product review site reviews your health and wellness subscription services kit. Or, an influential blogger writes about how your technology platform is making it possible for them to work from home per their company’s mandate.
When a consumer clicks on a link within the affiliate partners’ review or mention of your product or services, the potential customer is sent to your company’s website through a tracking link.
If the consumer purchases a product/service from your company via that tracking link, then and only then would your pay that affiliate partner for generating a sale for your company. Typically, that compensation amount is based on a previously-agreed upon commission rate.
Within this framework, your marketing dollars aren’t spent on actions you hope occurs. Instead, it puts you in the position of only paying for marketing outcomes that you want, allowing you to allocate their dollars in meaningful and cost-efficient ways.
During an economic downturn, pay-for-performance marketing keeps consumers and profitability at the forefront, which helps businesses remain ahead of the curve once the economy takes a positive turn.
2. Reduces risk
In an uncertain economy, the desire to take on risk is often diminished, for good reason. The benefit to pay-for-performance marketing, such as affiliate marketing, is that it’s more agile during rigid times, allowing businesses space and flexibility to manage risk within their marketing channel.
With budgets flowing parallel to the demand of consumer and market trends, pay-for-performance marketing can mitigate risk by focusing on the critical goals at-hand. For instance, for many companies, margin, not volume, may take on a larger focus. With affiliate marketing, for example, businesses have the ability to flex commission rates with partners, allowing them to back into the ROI goals needed to support margin.
In addition, product pricing is often top-of-mind for consumers as well. Pockets are pressured during a recession. Affiliate marketing can support A|B testing to ensure marketing promotions align with the brand image, support in revenue growth and maintain profitable margin rates.
3. Measurable incremental growth
A clear understanding of revenue sources is imperative at any time, but it’s especially important during an economic downturn when budgets are under the microscope. For many companies, their affiliate marketing program is elevated in awareness and budget prioritization as the model makes it possible for brands to see where incremental marketing actions are coming from. With tightened budgets, businesses do not want to pay for customers who already would have purchased without the channels’ support.
As the leading pay-for-performance marketing model, affiliate marketing can also help ensure consumers are still converting, happy customers and not switching to the competition during a recession, while also focusing on one of the most difficult goals at-hand: new customer growth. Through strategic targeting, affiliate marketing can convert specific consumers targets that may not be seeing advertising during this time, due to other company’s decisions to cut their ad spend.
During a challenged economy it’s critical to stay proactive versus reactive with your marketing dollars. As many companies who have walked a similar economic path have found, these uncertain times can offer unprecedented opportunities.
By fully leveraging all that affiliate marketing’s pay-for-performance model offers, you put your business in a position of strength to foster long-lasting relationships with customers, increase your share of brand recognition and to maintain vital exposure without an upfront investment.
With a marketing foundation built on transparent, trusting relationships where brands and partners set clear expectations—and don’t demand upfront money for empty promises—the affiliate model has proven to be the most lucrative and lasting way to stay ahead of the game, maximize your ROI and pay for outcomes that matter.
To learn more about how we help brands around the world grow, refine and expand their marketing partnerships, visit our Global Services page.
Questions? Reach out to our team for helpful guidance.