“Price is what you pay. Value is what you get.”
The implication of Warren Buffett’s famous words are that value and price are not always the one of the same. Value is complex and can be identified in three ways:
- Relative value. The value you place on something in comparison to something else. i.e. an iPhone versus a Samsung smartphone.
- Absolute value. What something is actually worth, so the price of an iPhone.
- Perceived value. What a person perceives the value of something to be, not what it actually is.
The final point, perceived value is the danger area as it is a feeling, subjective and not driven by any data or insight. However, it can be hugely powerful. How many times have you heard “affiliate marketing isn’t valuable” or “affiliate marketing cannibalises other channels”, I have never seen an iota of data to back those statements, yet we hear these statements far too often as if they are fact.
We’ve managed to navigate this over the last 20 years, but how long can we out run the inevitable challenges of how advertisers place value on the affiliate channel. The question we need to ask ourselves is do advertisers know the value of the channel and if not, why not? Is it because we do not demonstrate well enough the value of the channel? Or, more concerningly, is it because advertisers are seeing less perceived value from the channel?
I believe we have a challenge in demonstrating and justifying the value of the channel to advertisers and there are a number of reasons for this.
Firstly, it’s no secret that marketing budgets are under pressure and we have seen the slowest growth since the end of 2015. Let’s be honest, the affiliate channel is an easy channel to squeeze and not result in an immediate decline of sales and we see this evidenced in reductions of commissions to affiliates. Sales declining does not necessarily follow these reductions in spend, so the brand continues to maintain sales, but for a lower cost. Who wouldn’t try and do that given the opportunity? We allow this to happen too easily which gives the impression that the value of the channel is diminished, and it’s then very difficult to go back from there.
Demonstrating value at the service level is also a challenge, in particular affiliate networks are going to have a hard time as they have traditionally offered service and technology under the same commercial umbrella. With the rise of SaaS platforms and the de-coupling of technology and service, advertisers are scrutinising the value of what they pay; demonstrating best in market value at both a technology and service level will be a challenge for networks to overcome.
Outside of our direct control other channels have simply got better at offering transparency, flexibility and ROI. Google and Facebook dominate digital marketing budgets for some of these very reasons. The days of citing the affiliate channel as the “only performance model” and “the cheapest channel” are long gone. The affiliate channel is more expensive than it has ever been. The recent 2017 IAB Affiliate Marketing study demonstrated this, identifying that AdSpend had increased 15% yet sales revenue had increased just 9%. The channel is costing advertisers more to drive sales, so they will naturally look at alternative options to spend their budgets efficiently.
This leads to my final point, the affiliate model. It has been a great asset to us over the last 20 years and has helped us define the channel and become an integral part of an advertiser’s digital strategy. However, it has also meant that the channel has become adept at driving sales close to the acquisition, hence why over 50% of AdSpend in the affiliate channel is driven through voucher and cashback sites. This can both be an advantage and a disadvantage. The advantage being that we excel as a channel at converting sales and are close to the consumer at the key part of their purchasing journey. However, the challenge is that advertisers are concerned about the reliance on cashback and voucher sites, and a few dominant key players in this sector. As a result, programme managers have looked to reward other affiliates through tenancy, fixed fee’s and higher commissions, resulting in less transparency of ROI and perceived increases in cost. A likely accelerator for advertisers reviewing and reducing overall affiliate budgets as they are struggling to justify increases in spend.
How can we ensure that the value of the affiliate channel stands up to scrutiny?
- Be strong with our value proposition and stop devaluing the channel by allowing widespread reductions in commission rates and agency / network fee’s.
- Focus on showing the value of the affiliate channel in terms of:
• Incremental sales
• Return on AdSpend (ROAS)
• Branding / influence and customer engagement
- Reposition ourselves against other channels. Why should brands invest in the affiliate channel over other channels?