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Affiliate marketing: Time for brands to readdress the facts?

30th Jul 2015
Editor MyCustomer
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It may seem a bit haggard to begin a topic by tracing it back to the “early days of the World Wide Web”, but in the case of affiliate marketing, that’s exactly what needs to be done.

In the mid-90s, when Google was still a Stanford University project with the less catchy moniker ‘BackRub’, search engines including Yahoo! and Ask Jeeves were already providing a platform to businesses to sell their products online, and many of those businesses started experimenting with advertising around every nook and cranny of the internet.  

Marketers quickly realised that conventional advertising did not stack up on this new platform, however, and subsequently the concept of ‘referral’ was born – the idea that online merchants pay only for qualified, predetermined actions from an advert, as opposed to any kind of click-through or traffic. It’s this basic principle that exploded in the early-2000s to become the vast affiliate marketing network we know of today.

It’s not unique or a solely digital concept. By proxy, a hairdresser giving discounts to an existing customer for referring a friend is an affiliate marketer. However, the reason affiliate marketing is so synonymous with the internet is the sheer scale of the marketplace, and the statistics that can be applied to the success of online affiliate marketing programmes.

Financial gains

The exponential rise of ecommerce means affiliate marketing is now a global multi-billion dollar industry. In the US, for example, affiliate marketing spend is predicted to reach $4.6bn by 2016, from around $1.6bn in 2010.

Also, relatively new data from the last three years has highlighted that affiliate programmes deliver reward: In the UK, by 2012, affiliate marketing represented 6% of the country’s online economy and attributed to £9 billion in sales, according to research by the Internet Advertising Bureau (IAB).

Given that advertisers spent over £800m in 2012 on performance marketing activities including affiliate marketing and lead generation, generating £9bn in sales means merchants were able to attribute a clear return of £11 for every £1 spent.

Further data from the IAB shows this figure merely improving: advertisers spent £1.1 billion on ‘online performance marketing’ in 2014; up 8% on 2013.The spend generated £16.5bn in sales, representing £15 return for every £1 spent. Such figures appear to almost paint affiliate marketing as a no-brainer for brands:

“It is advertising that they are only paying for once they have the money in the till,” says Matt Bailey, commercial director at R.O.EYE. “If set up and managed correctly to drive wholly incremental traffic, then the brand is employing a large band of salespeople that are being paid on a commission only basis. What’s not to like?”

Mystery remains

Despite the clear message around financial gain, many businesses, advertisers and marketers still report a certain level of mystery around affiliate programmes, and whether advertising through them is actually beneficial. And while 100% of the IMRG’s top 50 online retailers in the UK have well established affiliate programmes, there are only roughly 6,000 brands running affiliate programmes in the UK today. Comparing that with the near 5 million businesses in operation, and this number could be seen as surprisingly low.  

Bailey’s point about programmes being set up and managed correctly is key. Geno Prussakov, CEO of AM Navigator affiliate management agency and founder of Affiliate Management Days conference believes two perennial problems have existed around affiliate marketing, forcing the level of scepticism among online merchants to remain consistent since the early days, when Amazon introduced the very first large-scale affiliate programme:  

  1. That advertisers view "affiliate marketing" as just one of many online marketing "channels” to employ.
  2. Advertisers assume that an 'unmanaged' affiliate program can yield success.

“In the first case,” Prussakov states, “advertisers fail to realise, appreciate, and leverage the fact that affiliates employ all online marketing channels available (including those that merchants themselves use), and want to maximise the value that the expertise of individual affiliates may bring to the table, safeguarding their own marketing efforts, wherever needed, too.

“In the latter case, multiple merchants put their brands at risk by running their affiliate programmes in an autopilot/unmanaged fashion. Affiliate management is a full-time job, and should be treated as such.”

Strained relationships

CJ Affiliate by Conversant backs this point up, stating that many affiliate programmes fail due to the attempts to self-manage by advertisers and merchants, and that, “affiliate marketing at its very core is about relationships, a relationship between three parties: advertiser, publisher and consumer”.

Unfortunately, the relationship between advertiser and publisher has been fractious, historically, with issues still remaining.    

According to a market survey from Tipalti, some 52% of US affiliate marketers say it takes longer for them to get paid than in previous years. With this figure still around 41.3% elsewhere in the world, tension is often apparent between the two key parts of the affiliate programme chain, ultimately warping how affiliate programmes are perceived. Some high profile cases have called affiliate marketing a ‘scam’ in response, but the reality is, a merchant or advertiser must be able to manage their relationship with their affiliate marketing ‘providers’ and networks, in order to reap rewards beyond the purely financial.

“Many consider affiliate marketing to be ‘risk free’ as the advertiser typically only pays for sales. Obviously it depends on how that risk is calculated,” says Kevin Edwards, global client strategy director for Affiliate Window.

“Working with hundreds, possibly thousands of affiliates has challenges regarding how those sites are promoting your brand and where your ads or content is appearing. Therefore control is an important part of running any affiliate campaign.

“One of the central benefits of affiliate marketing is the ability to trial various ways of generating sales through all sorts of traffic sources. Additionally, sites such as Quidco and vouchercodes.co.uk have millions of engaged members, hungry for the best deals and promotions.

Matt Bailey adds that many affiliate networks, such as those mentioned above, are now becoming “significant brands in their own right”, meaning merchants and advertisers benefit from this halo effect, but still only paying as a result of a successful sale taking place.

Going mobile

While debate remains among the skeptical about the relevance to their particular brand, a very big change in consumer behaviour means the last 12-18 months have seen opinions soften around affiliate marketing.

Mobile, although clearly not a new channel, has recently overtaken desktop in terms of online traffic. While mobile advertising spend still lags behind those for desktop, mobile has theoretically passed its ‘tipping’ point in the last 12 months, and advertising spend is predicted to rise from $28.7bn in 2015 to an eye-watering $65bn in 2019.

Add in Google’s ‘Mobilegeddon’ change to its search algorithm that means mobile responsive websites now place higher in search than those not designed for mobile, and the significance, is that brands are looking to increase their use of affiliates across multiple channels; something the affiliate networks have long been aware of:   

Affiliates tend to be significantly more agile than many of the merchant they promote, and, as a result, quick-to-react to the new opportunities that the whole area of digital marketing presents,” says Geno Prussakov.

“When the door opened up [with mobile], most online merchants didn't even have mobile-friendly websites. Affiliates were quick-to-monetise the opportunities that got opened up on fronts as mobile websites, apps, and mobile search.”

As a result, there is now a wide range of mcommerce tracking technologies available to help advertisers and publishers reach and accurately measure the buying behaviour of mobile consumers, as well as new technology taking sales performance from mobile apps and applying the results to a performance model, reducing the risks associated with the previous impressions and click models. All in all, it means more and more brands are coming to rely on affiliate marketing:

"For some sectors, especially telecoms, affiliate marketing is fast becoming one of their most important routes to market,” adds Edwards.

“Some have researched the sales they’re generating and have discovered the channel sends them some of the most valuable customers they have.

“This analysis has undoubtedly helped secure additional budgets for affiliates. As online has grown, so brands are hiring more people and investing more resource. This is essential with affiliate marketing, as relationship building – which takes time and patience – is still the most essential part of its success."

With the relationship from advertiser through to publisher and consumer so intrinsic on delivering the financial gains affiliate programmes are heralded for,  MyCustomer will be delving even further into the subject over the coming weeks to further unearth the secrets of successful affiliate marketing. 

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