When market conditions are tough, as is undoubtedly the case at present, it is important to know which business partners are delivering real value. At a superficial level at least, this is easy enough to determine online, where web-analytics technology allows users to see which site a customer has arrived from. Consequently, affiliate marketing has grown strongly over the past decade, fuelled by a 'last-click-wins' payment model that rewards the site that brought the customer to the merchant.
Affiliate marketing scores highly when it comes to measuring return on investment, meaning it is likely to ride out the recession. According to research from online marketing and strategy firm E-consultancy, 95% of clients claimed affiliate marketing was 'very' or 'quite' cost effective for driving customer acquisition, beating paid search at 90%, email marketing at 81% and display advertising at a disappointing 52%. Of the agencies surveyed, 96% rated it as 'very' or 'quite' cost-effective for driving customer acquisition.
The virtue of the affiliate marketing model is its simplicity. Its drawback is that it does not necessarily recognise the entire customer journey in which several sites may play an important role in driving an eventual sale, all parts of a chain, but not all rewarded.
These limitations have come to the fore with the rise of specialist voucher code and cashback websites. The most savvy consumers are researching purchases on the internet and then, one step before buying, checking to see whether a discount is available.
For many companies, this situation is far from ideal when applied to the last-click-wins affiliate-remuneration model. At its most extreme it means, in effect, rewarding someone for eroding margins, while ignoring content sites that have stimulated sales by investing in support for a brand.
'A lot of content-based affiliates fear that they are contributing to a lot of sales, only to have their cookie overwritten by someone who has come in at the end of the journey,' says Matt Bailey, head of affiliates at digital media agency i-level.
'Therefore the content affiliate has influenced the sale but not been rewarded for it. Now - obviously without getting inside each individual consumer's head - it is difficult to assess the level of influence these affiliates have had, but the assumption must be made that there is value there,' adds Bailey.
No clear alternative
Quite what that level of value is for each step of the journey and how the rewards might better be divided among the affiliates involved is a subject of growing debate. It is clearly in the interests of merchants to reward all those who have helped them make a sale, but some feel that this is impossible.
'Although commission should probably be shared more evenly, at the moment there is no clear alternative to the last-click system. There is also an issue of how the commission gets allocated fairly between the sites,' says Naomi Brown, online marketing manager at gifts and gadgets retailer Firebox.com. 'For example, should voucher code sites get less?'
Zak Edwards, managing director at rival online retailer Prezzybox, believes there is a compelling argument for every 'contributor' to the sale receiving a share of the spoils. Although this argument has a lot of credibility and would probably be the fairest method of reward, it opens up several further questions. For example, how far back in the chain that results in a sale does one go?
The last-click-wins model is ingrained in affiliate marketing all over the world. It would, Edwards feels, take a monumental effort from the affiliate networks working in unison to push through 'multi-level cookies', as the way to track the customer's route, as well as rewarding all the various sites that played a role.
Therefore any transition is unlikely to be smooth, if it happens at all. 'How will multi-level cookies affect cashback sites?' asks Edwards. 'Multi-level cookies go against the cashback model and I don't see a way that the two could combine. Could it ultimately mean the merchants and the networks having to adopt different tracking methods for content affiliates, voucher site affiliates and cashback affiliates, for instance?'
Nevertheless, Edwards believes that multi-level cookies would probably be the fairest method of reward when considering the voucher site affiliates.
Opponents of voucher code sites argue that they come into the equation only when the user has actually determined to make the purchase and has seen that the merchant will accept a voucher. They therefore offer very little influence on the actual purchasing decision.
However, voucher code site supporters argue that they are providing as much up-to-date content as content affiliates - just different content. 'It's difficult to know which way to turn on this one, and I can see it being a very sticky issue for 2009,' says Edwards.
According to research from E-consultancy, the proportion of online sales coming from the affiliate channel is declining, dropping from 16% in 2007 to 12% this year. This might simply be the result of far greater investment in other channels, but it also suggests that the affiliate market is stagnating.
E-consultancy projects that sales should rise from this channel, though maybe at a slower rate than in previous years. Its research has also shown that 25% of marketers do not currently 'de-dupe' sales across different channels, while a further 40% 'try to de-dupe but struggle'. This means that almost two-thirds of marketers could improve their existing tracking. Until that happens, any talk of splitting cost per acquisition (CPA) may be academic.
Moving up the priority list
Indeed, although value attribution is becoming more of a live issue, it is by no means top of the agenda. The Internet Advertising Bureau's Affiliate Marketing Council is currently prioritising the creation of case studies and best practice guidelines. However, the council's chairman, Ben Wood, also managing director of affiliate network company TradeDoubler, says that the subject is likely to figure in the coming year.
Affiliate Window communications director David Hall agrees that a year or so from now there may be a move to rewarding a range of affiliates for driving a sale. He argues, however, that the lack of a central place for merchants to access customer journey information is currently holding back this development.
Platform-A client services director Louise Green is also of this view. 'One of the biggest obstacles is complexity,' she says. 'If the industry moves over to using this model, the huge amount of data needed is too much for a spreadsheet, so it will have to use a different technology.'
The development of tools such as Atlas Engagement, DoubleClick's Dart and others may eventually provide robust solutions. Marketers may increasingly be able to see both how many cookies were placed on a customer and when, and use this information to assess which had the greatest influence on a sale.
Green makes the point that some affiliates could argue that it is the first cookie, rather than the last, that is the most influential of all, as it triggered the route to purchase.
Yet, not surprisingly in this complex area, turning the current model on its head in this way would bring its own difficulties. Paul Wheatley, director of online shopping directory ShopperUK.com and, under his pseudonym Moose on the Loose, a leading blogger on affiliate marketing, believes that a first cookie payment model would be a 'stuffer's paradise'.
Stuffing is the unethical practice of planting affiliate cookies on a user's computer without them having clicked on an affiliate link. In Wheatley's view, an incremental step toward an acceptable solution would be the introduction of hybrid commission structures by including a cost per click (CPC) in addition to, or factored within, the cost per action or CPA (sometimes known as pay per action or PPA).
Crowd-pleasing ideas
Wheatley concedes that while this would reward each of the touchpoints, it could be open to abuse if distributed to all affiliates. However, merchants and networks could offer this option to trusted affiliates. Implementation would be straightforward, as recording clicks is one of the uniform statistics appearing on reporting interfaces.
Another alternative suggested by Wheatley is a queuing system for cookies, where one cannot be overwritten for, say, seven days. Instead, it could be placed next in a queue until the previous one expires. 'These are realistic and simplistic steps toward appeasing most parties in rewarding the various touchpoints of a consumer's journey,' he says. 'I would be considerably more incentivised if there were hybrid commission structures in place.'
Pete Norwood, ecommerce affiliates manager at holidays group TUI, says that the key to success is consistency. If a company is to reward three affiliates for one sale or three channels - PPC, affiliates and email - for a sale, then it must be sure of its model and communicate it widely. He says this is because the affiliate industry is averse to programmes with inconsistencies of reward or fluctuations in earnings per click.
Norwood has further concerns that splitting commission to reflect the customer journey may have some negative outcomes. 'Surely the equation is whether rewarding three affiliates with a third of the potential commission will incentivise those three affiliates to produce more business than giving 100% of the commission to one affiliate. This is where consultation and monitoring are key,' he says.
Putting the payment of affiliates to one side, multi-attribution allows marketing teams to be armed with greater insight into how the entire marketing mix functions and different aspects of the sometimes long road to purchase influence each other. But again, for this to truly work, there is the need for all marketing to go through one central tracking solution. 'This is not always possible for organisations, and there is still a question mark over how to measure the true impact that offline marketing has in driving online behaviour,' says Scott Holmes, joint head of media at digital agency TBG London.
In the short term, the last-click-wins affiliate marketing model will continue to reign supreme, on the basis that it is so deeply rooted. Yet advances in tracking technology, coupled with marketers' desire to ensure they are rewarding the affiliates that really matter, mean that the argument for change is gathering momentum.
AFFILIATES: WINNING WAYS
David Hall, communications director at network Affiliate Window, on how to make affiliate marketing work for your brand
Many retailers have already joined a network but may be struggling to see the benefits if they haven't looked at how to optimise their investment in this type of marketing. Have you taken the plunge, and if so, are you getting the best from your affiliates?
Increase conversion rates
Your affiliates may be sending thousands of visitors to your site, but they will get nothing out of it unless you convert those visitors to customers. Affiliates will not heavily promote sites with a conversion rate that is lower than 1%, so it's worth making a few simple changes to your website to encourage browsers to become buyers. This includes customising landing pages and cutting down the number of clicks it takes to complete the check-out process.
Monitor your approval percentage
If you decline a high percentage of sales, it is important to be open about the cause of this problem, as this will help affiliates reduce the number of low-quality customers sent to your site. For best results, try to minimise the number of declined transactions. Again, a low approval percentage (less than 90%) can be enough to put off the most loyal of affiliates.
Reduce the validation period
Not surprisingly, affiliates like to be paid quickly. Ideally, provide two payment dates each month, and don't go any longer than 28 days without approving affiliate payment. If nothing else, let your affiliates know when they can expect to receive their commission - and stick to your promises.
Offer extra incentives
In addition to basic commission rates, think about offering other incentives for exceptional performance, not just to affiliates pushing the greatest volume of sales but also to those that have grown their volume of sales significantly over a period. Financial initiatives can include private commissions and merchandise to try out.
Open lines of communication
It is important to communicate all useful and relevant information to your affiliate base, such as bestsellers, new product lines, top offers, sale items and so on. You should also positively encourage two-way communication not just with your highest earners but also with those affiliates that generate less, but consistent, traffic.
AFFILIATES: THE BASICS
An affiliate is a person or company that drives traffic to an advertiser's site through a number of online channels. These include
- Links on their site
- Emailing their users
- Pay-per-click (PPC)
Affiliates typically earn commissions in three ways
- Per click
- Per sale
- Per lead registration
Affiliates, along with agencies and marketers, use networks to manage their accounts. These include
- Buy.at
- TradeDoubler
- Affiliate Window
Source: LBi.