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Affiliate Marketing (for Merchants) – Part 1

Affiliate Marketing (For the Merchant)- Part 1

Long gone are the days when affiliates used to solely be one man in his bedroom, hacking about with some clever code.  In addition most merchants are more savvy to the opportunities affiliates can present when working in partnership.  Gone are the easy pickings of brand bidding and in the main, gone are the days when merchants used to treat affiliates as a second-class channel.

Affiliate Marketing is one of the most established online marketing channels.  Affiliation can provide everything from volume of clicks or UVs, e-Mail address collection and most commonly sales or leads.  Part One of my guide is centred around the more novice internet marketing professional, call it a beginners guide if you like.

Working out the commercials

The main benefit the channel provides merchants is a manageable approach to customers where costs can easily be controlled.  Merchants should know their margins and in turn know how much margin they can afford to give in terms of a commission (commission being the operative word, more later).  If the programme operates on a CPA basis the maths are straightforward.  If my product makes retails at £100 and I make 20% margin, my profit is £20.  I then know that if I want a 4:1 return on my spend my CPA would be set at £5.  Simple.  Remember if you are using an affiliate network you need to account for their over-ride (standard industry practice is 30% of commission.  In this case it would be an additional £1.50 (which already negatively effects your ROI.

Tip 1 – When working out your CPA to hit ROI targets, build in any network over-rides or additional costs to understand a true Net CPA and ROI.

Tip 2 – The networks will hate me for saying this, but the over-ride can normally be negotiated (if you are a merchant of either perceived value or revenue potential).

Choosing a network or going direct?

This is an age old debate within the sector.  The majority of merchants use an affiliate agency such as Affiliate Window or Commission Junction.  The benefits of using a network (even if you have an internal affiliate team) are numerous.  The major ones from my experience are the fact that payment to affiliates and expensive programme admin are taken care of.  Affiliates are a networks business and as such the platforms are built to take into account affiliate needs (much cheaper than merchants doing it from scratch).  Finally, the fact that the networks know all the affiliates and should be able to guide you on who to partner with.  They can also do some of the lengthy selling-in and negotiation with both established and up and coming affiliates, that direct merchants may not be aware of.

But what about Amazon?  Yes Amazon are one of the key success stories in terms of going direct.  However their entire model (as a vanilla pureplay) meant that they could set the system up from scratch.  The prices and range are so broad that affiliates fight to work with Amazon, rather than the opposite way round with a majority of merchants.

The main benefit of the Amazon approach is that they know their categories better than any network ever can.  They also know their stock and pricing in real-time rather than relying on a third party to update feeds.  They can speak passionately about promotions and campaigns and the affiliates hear it directly.

Tip 3 – Take the best of both approaches. Use the networks to manage and administer the account but work jointly on relationships with key affiliates

That leads me neatly on to the point I told you to keep an eye out for in the earlier post.

Commission

Affiliates will always want more as this is their bread and butter.  Merchants will inevitably want to pay less as it hits their margins.

My view is that if you treat the outlay as commission you should hit a fair level.  I have always considered my top revenue driving affiliates as a virtual sales force.  They are my sales people out on the road that can get people’s attention and drive them to my virtual shop window.

Like a physical sales force, this virtual salesforce will be motivated by money.  However the virtual sales force may be even more motivated by the commission they can earn.  This isn’t due to greed but related to the fact that the majority of this virtual salesforce has to place their own investment in.  That may be monetary through Google adwords or through effort and opportunity cost through the likes of SEO or social media.

Whilst your virtual sales force will be reactive to the commission structures you put in place and any additional incentives, the majority are also pragmatic enough to realise that you can only reach a certain level, before it becomes impossible for you to maintain.

As with physical sales forces, incentives can prove extremely motivational.  A push to go the extra mile.  Whether that is by taking advantage of a sponsorship property you have and offering tickets.  Inviting affiliates to attend a bespoke event or cold hard cash.  All can influence an affiliate.  However with the more experiential incentives, you shouldn’t necessarily expect a parallel increase in revenue.

Tip 4 – Treat your affiliates as a virtual sales force. Reward them and the commission negotiations are normally easier and fairer all round.

Types of affiliates

As I said in the intro of the post, gone are the days of one man in his bedroom trying to earn a quick buck.  Nowadays, affiliates are some of the brightest online marketers or smartest developers.  You must define your strategy and decide what affiliates you should work with and to what level and on what basis.  Below are a few examples of different types of affiliates

Cashback – this is possibly the biggest area of growth within affiliate marketing.  Sometimes thought of as the pariah within the affiliate community, the growth is in part due to the economic climate.  Essentially, these affiliates pass on all or part of the commission you give them, directly back to the customer.  Sites such as Quidco and TopCashBack fit into this category

Loyalty – the name is slightly misleading in terms of the loyalty is normally with the affiliate and little loyalty will be passed on to the merchant.  Essentially working in the same way as Cashback, except rather than cold hard cash being placed into a customers bank account, points are awarded.  Examples of these are Nectar and Airmiles.

Voucher Codes – if Cashback sites are though of by some affiliates as pariahs, then voucher codes are seen as bandits.  Essentially these sites provide details of all the codes available, people click on a link to reveal the code and generally a cookie is placed on the customer’s PC, meaning that affiliate gets the commission.  Its at this point I feel compelled to say that these views are not my own.  Both Cashback and voucher code sites perform specific roles within a merchants mix.  Whilst I accept some cannibalisation will take place, there are a number of customers that wouldn’t buy without this bargain mechanic.  Examples of this type of affiliate include MyVoucherCodes and VoucherCodes.co.uk

PPC – there are some affiliates that specialise in PPC (sponsored terms in the search engines).  PPC can be a grey area in affiliates and you need to have strict control over who can bid and on what terms.  If you don’t have a PPC agency or any internal expertise, these affiliates can provide great top-up resource to your own PPC activity

Tip 5 – Understand your PPC strategy and place clear T&Cs in your programme on PPC restrictions, such as brand bidding, using your brand name in the URL, direct linking etc

Content – this is potentially where affiliates started out.  People generally with a personally interest, creating great content that they just want people to read.  These sites then realised that they could potentially make money from their sites and started selling advertising.  This could be anything from one person with their site on a topic of personal interest such as making orange food, to more established content sites such as The Sun.  Although blogs are rightly considered social media, I would place them in this section.  Nowadays blogs seem to be more geared towards providing useful content and information as opposed to the web log (diary) approach that was intended.

Price Comparison – another type of affiliate that isn’t normally relevant to all merchants is Price Comparison.  The standard of these types of sites are varied.  Some use bespoke software that allows them to scrape the web for up to date prices and deals.  The others (more akin to traditional price comparison engines) take a feed once a day and produce pricing information.  Networks have developed increasingly sophisticated tools to simplify the process for affiliates to add Price Comparison functionality to their content (the best example being Affiliate Window’s, Shop Window).  There are some broad price comparison engines available through affiliate networks, however the more successful ones for merchants tend to be the more focussed engines such as Whiteboxdeals, a Price Comparison engine specialising in large domestic appliances such as washing machines and ovens.

Social Media – with the low cost of entry of social media and the advances in affiliate technology from networks means a new wave of affiliates are emerging.  These are the ones that have embraced the newer technologies such as Twitter and Facebook.  Whilst all the research indicates that recommendation by a friend, either in person or online, is the most powerful tool, please be aware.  Some people using social media tools are not just making recommendations to their network but creating brand accounts.  This is especially true in Twitter where minimal dev work is needed.  That being said, there are a number of affiliates that have made social media work and come up with creative solutions or use an established network.

Tip 6 – If you consider using Social Media affiliates, ensure your T&Cs are very clear in terms of people using your brand name.  Also, vet applications very carefully.  Some people end up spamming contacts, which reflects badly on the merchant.

OK, so that’s it for Part 1.  In part 2 I get a bit more practical, rather than just an introduction.  I will look at what types of affiliates different sectors/merchants could be best placed using.  I will look at which affiliates and approaches you could use for different stages of a business of product lifecycle and I will also review the methods of building relationships and rapport with affiliates either directly or through the networks.  I may even explore the age-old debate about single Vs multiple network.  If there is anything else you would like me to cover leave me a comment here.

Finally, here is a recap of the tips

Tip 1 – Build in all costs to determine CPA (inc network over-ride)

Tip 2 – Negotiate your network over-ride

Tip 3 – Take a collaborative approach with your network to managing affiliate relationships

Tip 4 – Treat your affiliates as a virtual sales force

Tip 5 – Understand your own PPC strategy and reflect this in your PPC T&Cs

Tip 6 – Have clear T&Cs on affiliate use of Social Media and tightly manage applications

If there is anything else you would like me to cover leave me a comment here.


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The Internet Landscape

NetImperative.com published a number of latest stats on internet usage this week.  But what does it all mean?

Rise and Fall of the Internet

So you probably thought that everybody that wanted to use the internet at home probably already has access.  Well according to the latest numbers from Nielsen (featured on NetImperative) there is still room for growth in major markets.  The US and UK saw significant growth, 10.4% and 3.1% respectively.    There was also growth of over 1% in Australia, Italy and Germany with more modest growths in Japan and Brazil.  Most startling isn’t the fact that some markets have continued to grow, more that some major markets have declined, including France, Spain iPhone 3GSand Switzerland. 

Whilst I don’t think the numbers should be read in pure black and white terms, it does demonstrate the issues of using data on such a small time frame and not looking at longer term trends.  The data was based only on May 09 Vs June 09.  If you were to read this on face value, it would seem USA is leading the way on the internet whilst some mainland European counties are turning their backs on the Internet, which obviously isn’t true.  I am not 100% certain but I can’t imagine the numbers Nielsen uses takes into account convergance and the growing move towards accessing the internet on mobile devices such as the Apple iPhone or the HTC Google phone.  This is also set to continue with newer style netbooks with mobile broadband capability built-in.

Top Social Networking Channels

So Facebook are the kings of social networking.  That is the widely held view and judging from the Hitwise numbers featured in NetImperative show that it represents 47% of all UK visits to social networking sites.  Interestingly Bebo has twice the traffic of Twitter and MySpace.  Another dark horseSocial Media Pic that many people completely ignore is Yahoo!Answers with 1.19% of all traffic. 

Whilst these numbers prove that Facebook cannot be ignored by marketeers, it does demonstrate the next tier isn’t as obvious and clear cut as many think.  All Marketeers should look at their target segments and choose which channel best suits their needs.  They should also consider what they have to offer each network and create firm reasons for being involved.  Despite Bebo‘s claims within their advertising sales packages, I doubt they are as big in the 25+ market as they would lead you to believe.  You must therefore determine if you have anything to offer a younger audience and if you brand belongs.

Top UK Online Retailers

Once again on NetImperative they list the Top 50 Online Retailers within the UK (listed at the foot of this post).  The list published in conjunction with IMRG and using Hitwise data is based purely on visits.   The list is fine as a benchmark but to label its output Top 50 Online retailers is somewhat over the top.  The numbers fail to recognise usability, conversion, online SoV or the obvious benchmark of turnover and profit.  If all these factors were incorporated, I am sure there would be some differing positions and maybe even some change of faces in the Top 50.

Withstanding the rationale of creating the list, the top 10 is made up predominantly of names you would consider when talking about Top 10.  Amazon (1st and 5th), Argos, Play.com, Next, Marks & Spencer, Tesco, Thomson, Expedia and EasyJet.  OK so the final few wouldn’t be in my list of Top 10 online retailers.  Despite this list IMRG claim a massive rise in spend online, largely driven by the fashion sector (none of whom really appear at the top of the list, with the exception of Next and M&S)

The most interesting element of the top 10 is that all are recognised brands.   This shows that Internet Marketeers also need to recognise the importance of brand and cannot base every business decision purely on immediate ROI or DM metrics.

Top 50 Online Retailers List  – August 2009

Source: NetImperative

1 Amazon UK http://www.amazon.co.uk/
2 Argos http://www.argos.co.uk/
3 Play.com http://www.play.com/
4 Next http://www.next.co.uk/
5 Amazon.com http://www.amazon.com/
6 Marks & Spencer http://www.marksandspencer.com/
7 Tesco.com http://www.tesco.com/
8 Thomson Holidays http://www.thomson.co.uk/
9 Expedia.co.uk http://www.expedia.co.uk/
10 easyJet http://www.easyjet.co.uk/
11 Apple Computer http://www.apple.com/
12 Ryanair http://www.ryanair.com/
13 ASOS http://www.asos.com/
14 Tesco Direct http://www.direct.tesco.com/
15 lastminute.com http://www.lastminute.com/
16 Thomas Cook http://www.thomascook.com/
17 B&Q http://www.diy.com/
18 John Lewis http://www.johnlewis.com/
19 Debenhams http://www.debenhams.com/
20 Littlewoods http://www.littlewoods.com/
21 HMV.co.uk http://www.hmv.co.uk/
22 River Island http://www.riverisland.com/
23 Currys http://www.currys.co.uk/
24 Ticketmaster UK http://www.ticketmaster.co.uk/
25 Topshop http://www.topshop.co.uk/
26 Odeon Cinemas http://www.odeon.co.uk/
27 New Look http://www.newlook.co.uk/
28 LOVEFiLM http://www.lovefilm.com/
29 O2 Shop http://www.shop.o2.co.uk/
30 Cineworld Cinemas http://www.cineworld.co.uk/
31 TravelRepublic.co.uk http://www.travelrepublic.co.uk/
32 Comet UK http://www.comet.co.uk/
33 Vue Entertainment http://www.myvue.com/
34 The TrainLine http://www.thetrainline.com/
35 British Airways http://www.britishairways.com/
36 ASDA http://www.asda.co.uk/
37 First Choice http://www.firstchoice.co.uk/
38 Dell EMEA http://www.euro.dell.com/
39 Halfords http://www.halfords.com/
40 Screwfix Direct http://www.screwfix.com/
41 PC World http://www.pcworld.co.uk/
42 GAME http://www.shop.game.net/
43 IKEA http://www.ikea.com/
44 Travelodge UK http://www.travelodge.co.uk/
45 Homebase http://www.homebase.co.uk/
46 Sainsbury’s http://www.sainsburys.com/
47 Boots http://www.boots.com/
48 ASDA Direct http://direct.asda.com
49 The Orange Shop http://www.shop.orange.co.uk/
50 QVCUK.com http://www.qvcuk.com/