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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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Murdoch to Charge – Does Attention Economy now have its own recession?

Rupert Murdoch announces plan to charge for news content

Rupert Murdoch News Corp

So the announcement last week that Rupert Murdoch intends to start charging for newspaper content via his News Corporations newspaper websites came as a surprise to some.  Especially as Murdoch is widely credited with being the individual that introduced the Free-to-read premise of online newspapers.

Obviously the recession and falling newspaper circulation is behind this latest decision (NewsCorps profits slumped by 47%, advertising revenue in Britain slumped by 21%).  The strategy is being fuelled by the success of online subscriptions at the Wall Street Journal.

This is a completely personal opinion, but online subscriptions for a B2B publication, or one where you make expensive decisions,  is a completely different kettle of fish to consumer mass media publications.

Murdoch is determined to set the wheels in motions on these plans within twelve months.  So no doubt you regular readers of The Sun and The Times will be getting your cards out to get your subscriptions.  I didn’t think so!

Attention Economy

This story made me think about a previous post I made on this blog relating to Attention Planning.  Attention Planning in part works with the premise of the Attention Economy.   The Attention Economy is based on the fact that humans only have the capability to pay attention to a finite amount of information or a finite amount of messages.  With the rise of social media, the dynamics of the attention economy have changed, more and more information is available at an unprecedented pace and there are in increasing number of ‘editors’ that broadcast.  As a consequence our attention is become a scarce commodity, a valuable trading commodity.

Many site owners are charged with making sticky or engaging content.  Content that will make people want to return to their site time and time again.  Whilst this is a great move and is a great way of trying to attract people it is also contributing to the overload of information and making peoples’ attention an even more valuable commodity.

Why is it so important?

Well if you look at traditional economic measures for simplicity sake, the amount of money people have, founders of sites such as Yahoo, Facebook and Google became millionaire when there was no revenue being driven via their platforms.  Why?  Largely because investors know that is a site attracts thousandsMark Zuckerberg or millions of visitors there are definite money making opportunities through advertising or maybe even subscriptions.

People will trade e-Commerce properties before they have made a penny, in a number of cases while they are making big losses.  Everybody wants a piece of Twitter but how much money does it actually make?

Very few genres such as Twitter and Facebook experience such accelerated over-night success.  However, if you can targetted to your key area, tailor content to your particular audience, segment or niche you will have a great chance of gaining their attention.  Otherwise, at best they will skim your content, not take it in and are unlikely to return.

Back to Murdoch

So has Murdoch got it right if you consider the Attention Economy?  I would argue he is taking a short-term view on an issue to solve a long-term problem.  With the likes of the BBC distributing high quality broadcast information and the volume of information transmitted by individuals on Twitter and Facebook et al, I doubt it is a model that can be sustained.  That is unless NewsCorp can get content that is so unique people will pay the subscription.  Something that was overlooked in most of the debates, will Murdoch start charging for people to use MySpace?  I would imagine that would kill the community and drive the teens and 20-somethings to an alternative.

I would personally suggest NewsCorp need to look at their content.  Make it compelling and then gain revenues off the back of the increased visitors numbers.  But as Murdoch himself said “I am no economist”.