Affiliate Marketing is the Hidden Secret Your Brand Needs to Succeed
by Greg Shepard
Wikipedia defines affiliate marketing as “a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate's own marketing efforts.” Basically, it’s third parties helping brands and small businesses sell their products and, in return, taking a percentage of each sale. But let’s dig deeper and take a look at just how much affiliate marketing has grown since 1989 when William J. Tobin, the founder of PC Flowers & Gifts, launched what was to become the first affiliate program on the Prodigy Network.
Affiliate Marketing is the Elephant In the Room
As background, affiliate marketing has four main participants: the merchant (also known as retailer or brand), the network (that contains offers for the affiliate to choose from and also takes care of the payments), the publisher (also known as the affiliate) and the customer.
If you aren’t familiar with affiliate marketing, you might not know that it is a $4.2 billion dollar business set to grow to $6.8 billion by 2020. Or that nearly 7,000 marketers attend a conference called Affiliate Summit twice each year. Or that 80% of advertisers allocate 10% of their marketing budget to affiliate marketing. That last stat comes from a new report conducted by Forrester Consulting entitled Networks Help Drive Affiliate Marketing Into the Mainstream.
You also might not know that in the past year or two affiliate network Commission Junction (and all its subsidiaries) was acquired by digital marketing firm Conversant (formerly known as ValueClick) which was then acquired by data marketer Alliance Data for $2.3 billion; Ebates was acquired by Japanese ecommerce firm Rakuten for $1 billion and, most recently, eBay Enterprise Marketing Solutions acquired AffiliateTraction which, collectively, was then acquired by investment firms Banneker Partners and Permira Funds.
In all, that’s over $4 billion invested in a space which many have traditionally cast off as slightly off center and a bit outside the center of the larger marketing world. Thatkind of money doesn’t get thrown around without some serious forethought and ample confidence of return on investment.
As for affiliate marketing’s seat at the ecommerce table, predictive analytics ecommerce firm Custora found affiliate marketing will affect 14% of all ecommerce purchases in the United States. Couple that with Forrester’s prediction that 2016 US ecommerce sales will hit $279 billion and you’ve got affiliate marketing affecting $39 billion in sales.
No longer a tertiary element of marketing, affiliate marketing has grown into a full-fledged category of mainstream marketing that, according to Forrester, has more than 80% of advertisers and 84% of publishers running affiliate programs as part of their marketing efforts.
The Forrester study summed up the benefits of affiliate marketing quite nicely, concluding, “Affiliate marketing, once regarded more as a tool to drive consumers to the purchase event, is now viewed as a powerful channel for consumer discovery that leads to brand engagement and incremental sales at compelling ROIs. Advertisers are increasingly relying on the affiliate channel to broaden their brand exposure with relevant context.”
Affiliate Marketing Is Just Another Way to Fund Your Marketing
There is also an incredibly important and beneficial aspect of affiliate marketing that many outside the space do not understand. Almost all of the costs to marketers and brands for affiliate marketing are not paid until after a sale is made. It’s an entirely commissioned-based approach that eliminates much of the financial risk associated with more traditional methods of marketing. In short, if you don’t sell product, you don’t pay. But, you receive all of the marketing and promotion that came with promoting your brand and product through affiliate marketing for free.
Affiliate marketing simply means paying for marketing on a performance basis. As a result, ad expenditures are based purely on whether or not a sale is made. If an affiliate sells a product on behalf of a brand (and, in doing so, promotes the brand), then the brand pays a percent of sale to that affiliate. And the brand doesn’t pay until 30 days after the sale is made. If the affiliate’s efforts do not lead to a sale, the brand does not pay anything. And, all while the affiliates are attempting to make a sale, the brand is receiving, essentially, free advertising.
With the traditional advertising model, brands are paying ad agencies for the "possibility" of their ad dollars achieving results rather than affiliate marketing’s pay-for-performance approach. In some instances, brands are even paying agencies twice when you factor in the costs for both the planners and the trading desk they use to activate their media buys.
In a way, affiliate marketing is a way to leverage an army of salespeople who get paid only if they sell a brand's products. Why would a brand pay anyone for the "possibility" of a sale when they could be paying only for actual sales?
Affiliate Marketing Can Give Your Content Marketing A Big Boost
With the birth of social media came the growth of content marketing and the social media influencer. These people, celebrity or otherwise, built up huge followings on Twitter, Facebook, Instagram, Pinterest, Snapchat and elsewhere. But with large followings and loyalty a priority for these folks, disingenuous endorsements can quickly kill popularity. So anything that looks like a blatant sales pitch makes it much less likely for these influencers to display promotion codes and discounts. And that’s a loss for both the content creator and brands.
Here’s what happens:
● Visitor reads a fantastic review or social media post about a brand’s product and clicks a link.
● Visitor trusts the reviewer and is incentivized to buy.
● Visitor sees a promo code field in the shopping cart and searches for a code.
● On the site with the code, the tracking cookie picks up a click that supersedes the original publisher’s.
● Coupon affiliate, not the content creator or the content network gets credit for the sale.
● The brand is not provided proper attribution and, thus, can’t properly allocate future resources.
In this scenario, the greatest influence on the conversion comes from the content affiliate. Current convention places credit on last click, but brands most often value traffic from bloggers and social media pages more than discount/promo sites.
Affiliate marketing, and certain affiliate networks within, can remedy this and properly leverage the power and reach of social media influencers for content marketers
One approach allows for a network to have technology that makes it simple for both the content creator to implement, for the consumer to use and for the brand to benefit from. When a social media influencer decides to tout a particular product, a corresponding offer for that product isself contained within technology overlaid onto social networks negating the need for that extra step to seek out a coupon code to use during purchase. It all happens right there next to the social media influencer’s post.
With this type of approach, brands can leverage the power of social media influencers without having to part with large, upfront payments that guarantee nothing. Remember, with affiliate marketing, brands don’t pay anything unless a sale is made.
The Power of Managed Services
In the traditional marketing world, you have marketing directors on the brand side who, sometimes, handle all of their brand’s marketing on their own. However, most of the time, they choose to work with an advertising agency which can provide the expertise needed to craft the best marketing program. It’s no different in the affiliate marketing space.
When you think of third parties in the affiliate space, often times the affiliate comes to mind. After all, they are the “third element” or the person between the brand and the consumer who helps make the sale. But there are other third parties in the equation, one of which, is managed services.
Many brands entering the affiliate space believe a workable solution is to delegate all affiliate marketing responsibilities to an in-house affiliate manage. But an affiliate manager is just one person and an affiliate network is just a platform, a technology provider and not a marketing expert. Much in the same way Google Search is a platform for search engine marketing and does not offer search marketing expertise.
Neither solution is the best solution for a brand that truly wants to maximize returns through the affiliate channel. Let's take a look at several reasons why a brand should consider working with what’s called managed services for its affiliate marketing program.
Turnover - Managed services is stable in the sense that it is a corporation that consists of many people who work as a team to accomplish effective affiliate channel management for merchants. Yes, people come and people go but the team stays in place. While a great affiliate manager aims to do the same great things as an agency, they are just one person, not a team. And when they leave, and they will, the brand, effectively, has to go back to square one.
On average, affiliate managers -- like anyone in any marketing professions -- last about 14 months before they move on to their next gig. And when they do, most of the processes, procedures, practices and amassed knowledge disappear with the exiting affiliate manager.
Continuity -- Akin to the aforementioned turnover, continuity, as it relates to brand revenue, can be lost. When an affiliate manager leaves a brand, it's a dramatic revenue disruption. Processes, procedures, practices and knowledge leave when the affiliate manager leaves and a new affiliate manager must get up to speed and be trained.
While that is happening, the brand's affiliate program is not running at 100% and that can lead to a disruption in revenue. Existing relationships with affiliates networks that have been built up over time with the in-house affiliate manager walk out the door along with the exiting affiliate manager and the merchant has to build those relationships all over again.
Expertise -- With an affiliate manager, you get a warm body in a chair who is lucky if they can keep up with anything more than the very mechanical aspects of managing a brand’s affiliate channel. This is not meant as a disrespectful jab, simply an observation that an affiliate manager is one person, not a team. Managed services gives you a team of experts who are adept at optimizing campaigns, customizing creative. building and maintaining relationships with affiliates and networks. Yes, people can come and go from an agency just like affiliate managers come and go from merchants but an agency team can retain the collective knowledge much more effectively than an individual person. With managed services, a merchant gets continuity of experience.
Clout -- If an affiliate can have a phone call with a managed services group and bang out a program with 200 retailers at the same time versus have a phone call with one affiliate manager at one retailer or brand, who do you think that affiliate is most likely to answer the call from. This can be a stumbling block with the in-house affiliate manager model.
Managed services have clout. Just like any large entity in any segment of marketing or the broader business world, they can get stuff done because they have a much bigger reach and a larger command of the affiliate channel. An in-house affiliate manager simply lacks the bandwidth to do everything necessary to run a full blown affiliate program.
Cost Effectiveness -- When a merchant hires an individual affiliate manager, they are taking a risk in that they don't always know what they are getting. When a managed services organization is hired, it's a simple fee. With an in-house employee, there's benefits, vacation, sick days, bonuses, training costs and other unforeseen costs.
In addition, managed services are on 24/7. Certainly an individual affiliate manager can work their ass off but, again, they are just one person, not a team like a managed services group.
And then there's cost-related risks. Is the affiliate manager exceptional? Are they just OK? Or are they terrible and will need to be replaced in 6 months? With managed services the proof is in the portfolio and tenure of clients.
Experience -- A single affiliate manager has a limited set of experience. That just comes with being a single person. Managed services brings to the table a stable of experience, an overlapping army of expertise spanning many years working with many different merchants, networks and affiliates. Yes, people can come and go from a managed services group just like affiliate managers come and go from merchants but an agency team can retain the collective knowledge much more effectively than an individual person. With managed services, a merchant gets continuity of experience.
Brands, as with all of their marketing, want the best possible return for the affiliate program. To get the best possible return, a merchant has to be able to get an unbiased, 50,000 foot view of the affiliate channel and, in addition, reliable, consistent expertise that is available 24/7.
Affiliate marketing is a growing form of marketing that pays for itself, garners free advertising and uses the power of third parties, be they affiliates of social media influencers, to help big brands as well as small businesses sell product. Affiliate Marketing allows brands and small businesses to, in essence, access an army of salespeople at no cost who are financially incentivized to do all they can to make a sale. What more could a marketer possibly want?
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Greg Shepard founded the affiliate marketing agency, AffiliateTraction, and filled the role of CEO from 1999-2016. AffiliateTraction was acquired in January, 2016 by eBay Enterprise Marketing Solutions, which moved Greg into the position of Chief Strategy Officer to help guide the company on its forward trajectory as a prominent player in the performance marketing space. In April of 2016, eBay Enterprise Marketing Solutions became Pepperjam, resurrecting a familiar name in the performance marketing space.
Inspired by the unique perspective he garnered as as both a merchant and affiliate in past ventures, Greg established AffiliateTraction as the first affiliate marketing agency in early 1999. It then expanded into the largest multi-national affiliate marketing agency with offices in Silicon Valley, Toronto, London and Sydney.
In addition to AffiliateTraction, Greg also founded the compliance agency, AdAssured. AdAssured utilizes a single platform featuring proprietary technology to monitor affiliates and case manage violations of merchant policies in regards to paid search, objectionable content, promotion codes, and domain infractions in order to bring affiliates back into compliance.
Greg is an expert in the field, and his knowledge is exemplified through his contributions and articles for Revenue Magazine, ReveNews, Internet Retailer, iMedia Connection, Adrants, Mercent, The Drum, The Electronic Retailing Association, DMNews, DMConfidential, ThoughtShapers, MThink, PerformanceIN, The Internet Advertising Bureau, Power Retail and the 75 year old marketing icon, and The American Marketing Association. He has spoken at the University of Southeastern Louisiana, PerformanceIN, The Online Marketing Summit, Affiliate Management Days, AvantExpo, and has contributed to The Affiliate Marketers BootCamp and The School Of Internet Marketing. Along with radio interviews with WebMasterRadio, he has also served as a WebAward judge for the Web Marketing Association since 2007.
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