If 2007 was the year when affiliate marketing finally broke through into the mainstream then 2008 could be the year when its payment on performance model is finally understood and fully exploited.
As we find ourselves facing straitened economic circumstances there is an inevitability that those holding the purse strings to online marketing campaigns will further scrutinise the cost effectiveness of all their activity. Therefore it stands to reason any channel that places payment based on customer acquisition at its heart will find itself increasingly in demand.
At affiliate marketing’s core is transparency on returns through incremental sales and a commission payment for each of those transactions. It’s a deceptively simple concept that belies its complexity but takes on a greater resonance when budgets are reviewed and potentially squeezed. Working network side we know advertisers are switched onto and engaged with affiliate marketing more than ever before; starting to join up the numerous pieces and realise its potential. The test for affiliate networks will not be whether more money is diverted online but whether cautious marketers assign a greater importance to paying out on a ‘harder’ action.
This wasn’t always the case; there was a time when it was seen as a poor online relation, distrusted and misunderstood. I remember a conversation with a digital agency a couple of years ago to agree the commission or cost per acquisition (CPA) of various insurance products they were running affiliate programmes for.
The CPAs we talked about were considerably lower than the cost to secure those policies through other channels. When I enquired whether there was room for manoeuvre with the CPAs, possibly raising them to other promotional channels they said by increasing them the activity became more marginal when compared to other channels they could divert spend to.
The fact that affiliate marketing is a ‘no risk’ model (no monitoring of activity to ensure costs don’t creep up needed) and increasing the commissions would probably generate additional sales wasn’t necessarily considered so we carried on at the lower levels, aware our cost to the advertiser was about 25% less than a sale achieved via other online media.
Thankfully this is more of an exception rather than the rule now but the historic leanness of commissions now works in affiliate marketing’s favour. A significant travel client of ours shared their return ratio on spend across all off and online activity they currently run. With the exception of brand led PPC activity affiliate marketing is the most cost effective channel they invest in and by a stretch. Throw in the ‘no risk’ angle and you have something very compelling.
It remains to be seen how this will impact affiliate marketing longer term. Budget may be diverted from those channels focused more on brand awareness, non performance based activity. Certainly those hardest hit by any economic slowdown should be talking to affiliate networks about how to grow their campaigns beyond their current levels.
Although it’s too early to say the credit squeeze has changed our advertisers’ attitude and approach to their affiliate marketing campaign there is a more general shift towards ROI focused activity.
Pat Foley, Marketing Director, Dixons acknowledges an ongoing shift towards cost per sale: “To ensure that we maximise our reach, we are increasing the emphasis on CPA structured advertising opportunities and limiting our CPC advertising to the existing proven opportunities.”
This is borne out by the close integration of a clutch of trusted paid search partners to work alongside Dixon’s current PPC campaign, addressing the ‘long tail’ keywords and relevant non brand search terms. The beauty for Dixons is all of this pushes the onus on someone else. There is no brand focus to their paid search activity, it’s all product led and all paid on a cost per sale with the affiliate taking the hit on any search engine expenditure.
It’s naïve however to assume that affiliates won’t bear any brunt as advertisers look to tighten their belts. According to the affiliate manager of Boden, Shelley Ahluwalia, affiliate incentives or upper tiers could be scaled back but “this is an ideal opportunity for affiliates to act constructively, to look to increase their customer base and, most importantly, invest in programmes with high conversion rates, not just high commissions”.
Agencies are now a vital part of the affiliate mix and Sara Varnell, Media Account Director at LBi, agrees there could be pressure on affiliate bounties, “advertisers will be less likely to increase commissions across the entire programme as readily as they have done in the past. It will be essential for any additional investment to show clear incremental growth and fit within wider businesses objectives”. She suggests individual affiliates could find themselves increasingly targeted as a network or agency would be.
If commission levels are pared back there has to be a full understanding of the ramifications, especially on those paid search affiliates who arbitrate between the cost of their traffic and their returns in commissions. Remaining competitive and ensuring you’re heard amongst the burgeoning number of affiliate campaigns remains key.
The industry faces other challenges. We need to ensure advertisers feel comfortable and confident about who their affiliates are and how they’re promoting them. This level of transparency is vital to the industry’s ongoing development.
The market has also always been fiercely competitive and margin pressure continues as long standing players look to leverage this realisation for lower overrides and better deals. For networks there is the added cost of supporting these programmes; any network worth its salt has beefed up its account management to provide confident, strategic guidance to multi-million pound campaigns.
Costs are being squeezed at both ends but there are few people within the industry who wouldn’t say it’s in rude health. As long as it offers a thoroughly cost effective route to sale coupled with little or no risk to the advertiser, the opportunities remain endless with networks perfectly placed to offer the reassurance and guidance marketers are looking for in these challenging times.