Internet Affiliate Marketing: Companies Are No Longer Playing Alone
A Review of Changing Revenue Models for Business to Business Ecommerce
In the early days of ecommerce, businesses set up your site, bought a domain name, placed banner ads and hoped for the best: press coverage, word of mouth, banner ad click-throughs and eventually a closed sale. Life got more complicated quickly as banner ads proliferated and people managed to ignore them with increasing skill. Internet marketers thus had to become more savvy, and the affiliate model was introduced. The model: get other sites to reference your site and increase traffic and sales with “a little help from your friends.” This concept of having others reference you (and sometimes setting up a joint-referencing model back at your partner) is the premise of affiliate marketing.
For prospective marketers considering entering this new space, this paper suggests how to create and maximize the affiliate experience. It will also highlight pros and cons of affiliate marketing and suggest situations where it may be best to avoid such a strategy altogether.
One of the best examples of affiliate marketing comes from retailer Amazon.com. Amazon has at least 30,000 affiliates and a 15% commission rate for sales of what they call “linked-to books.” Such a structure is not static, as Amazon now offers additional 5% commission on purchases made by shoppers brought to their site by an affiliate[1]. Such information indicates that even a media and ecommerce giant like Amazon has decided it pays to join forces with others and the benefits warrant paying others for the service!
In an article on affiliate marketing, web author Dr. Ralph Wilson suggested six considerations in setting up an affiliate program. His suggestions are:
Addressing all of these suggestions briefly: the “provide a regular accounting of sales” admonition really addresses a mindshare issue. Let your affiliates know where they stand in your program (which should motivate them to do more for you). Also, don’t let them forget that they have signed up with you. For example, while a newsletter or email serves as a reminder, such a messaging device cannot compete with a full accounting of sales and a commission report. Keep in mind that information about money is what motivates your affiliates.
Keeping this fact in mind will create success with concept two: “pay often.” While Dr. Wilson acknowledges that it can be expensive and painful for businesses to send out many small checks, he still suggests that low minimum requirements in order to receive checks will tie your affiliates to you. And, once you have a network of focused affiliates, continually give them a reason to stay with you (other retailers will ask them for the same space you occupy now, so give them reasons to stay with you). If “being an affiliate has as much to do with belonging as with getting paid” as Wilson suggests, then make sure your affiliates have a sense of community with you. He suggests sending notes of appreciation, including affiliates in new ventures, and treating them as part of your (sales) team when appropriate. These suggestions tie (almost too closely) with his fifth suggestion: have promotions and contests. To me, such promotions and tactics are just additional methods to “build community.” However, as specific tactics, both are excellent ways to build excitement and increase loyalty. Dr. Wilson’s remaining suggestions: add value to your affiliate's site and find ways to increase their links to you. For adding value, he suggests spending enough money to create and generate graphics (such as awards) for your affiliates. He claims that by investing in quality graphics, your affiliates will be proud to place such graphics prominently on their sites. He also suggests investing in a “striking” logo for yourself, so that your affiliates will again be proud to promote you.
To illustrate his sixth point, “find ways to have affiliates increase their links to you,” Wilson used a personal example of his experience with Amazon.com. Now that Wilson receives 5% of all purchases made by people who enter the retailer from his site, he is more anxious than ever to drive people to Amazon. (A sidenote: don’t take this too far. It was difficult to use his site, because many of his “references” were just book reviews on Amazon.com that distracted my search for information. Watch out to make sure that every time you drive a visitor to a site, it is appropriate).
All of the above tips provide valuable information to any beginner entering the affiliate relationship, and such tips retain their value today. However, almost exactly one year after publishing these tips and suggestions, Dr. Wilson wrote another article about the “shakeout” in affiliate programs. He describes (after a year of experience with such programs) problems that will not surprise marketers who have had experience with having too many distributors or too many channel partners. Such problems are: dilution, overload, and partner fallout. What Wilson worries about are the problems of having your logo on too many sites that bring no sales, problems of becoming overloaded in managing too many “small time” partners, and losing key partners because you are not focused on their accounts.
Wilson’s suggested remedies for these new-found problems: affiliate programs need to be more competitive, more value-added for the affiliate, and more professionally managed in order to survive. If you select your affiliates carefully, you can avoid damaging your reputation by finding your links on unprofessional or unrelated sites. Further, if you manage your affiliates well, you must consider that you are managing a relationship with a partner, not a hotlink.
Other critics of affiliate programs condemn companies that start adding partners before they have added infrastructure to handle and perpetuate expanded business.
At least one year after the initial affiliate programs were heralded as “the next big thing” in ecommerce partnering and sales generation, the enthusiasm for the tactic has waned. Some of the other criticisms now that we are further along in the deployment cycle[2]:
Many of these complaints, or restrictions to growth, seem to me to be quality and implementation issues that are the natural complaints that stem from any program that becomes oversubscribed and undermanaged. Thus, the remedy, in my opinion, is not to abandon the concept but to refine and redefine the nature of the competition. Most of the earlier suggestions (if revisited) provide the starting point for making affiliate programs more competitive and more successful.
This suggestion, to “up the ante” has already been taken by several retailers. Dr. Wilson cites the following example: Drugstore.com (http://www.drugstore.com/) offers a 25% commission on all sales through a certain date, and 15% thereafter. According to Wilson “the most striking element of their program is that affiliates continue to receive sales commissions off future sales to customers they bring to Drugstore.com. Wow!”[3] He also cites a negative example: an affiliate who offers a paltry 4% commission.
The key message for marketers entering the Internet affiliate-marketing space is “do your homework.” Don’t offer commissions that do not reflect the competitive environment, and add whatever you can to the existing model to keep it fresh.
Looking to the Future:
There are at least three “value propositions” in the ecommerce environment: 1.) Have the customer pay directly for the product or service (an example in the ISP world would be AOL), 2.) Offer the product or service for free (and use banner ads or add-on sales as your revenue-generating model – think of something like hotmail or free software downloads…) and 3.) Pay the customer to spend time with you (by receiving affiliate revenues, commissions, and ad revenues—think of pointclick.com and others). This affiliate marketing paper has covered a “submodel” – one that fits inside proposition two and proposition three. For readers interested in seeing how much more savvy the field has become, go to the following locations: www.netcentives.com, and www.mypoints.com. Both sites advertise and promote a customer-loyalty, revenue-generating ecommerce solution that reads like an affiliate program on steroids. I suggest delving into both of these sites if readers are interested in seeing the latest tactics for marketing in the business to business and in the business to consumer market.