Affiliate Marketing still cost-effective but budgets shrinking – APA Response
Affiliate Marketing still cost-effective but budgets shrinking, see original post. Follow up below.
Whilst it is correct that the number of merchants reporting volume from the affiliate channel has decreased, this itself can be misleading. Merchants own the customer generally after the initial sale and this report does not take into account repeat business originally generated by the affiliate channel but merely sales generated from the affiliate channel. In addition the report fails to clarify how many more merchants operate affiliate programs in their sector compared to the previous year thereby increasing competition. In fact the report fails to identify non affiliate competition increasing in a merchants sector, so the figure of a reduction in volume via the affiliate channel from 16% to 12% this year can be misleading. The report also fails to include pricing differentials between merchants which in a financially tight economy will have a determined impact on sales conversions.
A larger number of merchants (42%) report that of all the affiliate groups, SEO/content publishers are the most important affiliate sector. This indicates that merchants are increasing rather than decreasing cookie duration in order to maintain conversions as customers initial purchases are taking longer to convert. This also indicates that affiliates using content driven organic methods are contributing more than paid search (36%) which in itself is an indication of two things. More affiliate programs for affiliates to select from and a greater emphasis on long tail marketing through the placing of restrictions in paid search by affiliates. High volume affiliate sales is still dominated by paid search (44%) yet again this is down from 52.5% the previous year. This in part is because more merchants undertake their own paid search activity.
The admission that 28% of merchants have poor communication with affiliates and that 91% spend less than 8 hours a week in communication with affiliates (over half communicating less than an hour a week) is a serious indication of lack of inter personal relations and communications between merchants and affiliates. A dedicated agency handling the affiliate channel significantly improves affiliate communication. It also indicates poor in house training of staff within the affiliate management of a program and a decision by the merchants who responded to the survey that they no longer rely on affiliate marketing as much as they used to.
Lack of resources (47%) by merchants also indicates why use of Full-Service Digital Agencies account for the largest proportion of affiliate agencies (39.25%). Actual specialist affiliate marketing agencies only account for 10.28% of the total available. Email marketing via the digital marketing channels is the highest growth performer. Paid search is still the market leader despite a significant drop in conversions. It is indicative of the significant drop from 26% to 15% in volume from the affiliate channel that increase of competition combined with poor affiliate communication by merchants and less emphasis on affiliate marketing in search of other promotional sectors contributes to this fall.
The irony that merchants are now obtaining better results from the SEO/content publishers than any other affiliate channel is a complete contradiction as to why a merchant generally initially looks to an affiliate agency. Many merchants want to know what short tail benefits they will achieve by an agency participating in their affiliate program. This highlights a merchants lack of understanding of the affiliate sector. What makes this even more interesting is that of the merchants who responded to the survey, 59.09% generate between £1 million and £10 million online sales every year. Again this indicates a possible increase of competition in their sectors. It also again highlights the emphasis by merchants to devote more of their resources into their own marketing using the other digital sectors.
What is perhaps most interesting is that short tail activity has become more defined via the use of Full-Service Digital Agencies or via the merchants own activity and this combined with restrictions placed on affiliates for paid search, increases the merchants own activity and decreases the overall performance of the affiliate channel.
What is very clear from this report is that larger established businesses are looking more to non affiliate channels to generate short tail returns and that their budget for affiliate marketing is correspondingly reduced as the affiliate sector, with restrictions in place by merchants, is gearing more to the longer tail. This means that competitors to existing merchants benefit significantly more than established brands by making use of the affiliate channel. – John Gilbert-Jupp
Merchants seem to consider the major barriers to a more successful affiliate program as;
– lack of internal resource
– restricted budget
– ability to recruit new affiliates.
By outsourcing the fundamental aspects of their affiliate marketing to experts in the field merchants can free up a lot of their time while the experts can use the same time more efficiently and effectively. This also leads to more affiliates being recruited while ensuring affiliates are regularly communicated with and policed and monitored. These are all areas merchants have brought up as areas they feel they do not have the time and/or necessary skills to cover to the extent they would like. A positive consequence of a qualified third party managing this aspect of a merchant’s affiliate program would be the creation and continued relationships that would exist with networks and individual afiliates.
The report shows that other areas, specifically email marketing and paid search, are driving more volumes and are more cost effective compared to affiliate marketing than in 2007. There is no reason why these branches of online marketing need to be separate as affiliates can be experts in these fields as well. Many experienced affiliates have ther own registered user databases which can be used for email marketing and know all about paid search. It could therefore be argued that as budgets become more restricted that sections of marketing budgets set aside for email and search be added into the affiliate budget. This argument is backed up on page 32 of the report which shows more merchants than in 2007 consider affiliate marketing to be more cost effective, if this channel can do more of their online marketing at this level of effectiveness than redistributing allocated budget resources would make sense.
Regarding the challenges affecting the industry the previously mentioned good relationships with networks and affiliates would help to somewhat negate the perceived threat of the rise of super affiliates as more affiliates are recruited to a program and encouraged to promote it, also working to try to reduce the 5 or less affiliates generating 80% of sales. There will always be super affiliates and they are of definite benefit to a merchant but they aren’t the be all and end all of their success. These relationships also help to provide checks and balances when managing the potential misuse of programs by users of cashback and loyalty sites. By working closely with these affiliates and the networks in-depth anti fraud and dedupe measures can be put in place to get the most out of these types of sites without paying the price.
I think APA can put itself in the position of providing a one stop shop solution to the problems merchants perceive as preventing them from a more profitable affiliate program. Current and past case studies should provide them with piece of mind. From a generic industry point of view all of these obstacles can be overcome with some fundamental behaviours (ie relationship building) done well.
– Emma Haslam
The proportion of respondents saying that PPC drives high volume has decreased from 52.5% in 2007 to 44% this year, although it is still the biggest driver of volume.
A number of reasons for this decline could be also attributed to merchants placing more restrictions on their PPC policy.
Agencies and merchants themselves maybe bringing this in-house.
The term cannibalisation has been banded about as a new buzz word and I have question if merchants and some agencies really have a good understanding of how this sector works although E-Consultancy.com and RO-EYE.co.uk suggest that agencies/merchants have now implemented better tracking in order to de-dupe. “A quarter of merchants say they are not de-duping sales across different digital marketing channels.” Indication that perhaps they don’t understand the technology that is required or possibly just don’t have the time could be a factor.
APA remain skeptical in terms of some merchants understanding where clicks have come from, but would concede that possibly the bigger brands can afford better analytics or can afford to pay some one to interpret their analytics. We have seen a few affiliate networks address this issue and advise merchants accordingly.
Increasing click costs could also be affecting the down turn depending on sector too.
“A third of merchants (34%) say that five or fewer affiliates are driving 80% of their affiliate sales or sign-ups. A further 23% say that between six and 10 affiliates account for 80% of sales.”
I felt that this metric could be misinterpreted and would of liked to have seen date affiliate program commenced and my reasoning for this is as follows.
The longevity of an affiliate program will yield different results and would throw the question back, of the merchants and agencies that were surveyed how long had they had “their” affiliate program up and running? We can produce a different set of metrics from our clients the ones who have a maturing affiliate program.
Affiliate Marketing has never been a quick fix for instant revenue, no magic wands, it’s hard graft and long term commitment by all parties concerned. When did this industry forget that this is also loyalty marketing for both merchant towards their customers and should be the same towards their affiliates? Also what constitutes a good/bad or indifferent affiliate program?
Go back to the beginning, why do merchants want an affiliate program? Extra traffic? Targeted Traffic? Increased sales and or leads? To create, increase or reinforce the brand? Every affiliate program does this from day one.
There seems to be a general industry wide problem in terms of meeting merchant expectations, the gap between what they think and hope should happen to what is real and what will happen. This polarisation, I feel, can be attributed to a combination of red herrings, misinformation given out by sales teams and a serious case of over promising and under delivering. But more worryingly, if the specialist affiliate marketing agencies don’t understand this space and are feeding their experiences back to clients, then no wonder affiliate marketing can some times get a bad press Mark Kuhillow, MD RO-EYE.co.uk points out “While more merchants than in 2007 view affiliate marketing as a very effective channel, almost 70% are spending less than two hours per week communicating with their affiliates and policing them”. Of the “specialist affiliate marketing agencies” this is an eye brow raising metric.
Sure every one can have an affiliate program but I don’t think every one should. But more worryingly of those surveyed , there is a very clear picture emerging from this survey, that the vast majority are not using affiliate marketing effectively and possibly the most conclusive evidence of this can be found here…
“In terms of time spent internally by merchants on affiliate-related activity, the most time-consuming activity is direct communication with affiliates / agencies on which 9% of merchants spend more than 8 hours a week. Half of merchants spend at least one hour a week on this.”
In an economic down turn what should we be focusing on? It’s got to be accounting for every penny invested in advertising, if you cant measure it, don’t do it. Affiliate Marketing technology is pretty advanced, there should be no reason why any merchant should not know where their customers are coming from, how they got to the site and which advertising channel is working for them and to avoid that bitter/sweet affiliate marketing experience, possibly the biggest challenge still lays firmly at to the door of the merchant in terms of
• Site usability
• Analytics
• Life time value of their customers
• Customer retention
• Product demand
• Competitor analysis
• Unique USP
The age old rule still applies, you can throw as much targeted traffic at your website but if the site does not convert then no amount of advertising is going to help. Our statistics show that affiliate marketing for most of our clients has a higher conversion then overall site conversions.
There is no point in forging relationships with affiliates if the commission is poor, cookie date is mean and or site does not convert, competitors affiliate program offers affiliates a better form of metrics, if you don’t understand the types of affiliates you have and how to work with them will of course leave merchants at a disadvantage and the biggest mistake is looking at your affiliates as a collective.
How ever, I have seen cases where by an affiliate program does have all the right ingredients, great site conversions, great commissions, ticks all the right boxes yet affiliate uptake has been slow. Perhaps this is evidence that affiliates may have taken on more then they can cope with? Communication is so hit and miss, some affiliates are more responsive then others, some prefer emails, some prefer phone calls, some don’t want to be contacted at all. Then you have the mission of identifying the types of affiliate, are they content, PPC, Email, incentive affiliates. AffiliateWindow.com and PaidOnResults.com and have factored this in. It would be great if the other networks followed suit. ShareASale.com is starting to move in this direction and of course webgains.com
The struggle to get merchants programs in front of affiliates seems to be all time consuming and whilst this should be pursued, I think most of my industry would agree, its not always about what you do to get the affiliates into your program, its what you also do with the affiliates that have already joined the affiliate program and that’s a merchants starting point, right there.
“More than a quarter of merchants say their organisations are poor at managing networks (28%) and policing & monitoring affiliate activity (26%).”
Policing affiliates can be time consuming and I would like to see affiliate networks get really proactive in 2009, this will be a differentiator between the good proactive affiliate networks and the ones who have absolutely no idea what’s going on in their network.
Lastly for merchants who feel they don’t really have the expertise in managing their affiliate program or need to seek a second opinion, you know there are some good third party affiliate management agencies out there, just contact the clients before making any decisions, they wont mind if they are snot confident in what they can do. – Jessica Luthi
The Affiliate Marketing Survey Report 2008
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Comments
The concept of channel cannibalisation has been around for rather a long time, but has generally referred to affiliates, such as BHOs, that cannibalise a merchants organic traffic and TradeMarks.
One also shouldn’t over look (though it almost always is) the fact that affiliate marketing boosts brand awareness and therefore aids with other channels conversion rates. The more touch points you can provide for a client the more chance they will eventually convert. To assume that one sale belongs to just “one channel” is a very simplistic view.
Hi Chris thanks for the comments, long time…hope you are well 🙂
When you ask some folks what does “cannibalisation” mean to them, most of the replies (I hear) make reference to PPC, example : trigger Chris Sanderson, yet Chris Sanderson comes up in natural search, possibly first page of google and end user clicks on the google ad. The term seems to mean different things to different people. Also some people don’t have the ability (through lack of knowledge, time or resources) to be able to de-dupe. So whilst its the norm for you it’s a learning curve for a lot of people. Most merchants/advertisers (small to medium) just want to get on with the job of running their business and whilst we all know how important metrics are, we need to factor in the percentage that don’t understand or can’t separate.
So take you and I out of the equation for a moment, should networks be providing the technology/reporting for this? as a fyi…Affiliatewindow.com are about to launch a little widget to assist merchants to help with better transparency on where sales are coming from (nice)
Again, I agree re Brand… but this term also lends itself to meaning different things to different people. Classic example when Mr/Msnooneissearchingforme.com imposes brand bidding restrictions or imposes brand bidding restrictions on some of the “other” brands that they may stock. Its a hard thing to hear for some merchants that they are in fact, not a brand but are in the process of building a brand but you know all this anyway, so education is still the best way to keep the message clear.
See you in Vegas Summit?
Js 🙂
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