Don't Neglect Affiliate Marketing

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Affiliate marketing programs are frequently neglected, despite being one of the most cost-effective forms of marketing. Unlike other online marketing tactics, affiliate marketing isn't just about creative ideas, technology, and analytics. It's primarily about building relationships. Managing an affiliate program is very much like managing an outsourced sales team of entrepreneurs who drive traffic and revenue. This requires a different mindset.

Affiliate marketing is a $6.5 billion business worldwide, including lead generation and delayed sales. On average, affiliates account for about 10 percent of visitors to merchant sites, according to MarketingSherpa's "Ecommerce Benchmark Guide 2006."

When introducing affiliate marketing into your mix, assess how it fits into the overall business plan. Diversify affiliates and avoid direct channel conflict while extending your reach. Since most affiliates are compensated on a CPA (define) basis, Aaron Cooper, Orbitz VP of online marketing, notes, "This model works to ensure that affiliate incentives are aligned with the company’s objectives."

Various affiliate business models add value in different ways. "Loyalty affiliates can yield higher average order value and conversion rates," said Kelli Beougher, LinkShare's distribution services VP, "affiliates who drive search traffic can generate more new customers, and niche sites can feature a promotion with tailored editorial content around it."

Marketing Strategies

Five strategies to increase affiliate program productivity:

• Set guidelines and monitor affiliates. Determine how your affiliates can use your brand, related search terms, and consumer e-mail contacts. Affiliate marketing isn't a one-size-fits-all solution. Some sites may prefer tailored offers rather than a higher commission, for example. Do the following:
  
  
  • Outline your commission structure and clearly define who owns the customer. Often, e-marketers use a third-party affiliate network, such as Commission Junction, LinkShare, or Performics, to monitor sales and commissions.
    
    
  • Define which search terms affiliates can use, because affiliates and merchants may compete for the same terms. Many merchants reserve the right to bid for their own brands. Think more broadly, since affiliates can extend search coverage if allowed to bid on your terms, niche keywords, and different messages.
  
  
• Provide merchandising communication and support. Develop marketing materials for affiliates that can be adapted to improve the shopping experience on the affiliate's site:
  
  
  • Keep materials, such as promotions, content, and data feeds, up to date. Provide support for on-site merchandising and shopping conversion.
    
    
  • Create an affiliate resource center to facilitate this exchange.
    
    
  • Listen to and respond to affiliate feedback.
  
  
• Create an in-house team. The team should communicate with and support affiliates to ensure the program maximizes results and stays on course. When hiring, consider that affiliate managers provide sales support. They can be described as analytical, creative, sales-oriented, and entrepreneurial. Their job is to be responsive to affiliates' needs.
  
  
• Contact affiliates personally. It's important to show sincere interest in your affiliates' business. As entrepreneurial businesspeople, they grow their businesses by providing you with a sounding board and advice through personal interaction.
  
  
• Tier affiliates. Like a customer base, not all affiliates should be treated the same way. Some perform better than others. By breaking affiliates out by performance, you can provide incremental support to your best affiliates or those who have the potential to become top producers. Personal contact, tailored marketing support, collateral, and on-site merchandising can help drive visitors sent from affiliates to convert better. Many marketers overlook the importance of courting their second-tier affiliates. Since there's always turnover, you must keep grooming new affiliates with the potential to grow significantly.

Metrics to Monitor

To assess your affiliate program's and individual affiliates' effectiveness:

• Track affiliate revenue as an aggregate and by product line.
  
  
• Calculate costs. In addition to top-level CPA results, calculate fully loaded CPA, including allocations for in-house personnel and related company-provided marketing by tier.
  
  
• Consider margin impact. This may be particularly important when you have motivated customers with another form of marketing and they purchase through an affiliate. For example, a traditional direct marketer may motivate a customer to buy with a catalog, but the customer purchases through a loyalty program to get a better deal.
  
  
• Stratify affiliates by revenue generation. Rank affiliates by total sales over the past year. Divide the list into deciles. Create a cumulative total sales column, starting with your highest-revenue affiliate. Develop a cumulative total sales percentage by dividing the cumulative total sales by total sales for the year to identify which tier affiliates generated what percentage of total sales.
  
  
• Measure the top tier's turnover rate. Over time, companies tend to maintain the same percentage of top affiliates. Affiliates making up this top tier vary from year to year. To ascertain the turnover rate, rank these affiliates by sales for two consecutive years. Compare the names of the top affiliates. Determine the number of affiliates who were in the top tier in both years. Divide by the total number of top-tier affiliates from the first year. This is your retention rate. Subtract it from one to get your turnover rate.
  
  Turnover rate = 1 - [number of top-tier affiliates in both year 1 and 2/number of top-tier affiliates in year 1]

Like any other marketing tactic, affiliates need support to deliver optimal results. Think in terms of affiliates being your outsourced sales force and you being their outsourced marketing department and an auxiliary. Affiliate marketing is about creating a partnership in which in-house marketers and affiliates work together to drive well-qualified traffic that converts to sales. This process requires a collaborative effort so both partners succeed and make money.