- April 21, 2008
- 6 comments
Wikipedia has a long, detailed entry on affiliate marketing with an elaborate taxonomy for different types of affiliates.
To my thinking there are really only three types, with the critical differentiator being how they generate traffic. This is the key question as it helps us think about which sales are incremental, and which cannibalized from other marketing efforts.
- User Benefit Sites: Affiliates that take a portion of the revenue share they collect from the retailer and either give it back to the user (like Ebates) or to some worthy cause (like SchoolPop and Upromise).
- Traffic Source: Largely their traffic is their own. Loyal customers start their shopping on the affiliates sites to reap the benefits.
- Traffic Volume: Small but not negligible.
- Incremental orders?: Tough question. Certainly more so than most, but do loyal Acme customers buy from Acme because they participate in these programs, or would they buy Acme anyway without the discount if Acme didn’t participate? A surveys of buyers might be revealing as to what fraction fall into each camp. Beware of “loyalty affiliates” who use downloaded applications to ensure that all future orders from those customers also pay the piper.
- Keyword Domain Affiliates: Affiliates who were savvy enough to snarf up great, keyword-rich domain names. Domain names like plasmatvs.com. Search Google for “plasma tvs” and they’re the number 1 organic link. But they don’t sell TVs they sell traffic to retailers. Many of these folks double dip: they take product feeds from the retailers in their network and collect commissions on sales, but also serve either Adwords ads or Adsense ads on their sites and collect revenue from that, too.
- Traffic Source: Competitive natural search. They have a huge advantage algorithmically on the search phrase that matches their domain, so for that one phrase, they’re king.
- Traffic Volume: Varies with industry. If it’s a high volume keyword it can be material. It’s not a wide net, but if your market is heavily weighted to a handful of keywords, and an affiliate or group of affiliates have those domain names they can be big. However, this type of affiliate doesn’t have much impact in a more highly distributed environment.
- Incremental orders?: Absolutely. There is every reason to believe that if your listing and skus aren’t on that affiliate’s “shopping site” the customer will buy from a retailer who is there.
- Traffic Thieves: Affiliates who intercept traffic heading for a retailer, place their cookie and a coupon code on the customer’s browser and sell the traffic back to the retailer. There are many mechanisms for engaging in this theft, PPC ads on your trademark are just one class. Natural search on your trademark, or your trademark + “coupons”, or as Ryan Douglas points out: buying domain names that are misspellings and typos of your marks also accomplish the same objectives.
- Traffic Source: Your brand, your other marketing efforts, friend referrals, etc.
- Traffic Volume: Huge. Many folks have been trained to shop for what they want, then do a search for “[retailer name] coupons” to save money. The retailer loses money on the sale AND pays commission for the privilege. This is easy money for the affiliates, with almost no work and huge revenue potential.
- Incremental Orders?: Very few. Arguably there are some folks who wouldn’t buy without the discounts. We all know that offers do improve conversion rates. However, if giving offers to anyone who wants one is good business, why not put a “click here for discount” button on your website? Balance the cost of giving discounts to those who would have bought without a discount, plus the commission paid to the affiliates against the few incremental orders and this component will almost always be in the red, usually deeply in the red.
Two out of three affiliate models provide some value, unfortunately very few affiliates actually fall into the first two categories. The vast majority fall into the “Traffic Thieves” category for the simple reason that for the least amount of work they can make the most amount of money.
In evaluating the profitability of an affiliate program it is NOT enough to simply study the “new customer” numbers. New customers who are looking for you by name aren’t driven by affiliate programs, they’re driven by loyal customer recommendations, other marketing efforts, and the power of your good name. Don’t let anyone sell you that traffic; you’ve paid for it already!
Last week I posted some tips for identifying traffic thieves in your affiliate program.
I hope this simplified taxonomy catches on, feel free to spread it around :-)
George
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George - I really enjoyed your post and agree with the majority of your statements. Can you provide your point of view on affiliates that make money via paid search using NON-branded terms?
In my opinion they are (for the most part) driving incremental orders / providing value. This group is currently very small due to lower ROI on non-brand terms, but will most likely grow as more brands enforce strict trademark bidding policies.
Hi Jon, thanks for your comments and excellent question.
I agree that affiliate orders driven by non-brand PPC are incremental and wonderful! Unfortunately, they’re also scarce and for good reason.
When you think about their economics, affiliates can’t afford to do much in this arena. Most affiliate rev share deals are on the order of 3% to 5% of revenue generated. Since the affiliates have to pay for the media, just to break even they need to hit a cost to sales ratio that is equal to their rev share, and have to go less than that to make any money at all. Hitting a 2% cost to sales ratio is doable, but there isn’t much volume down there.
Conceivably, they could advertise only on the super-efficient “tail” terms, but that’s an awful lot of work for not much money. You also end up competing for traffic with your own affiliates on these keywords.
Some of these folks are so slimy, I wouldn’t be surprised to see someone pitch that they’re doing PPC ads for their affiliated partners, run competitive PPC ads only in the partner’s home town and run trademark ads everywhere else. The books look good, the ads look good, but no real value is added. Yes, I really am that jaded :-)
Sorry for the long-winded response!
Noticed comments about your “Affiliates: Thieves or Heroes?” series at AbestWeb. I’ll have to admit I told the CEOs of the major affiliate networks back in the 90’s they’d better distance themselves from the Traditional Ad industry players… “The more you distance yourself from the IAB, Direct Mail forces, and the likes of Doubleclick & Valueclick, the more legitimate you’ll become as a value added sales network.
No one listened in their rush to rape and pillage the newly recruited network merchants online Ad budget with every Adwhore trick for cookie click devised by those in Ad industry sewer. You are spot on that 90% of all affiliate commissions flow to those well healed in double and triple dipping merchants on their own shopping cart or Trademark traffic… LOL.
ABW thread started with quoting you… “On Monday, 6/9, I participated in a Panel at the Internet Retailer Conference in Chicago titled: “Affiliate Marketing — Why you can’t set it and forget it”. Your panel verbage was a little draconian as the low fruit picking couponers and “incent” and/or PPC trademark poachers have thin skin to go with thin web sites. If you want a level playing field network structure impossible to game by merchant or affiliate then I published the only working model years ago… www.ecomcity.com/safehaven-network.htm
No one was interested in playing on a level playing field and even the merchant’s balked at not being able to divert sales from commission exposure with the Safe Haven Network model.
Only legit “set it and forget it” approach is a hibred model where the affiliate builds out a satellite sales site worthy or the merchant blessing it with a live “add to cart button” with 100% sales reporting. This immediately gives the affiliate’s site URL a MERCHANT status with Google for SERP exposure (no sand box baby). Mix in some seed PPC money to start traffic and your off and running.
The only problem is where are you going to find a affiliate motivated and capable of building out a secondary sales site worthy of a perminent place in Google’s SERPs. In the last couple months I did just that to test how quick the sales sites would get buying keyword listings and start generating sales on minimum traffic. You can see the 2 sites in full bloom at PamperMySkin.com and HealthProO2.com
NO SEO or SEM secrets as both are just written for the customer… not the Search engine. Neither push any incentive other then FREE FREIGHT and have no “place coupon code here” red flag box in their simple shopping cart. A simple Indy referral link code can be used to track affiliate sales with every sale generating an e-mail order summary to the affiliate as part of the checkout process.
Look at the plus side. No sleezy scumbag trademark poaching affiliates would ever build out either of these sites. The real merchant management wouldn’t be offended if they ranked higher then their own site in Google for certain buying keywords. Panel those SERPs with legit sites selling your product using your fullfilment services. So “set it and forget it” works for certain affiliate sites as these will be still be generating incremental sales years from now. If the merchant wants more sales let them pay for a more agressive Adwords campaign as the sites can be tweeked for showing Google Analytics conversions as they mature.
There are many more types of affiliates than the three you mention - although unfortunately they may be the most common of the high earners.
IMO the real problem with affiliate marketing is the option to be anonymous.
Mike, thanks so much for your insightful comments!
Gayle, you’re right there are more types than these. The spotlight I wanted to create is on the notion of whether a given affiliate is intercepting brand traffic or not. There are many types that I haven’t detailed that are generating traffic legitimately, without relying on a retailer’s brand name to drive the traffic, but as you suggest, I don’t think they’re responsible for many of the sales tied to “affiliate programs” for most retailers. Particularly the poor souls who hired an affiliate network assuming they would police themselves.