Making Affiliate Online Marketing Programs Work

Despite all the hype about the Web’s potential for customer acquisition, some marketers have struggled with affiliate marketing, or link referral, programs. In fact, online marketers rated affiliate marketing only a “somewhat effective” method of attracting new customers, according to the Direct Marketing Association’s “State of the Interactive eCommerce Marketing Industry Report 2000: Emerging Trends and Business Practices,” released in September.

But as with any business partnership, the level of effectiveness depends on what types of affiliate marketing programs catalogers are implementing and how efficiently they are executing them. What’s more, while an affiliate program may not lead to an immediate boost in sales, it could increase brand awareness that may pay off down the road.

Basically, if another Website features a link to your online catalog, you are participating in an affiliate marketing program. With one type of affiliate program, an Internet cataloger works directly with the other Websites – typically portals such as Yahoo!, America Online, and Excite or noncompeting, complementary sites – that are posting the links. The second type requires Web marketers to go through a third party, such as Linkshare or Befree.com, which acts as a liaison between Websites looking to host links and sites eager for affiliate partners.

Programs in action Medford, OR-based food, gifts, and plants multititle cataloger Bear Creek Corp., whose books include Harry and David, has participated in affiliate marketing programs for two years. “We have relationships with all the major portals and online shopping venues, such as CatalogCity, Amazon, MSN.com, and Yahoo!,” says Ken Wells, senior vice president of e-commerce for Bear Creek. Wells won’t disclose what percentage of Bear Creek’s online sales are generated by affiliate marketing, but, he says, “By linking up with high-traffic portals, we’re able to expand our brand online.”

Bear Creek compensates portal affiliates on a pay-per-performance basis – in other words, it pays the link host a commission on all sales generated by customers who came to the site via that link. Other methods of payment might include cost per click, in which linked sites pay their affiliates for each click generated by the link. “We’d prefer to do revenue shares on actual [sales] performance as opposed to cost per click,” Wells says, since the latter method could be unprofitable if most of those clickthroughs don’t generate sales.

The average commission of a pay-per-performance arrangement is 5% of gross sales, says Lisa Wolff, vice president of business development for Seattle-based Freeshop.com, a company that pairs up potential affiliates. And it doesn’t pay to skimp on commissions or underreport the sales generated by the link, Wolff warns. “Affiliates might think they’re not getting such a good deal, so they might not work very hard at promoting the site,” she says. For instance, they may post the link in an out-of-the-way location on the site.

Choosing the right partner The key to successful affiliate marketing is finding Websites that understand consumer direct marketing, says Bear Creek’s Wells. “We’re very concerned about protecting our brand, so it’s important for us to make sure our affiliate partners are credible, noncompeting sites,” he adds

Bear Creek has received inquiries from about 2,000 sites interested in offering a link to its Websites; the company went with about half of the sites. While Wells won’t disclose the criteria for choosing affiliates, he does say, “We wanted to make sure our brand wasn’t associated with something weird” or linked to a site that was offensive or irrelevant to Bear Creek customers.

In fact, finding an affiliate partner whose site complements – or at least appeals to – one’s own has proved to be a challenge for some catalogers. That’s one reason gifts cataloger The Black Dog doesn’t participate in affiliate marketing with other merchants.

“We haven’t talked to any prospective affiliate marketers that we felt really fit our site,” says Black Dog founder Elaine Sullivan. “And since there are no affiliates that we are really excited about, we haven’t posted any links on our site yet. We’re a small company that likes to have control over everything that we do. We’ve talked to Catalog City and others about launching an affiliate program, but for now we prefer to do our thing our way.”

But that hasn’t stopped The Black Dog from joining forces with noncataloging affiliates. Sullivan says her Vineyard Haven, MA-based company plans to post a link to the Website of the National Education for Assistance Dog Services (NEADS), a nonprofit group that trains guide dogs. NEADS posted a link to The Black Dog’s site when it launched this past May.

Online shoppers may never have to worry about privacy again. But how worried are they to begin with?

Talk about your secret shoppers. New York-based iPrivacy, a developer of online technology, has launched a proxy Web-surfing technology that will enable consumers to shop online without divulging their names. Ruvan Cohen, iPrivacy’s president/chief operating officer, says the company is beginning to negotiate with a number of credit card companies, which would act as third parties from whose sites consumers can download the software. But at least one question remains: Do consumers really care enough about protecting their privacy that they would go to the trouble of downloading the program?

HOW IT WORKS To take advantage of the technology, a consumer would visit a third party’s Website to download the free iPrivacy software. Once the software was loaded, the iPrivacy icon would appear on the consumer’s screen. The user would click on the icon and log in at one of iPrivacy’s partner sites, such as a credit card company, which would verify through an ID and a password that the consumer was indeed the authorized user. The user’s data would then be encrypted via iPrivacy’s system. Any cookies that online stores tried to attach to the user’s computer would instead end up on iPrivacy’s server.

When the user made a purchase, he would use his iPrivacy identity data. The online merchant would then submit the encrypted credit card number through the normal card authorization process. The user would also submit an encrypted form of his address when specifying delivery instructions. He could then choose to have the Postal Service decrypt the address onto a mailing label or have a proxy address with an iPrivacy post office box number placed on the label.

IPrivacy, which will test the technology with several companies in the first quarter of 2001, will charge its third-party partners, such as credit card companies and ISPs, user fees. But merchants, credit providers, and consumers will not have to adjust their systems to use the software.

DOES ANYONE CARE? IPrivacy isn’t the only privacy technology provider. In fact, Credit card provider Visa in November teamed up with Internet Security Systems to launch its Visa Secure Commerce program, a series of online security measures to protect cardholders and online merchants. And American Express enables cardholders to shop online anonymously with a Privacy Payments program.

Moreover, some industry observers question whether the availability of such software would increase online shopping among consumers. In a recent study by two Vanderbilt University professors, 72% of the surveyed Web users who did not shop online said they would do so if they knew how e-merchants would use the demographic and transaction information they submit. This suggests that online anonymity could turn some surfers into buyers.

But for those consumers already shopping online, “privacy technology makes no difference to them,” says Patricia Faley, vice president of ethics and consumer affairs for the Direct Marketing Association.

For her part, Nancy Hensel, president of Lake Forest, IL-based food gifts cataloger The Popcorn Factory, says that consumer-privacy technology may help new Web-only marketers. “But for [established] companies such as us, in which e-commerce is an adjunct of the catalog and retail business, the privacy policies are straightforward,” she says, and give consumers little to worry about.

A promotion that attracts new buyers, rewards loyal customers, and boosts retention: It’s the trifecta of offers, and Crutchfield seems to have hit it. The consumer electronics cataloger gives a $25 credit to customers who send new buyers to Crutchfield’s Website. Crutchfield also extends a $25 credit to the referred buyers once they make a purchase. “Our program provides a strong incentive for someone who’s just discovered Crutchfield,” says Lawrence Becker, director of Internet publishing for the Charlottesville, VA-based marketer. “And the offer is equally appealing to the referring customer, often stimulating a second or third order.”

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