Online book and music superstore Amazon.com might have pioneered the concept of affiliate marketing back in 1996, but everyone’s doing it these days. In fact, online affiliate marketing programs have become so common that any Web cataloger not participating in one is missing a huge traffic-driving opportunity.
Research firm Jupiter Communications’ WebTrack survey of online marketers found that 16% of respondents have an online affiliate marketing program. And although affiliate programs account for less than 2% of total online sales, they can reduce customer acquisition costs.
Affiliate programs, also identified as associate, partner, or referral programs, are partnerships between catalogers and related content or community Websites. Catalogers typically recruit content Websites to become affiliates. For example, a home and kitchen goods catalog might sign on a gourmet food community Website, or a jewelry and tabletop cataloger may partner with a wedding-related site. The affiliate simply places some form of link, such as a banner or a button, on its site that connects directly to the cataloger’s site; the cataloger then pays the affiliate a commission on all sales transacted through that link.
While some catalogers may balk at paying a commission to get customers, it’s a small price compared to the cost of driving Web traffic using other methods. For example, banner ads, which average $30 per 1,000 views, have an average click-through rate of only 1%-2%, according to several industry sources. And only a percentage of those 1%-2% of users who respond to the ad proceed to make a purchase. On the other hand, with an affiliate program, aside from the minimal costs of communicating with affiliates via e-mail and sales kits, the cataloger has no expenses until it makes a sale.
But before you rush into developing an online affiliate program, you need to consider a few things:
– The type of program you’d like to develop. You have two basic options. One is to build a private network of sites that feature your products; this gives you control over who is affiliated with your brand and enables you to tailor your program for your various affiliates. For the most part, this entails setting up a page on your site giving other Websites the opportunity to join your affiliate program.
The alternative is to participate in a private, third-party network, such as Be Free or Linkshare, which brings together multiple merchants providing products to multiple content sites. Catalogers choose which Websites to partner with from the third party’s various affiliate members. This option can provide Web merchants with the latest technology and reporting tools, such as tracking and performance, as well as management of affiliate commission payments.
– The size of your affiliate program. Managing thousands of partners while maintaining brand control can prove difficult. Cosmetics manufacturer Clinique, for example, works with only 14 Websites that target women and families so that it can maintain brand control and avoid alienating its resellers.
But Jupiter contends that merchants whose brands don’t rely on exclusivity need not worry about an affiliate program becoming too large. Books marketer Barnesandnoble.com, having already established a strong brand name offline and online, has more than 120,000 affiliates and signs on 2,000 more every week. The company also makes sure affiliates have access to its latest banner ads, promotional material, and graphics to ensure “they’re doing right by our brand,” says Cherry Arnold, director of affiliate networks.
Then, too, the quantity of the affiliates may be less important than quality. “An affiliate with half of the traffic can generate the same amount of sales if it has twice the conversion rate,” notes Jupiter analyst Ken Cassar. “Response rates and average order size are just as important as traffic.”
– The commission structure. Depending on the cataloger and the product, commissions can reach up to 40%. Barnesandnoble.com pays up to 7% commission – 5% initially, then 6% for those affiliates that generate $20,000, and 7% for those that generate more than $20,000.
Online general merchandise marketer ValueAmerica, which had signed on more than 30,000 affiliates in the three months since its March launch, bases its commission rate on the price of the product. Affiliates receive a 3% commission on items sold for more than $100, and a 5% commission for less expensive merchandise.
“We have products in more than 20 departments, from jewelry to computers,” says Jennifer Johnson Lewis, ValueAmerica’s director of sales and marketing. “It’s easier to calculate how much to pay based on product price rather than on sales.” The company also began paying its affiliate commissions monthly rather than quarterly because “affiliates, which are essentially an extension of our sales force, provide marketing and advertising opportunities at virtually no cost,” she says. “So why shouldn’t I pay them as frequently as I pay other vendors?”
For its part, photography equipment and supplies cataloger/retailer Cameraworld.com (formerly Camera World) pays a flat 2% commission rate to its affiliate partners, says president/CEO Alessandro Mina, because of the company’s high-ticket merchandise and the Website’s $500 average order size.
– How to communicate with affiliates. Jupiter’s statistics show that only 15% of affiliates drive 85% of affiliate sales. So catalogers might consider dedicating staff to developing and maintaining relationships with their top-performing affiliates. For most affiliates, services such as answers to frequently asked questions, access to promotional materials, and tracking reports could be automated. But without ongoing contact, “only 10%-15% of the sites that sign up to become affiliates will actually proceed to the next step of featuring products on their Websites,” says Mike Avery, manager of electronic commerce for R.R. Donnelley’s Online Services.
ValueAmerica, for instance, has five employees who manage the top 20% of its affiliates, while the remaining partners get periodic updates from the company on products, branding, and how to better promote the relationship. Barnesandnoble.com e-mails a monthly letter to its affiliates and created a sales tool kit, which includes the latest links, banners, and text, as well as ideas on how to merchandise more effectively. The company helped affiliate Lycos, for example, create an online book club on Lycos’s site for which Barnes & Noble develops the content.
Keep in mind that affiliate networks build over time, taking three to 18 months to produce enough traffic to satisfy most catalogers. Therefore, catalogers should not drop underperforming affiliates, but rather try to help them develop creative presentations and target product offerings to their audiences. “The value of the affiliate relationship might not be just the amount of sales or traffic it brings in,” says Stephen Messer, chairman of public network Linkshare, “but also in the branding value that particular affiliate provides.”
Many catalogers, such as ValueAmerica and movie video products marketer Reel.com, are also creating offline promotional campaigns, such as sweepstakes, exclusively for their affiliates to entice them to direct visitors to the cataloger’s Website. “You have to make it fun and exciting, and ultimately profitable, for your affiliates to continue participating in the program,” ValueAmerica’s Lewis says.