The Benefits of Affiliate Marketing

Here’s a question for you. If you were looking to purchase a product, which would you be more likely to buy: the one you saw on a banner ad or the one that came highly recommended by a site that you already know and trust? Glenn Sobel, a top affiliate program consultant, says that this is “seeing your offer from a potential customer’s point of view.”

Affiliate marketing succeeds because, unlike traditional advertising where you buy space on a Web site, your company has a relationship with an affiliate site, and your affiliate links are in context with your product or service, rather than being in an ad slot. Because of this relationship, your marketing effort—being performance based—is enhanced. Both you and your affiliate sites have a stake in making your offers sell. Compare this to traditional ad buys and you will quickly see that affiliate marketing can be a more effective marketing vehicle.

In a nutshell, that’s the prime benefit of having affiliates—they drive online traffic and they drive sales. Your marketing dollar is much better spent with a properly designed and managed affiliate program than on simple banner ads purchased on a Web site. With an affiliate program, your marketing dollar is measurable, controllable, and returns a higher return on your investment than almost any other marketing vehicle on the Net today.

Every online marketing manager is confronted with two sets of objectives, broadly characterized as customer acquisition and customer retention. We’ve seen that customer acquisition—generating initial traffic to a site and building an online brand identity—can be a very expensive proposition on the Net. By paying only for those customers that you acquire and getting free brand exposure to boot, affiliate marketing fulfills the first objective admirably.

Customer retention—keeping a customer over time—is also helped by your relationship with your affiliates. Although many of your customers acquired through your affiliates may buy directly from you in the future, you must remember one thing: An e-commerce site attracts visitors only when they’re ready to purchase something. Your affiliate sites, being mainly content and community sites, will attract many more repeat visitors who go there for the latest information or to interact with others. That means that your offer will always be in front of your customers whether or not they go to your online store, thus helping you keep your customer over time.

Matching an offer to the site audience, by the way, is a key element of a successful affiliate program. In your attempt to grow your affiliate network quickly, signing up any Web site as an affiliate is not necessarily the way to go. You can greatly improve the success of your affiliate program by closely matching your product or service with the needs of consumers that visit your affiliate Web sites. That means you have to choose Web sites that provide the proper context and content, as well as those willing to aggressively recommend your product or service to their site visitors.

However, there is a caveat to this rule, and that is that you should not judge a book by its cover. Do not be overly anxious in disqualifying sites, especially those with a TLD (top level domain), because some of the most unlikely sites may have an ability to deliver your demographic. There are no hard and fast rules here. If you are baffled as to why a seemingly incongruous site has applied to your program, just fire off an e-mail to the Webmaster and ask how they plan to market your site.

Thus, an affiliate program is an answer for marketing managers who are being asked more and more today to justify their marketing budgets.

The Key Benefits

In April 1999, a Forrester Research survey stated that affiliate programs accounted for 13% of 1999 online retail sales, and this number is expected to grow to 21% by 2003. Jupiter Communications reports that affiliate programs account for 11% of the $5.8 billion of consumer transactions online, and they project that figure to grow to 24% or $37.5 billion in total sales by 2002.

These kinds of findings are numbers your business cannot ignore and point to a list of benefits that an affiliate program can provide your company. And what are they? There are several key benefits to having an affiliate marketing program.

• You have the opportunity to create a powerful and effective marketing network for your product or service— What other marketing vehicle can give you a network of Web sites referring high-quality purchasing traffic to your online store? In addition, this traffic is arriving on your site with a high recommendation from a trusted and known Web site that has a direct incentive to make sales for you.

  What Is an Affiliate Solution Provider?

  An affiliate solution provider will track a merchant’s affiliate program, provide coded links to affiliates, and report to the merchant and its affiliates the number of impressions, click-throughs, and sales figures generated by the affiliate program. The larger affiliate solution providers will also make a merchant’s program known to potential affiliates and provide the means for them to sign up.

  
  

  The merchants in Be Free’s (www.befree.com) program make a good example. According to Be Free’s statistics, merchants in their affiliate-tracking program earn between 20% and 35% of total online sales through their affiliate sales channel if they have over 2,000 affiliates. They experience click-through rates three to six times that of traditional CPM banner advertising and receive tens of thousands of impressions, paying only for those that generate revenues.

• Using an affiliate solution provider like Be Free (www.befree.com), Commission Junction (www.cj.com), or Linkshare (www.linkshare.com), you can acquire measurable and predictable data to evaluate the ROI of each affiliate in your program— Having the ability to track the performance of each affiliate allows you to determine what payments will be made to each affiliate based on impressions, click-through rates, completed forms, percentage scales, or any other performance criteria you want to offer. This gives you the freedom to design an exact program that fits your sales and marketing strategy and enables you to measure the success of both your own and your affiliates’ marketing efforts in the short and long term.

• Affiliate marketing provides you with risk-free advertising— There are no upfront costs for placing your links on your affiliate’s Web sites. You are advertising and getting brand exposure at no risk. You only pay a small percentage after you’ve made money—you only pay for results. Affiliate marketing is a very effective form of advertising. Compared to traditional CPM models and other online marketing options, affiliate program marketing is a highly profitable, very efficient marketing strategy.

• Affiliate marketing focuses your management’s attention on the development of a long-term marketing strategy, as opposed to short-term tactical media buys— When your affiliates know your program is successful and they are getting paid when they refer sales to your business, your link is there to stay.

  Don’t

  DON’T treat your affiliate program as cheap advertising. An affiliate program is a marketing program and your affiliates are marketing partners in business with you.

  
  

• Developing relationships is the key to effective long-term online Internet marketing— An affiliate program not only builds strong relationships with your affiliates, but with customers as well.

• Affiliate programs are attractive to affiliates because they don’t have to deal with inventory, customer service, questions, orders, or returns— Affiliate marketing can be done from anywhere, affiliates can control almost everything, and their income potential is unlimited. They have the choice of which product to sell, which program to join, and whether or not they will stay with the merchant’s program. Start up costs are virtually zero. All an affiliate needs is a computer, an Internet connection, and a Web site and/or opt-in list.

• Analysts agree that affiliates are an important customer-retention tool for all segments of online commerce— In a recent report, Jupiter Communications estimated that if online merchants could increase their affiliate sales to 20%, they could cut sales and marketing costs by 10%.

Are Affiliate Programs Just Cheap Advertising?

Affiliates are your partners in business and should be treated that way. And as partners they can either make your program a success—or harm it. Treating your affiliate as a source for cheap advertising will permanently harm your affiliate program.

Keep in mind that there are thousands of affiliate programs on the Net, all vying for the attention of affiliate Web sites. Each one is very easy for a Web site to join and just as easy to drop. But that’s not all. Remember, you are doing business on the Internet, an interconnected network where news—good or bad—travels fast.

You must treat your affiliates like business partners. Educate them on your products, train them on how to sell, and keep in constant touch with them. You must also pay them well. To be successful, your affiliates need to be making money. If you’re not writing lots of checks each month to your affiliates, your program is not a success.

If you don’t pay enough they will not join. If you pay them late or not at all, they’ll leave your program, telling as many other people as will listen that your program is a sham.

Keep Your Promises

A fairly well-established merchant selling toys changed its affiliate program midstream. Its affiliate program had been running well for some time. One of the reasons it was so successful was that the toy merchant agreed to pay not only on the first sale but all futures sales made by any customer referred to the toy merchant.

Then, suddenly, the toy merchant decided that rather than pay for recurring sales, it would pay only once for each new customer introduced by an affiliate. Instead of treating its affiliates as true business partners who helped build its brand across the Net, it took away the affiliates’ hard earned efforts for a fair ongoing reward. No one at the merchant thought that this change in the relationship with the affiliates would amount to much.

They were wrong.

Like anyone on the Net, the affiliates had a voice. And they used it. Immediately every affiliate news site and directory reported what the toy merchant had done. In turn, other affiliates compared their toy merchant’s program with others, showing that their competitors had a better compensation program and one that treated their affiliates fairly. The hard work that the toy merchant did and the equity it built up in the affiliate program was lost almost overnight.

The moral of the story is simple: Treat your affiliates as true business partners, treat them fairly, and focus on making them—not just your business—a success.