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Affiliate marketing is a good tool.
IF YOU ARE LIKE MOST BUSINESSES, IT IS A REAL challenge
to attract paying customers to your site and still meet
your ROI needs. Many companies who are successful in
this area have reverted to a very traditional, real-world
selling technique. They have taken this technique that
has been successfully used for centuries and have finessed
it into the cyber world. It is called Commission-based
selling. Its embodiment in the online world takes the
form of affiliate programs.
The
easy definition of an affiliate program is “Gain more
customers through smaller sites run by others, which
usually have a strong, loyal following. The small guys
get a commission on sales that they send the bigger
guys’ way.” In a sign that the affiliate approach is
working, a 2002 Forrester report said spending toward
affiliate marketing increased by 50% while budgets for
portal deals, e-mail, and banners all decreased significantly.
Forrester also says that affiliate marketing is now
driving $10.5 billion, or 15%, of online sales. By 2005,
this figure will jump to $54 billion (Forrester, “eCommerce
Brokers Arrive,”). Today, 97% of online marketing deals
have a performance component. Growth rates for pay-for-performance
spending will be seven times the growth rates for CPM-
based spending through 2006.
“Pre-sell
/ Warm-up” Phenomena
The most popular model is where Affiliates do not “sell”
the merchant’s product, they “Pre-sell /Warm up” their
visitor and send them to the merchant’s Web site in
an open-to-buy frame of mind.
Some
affiliates even have syndicated content from the merchant
on their site and they take the visitor as far as possible
before switching transparently (one hopes) to the merchant
when the visitor is ready to put a credit card to use.
In
the best situation, the visitor doesn’t even realize
that a switch from the smaller affiliate site to the
larger merchant site has even taken place.
Affiliate
Revenue Models Sales Commission:
Affiliate receives fixed % of sales as a commission.
Traffic exchange: One qualified clicks from my
site is exchanged for one qualified click from yours.
Pay per contextual visitor Or Qualified Lead:
Merchant pays a fixed amount to the affiliate per qualified
click or lead.
Hybrid Model: A custom solution with two or more
components of above revenue model.
What do affiliates look for when considering your
affiliate program?
Product Profile: The Product plays a very important
part in the success of this program. The basic criteria
of product qualification are:
• Products / services should be a purchasable item online.
• Your catalog and offering should have sufficient content
about the product or market segment
• Miscellaneous, complementary accessories and services
that will boost sales
•A perfect sales pitch with pictures.
• Mass appeal is an added plus.
• Competitive Price.
High
commission
Depending on the profit margin, the merchant should
offer a good commission to their affiliates. The simple
way to determine the commission is to calculate the
current cost (Cost per acquisition) to make one sale
by means of existing online marketing efforts using
banners, paid placement, and other traditional Internet
media.
Let’s
then assume that cost is 15 % of the existing revenue.
It is safe to offer 10% commission to the affiliates
with the other 5% assigned to the administration of
the program. One can calculate the same formula Based
on Cost per acquisition too.
Lifetime
commission
Many
affiliate programs just set the identifying cookie to
last for a short period of time (perhaps 24 hours, some
only for the duration of the visit to merchant’s site).
If the visitor doesn’t buy within the short time the
cookie is set, the visitor is no longer identified with
the referring Webmaster and there is no commission paid
to that Webmaster.
Good
affiliate programs not only set the cookie for longer,
up to a maximum of 10 years, they also use database
tracking on the merchant’s system. So, whenever a visitor
that has been “tagged” and referred comes back to the
merchant and buys, the merchant credits the referring
Webmaster and pays the commission. This long-term cookie
and database backup enables the merchant to provide
the affiliate with a “lifetime customer”. Now that really
is looking after affiliates!
Customer
Service and Call Center
Effective customer service and call center support can
make or break your affiliate program. Many online buyers
would like to call when they make an online purchase.
Well-managed CRM activity adds creditability in your
offerings. A separate toll free number for each affiliate
can add affiliate value by personalizing the experience
for the customer and making certain proper credit is
given to the affiliate for call center reservations.
Syndication
Capabilities: You can affiliate with web sites in
two ways—first, by placing offers on your affiliates’
sites that link back to your company servers, where
the sale is made; second, via hybrid models. The program
models come in six basic types, and your company can
offer any or all of them to potential affiliate partners:
Banner or text links, Storefronts, Pop-ups, Embedded
commerce, Email, Hybrid
Some
merchants that go all out to support their affiliates
and help them succeed offer newsletters, promotional
ideas, up-to-date information, even whole web sites
devoted just to affiliate support.
Contextual
Relevancy
The Affiliates that are successful are those who are
becoming ever more context-centric and offer contextual
relevancy That is, what’s being offered to site visitors
closely matches the content of the site itself. Place
the product or service in context and more people will
buy. An affiliate site would be more effective selling
video games than lawn mowers on a site targeted to teenagers.
It’s about presenting the right message to visitors
in the right place at the right time.
After
sale reporting and transaction
Affiliates like to see their transactions in detail
on a daily basis to measure the performance of their
investments. A detailed reporting mechanism for everyday
sales, product names, and product categories are a very
important part of successful program. Affiliates use
these statistics to optimize their offering and marketing
methods.
Also
paying your affiliates on time and offering alternate
payment methods is a must.
Wrong Assumptions about affiliate marketing
Wrong
Assumption 1: Having many many small sites promoting
my product in mass will bring success to my affiliate
program. It is not about how many affiliates you have,
what really counts is how many affiliates producing
significant results. Identify which affiliates are producing
results and work with them closely to bring their revenue
up.
The
80-20 rules applies: 80% of revenue is probably coming
from 20% of your affiliates. Your results will be dependent
on finding the right partners, big or small, that drive
results.
Wrong
Assumption 2: Affiliate programs will get new customers
automatically with a low acquisition cost. Affiliates
are becoming smart business entities day by day and
they have a wide variety of offerings to choose from.
They also understand the value of the traffic their
sites are getting. They know that in their focus market
segment good traffic is costing more, because it is
worth more.
You
get what you pay for. As a merchant, create a process
that generates performance for both the merchant and
the affiliate. To do that, you need to identify sites
that will perform, based on their contextual relevancy
and amount of traffic, and make sure you pay them enough
to make it worth their while. It’s not as easy as the
mythology might suggest, but if you do it right it will
certainly be worth your while.
Wrong
Assumption 3: Action or Performance-based marketing
has no risk. Straight media buys offer more control
than performance-based marketing. Affiliates may be
offering content and promoting your products, but there
is a chance that the quality of consumer is not what
you expected. There is a chance that they will produce
more then you have budgeted for. There is a chance that
your product will be misrepresented by the affiliate.
By
playing an active role with the program and handpicking
your affiliates, you can minimize all of these risks.
Paying on results sound lucrative to the merchant, but
affiliates need to make their fair share of revenue,
too. Commissions work when the risk on both sides is
evenly weighted.
You
don’t get that performance by putting a link on the
World Wide Web and hoping for the best. You get it by
taking control of your affiliates as a serious reseller
channel.
Wrong
Assumption 4: Since I have an affiliate program
running I will not have to buy advertising on a CPM
basis. Affiliate programs often can generate 30 percent
of overall revenue if merchants focus on them. Obviously,
the other 70 percent comes from somewhere else.
So
companies must know how to live in both worlds (Pay
per performance and pay per impression). CPM can be
countered productive if you don’t know the performance
metrics behind the campaign.
However,
if you know the number of new customers acquired and
the amount spent on the media buy, you can determine
if this meets your acquisition cost goals.
Your
affiliate technology will allow you to track these metrics
in a turnkey way to determine whether buying on CPM
makes sense for you. You may find buying on CPM is cheaper
than paying CPA.
Win-Win
One of the reasons affiliate programs are so popular
is that that offer a win-win situation for both merchant
and affiliate.
Merchant’s
Win: The merchant’s cost for advertising a particular
product is mostly limited to the commission paid to
an affiliate, and the merchant only has to pay when
a purchase is complete.
This
is superior to banner advertising, where the merchant
pays—purchase or no purchase. Impressively, the amount
paid to an affiliate for a purchase through an affiliate
link is probably only 10% to 20% of the cost of that
sale through banner advertising.
Affiliate’s
Win: The site owner should make money if enough
visitors click on the affiliate links and make purchases.
The affiliate doesn’t have to go through the setting
up e-commerce functions, taking credit cards, or shipping
products. They just join affiliate programs and let
someone else do the “hard stuff.”
By
Yatin Patel
Published in http://www.siliconindia.com
August 2003
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