Any research of the top online advertisers invariably places Amazon high up in the rankings. In a recent survey carried out by MSN and the IAB (Revolution, March, p15) Amazon was one of only three companies whose online campaigns were consistently recalled by a sample of 500 marketers.
It is true that it's hard to go anywhere on the internet without tripping over one of the e-tailer's ads, but this is not the result of a huge spend on Amazon's part. Rather, it is down to the highly successful affiliate network which it has built up.
The bookseller provides creative and links for the web sites it wants to carry its ads, paying them a percentage of the revenue earned every time someone clicks through the ads to buy a product on Amazon's home page. This incentivises the affiliate sites to promote Amazon more heavily in order to make more money, while the bookseller will only have to pay for the ads that actually lead to a sale.
This form of marketing comes under the umbrella of pay-for-performance advertising. Unsurprisingly, this method has been widely adopted by successful online firms, ranging from travel offering Opodo and gaming site MGMMirage to gift e-tailer Memorise This.com, as well as more traditional entities such as John Lewis (see case study, px).
When you go it alone
E-tailers wishing to follow in the footsteps of these companies and set up an affiliate network need to consider whether they can build up their own set of partner sites, like Amazon has, or if they want to tap into an existing network of sites such as those run by networks like TradeDoubler or ukaffiliates.
Sites that opt to go it alone will need tracking software to determine how much revenue each affiliate has driven and how much each one should be paid, as well as the personnel resources to deal with the queries and needs of the partners. Sites can either develop their own solution from scratch or license a third-party software package such as Kowabunga's My Affiliate Program or Pendulab's AffiliateShop. This will suit sites targeting a niche audience or aiming to retain ownership of the scheme inhouse, but will require a dedicated affiliate manager to oversee the scheme. Alternatively, they can outsource the tracking and management of their scheme to a digital agency. It would still be their own network but run by an outside company. In both cases, building up a sizeable network may prove to be a slow process.
For sites that want to kickstart such a scheme, it is worth turning to an affiliate network. These are companies with a raft of sites at their disposal, eager to sign up to affiliate schemes. The network will manage communications with all the individual sites on behalf of the retailer and probably the payment process as well, in return for some combination of a set-up fee, monthly charge and commission on each transaction made through the network. It will also vet the sites for you to ensure potential partners are a suitable fit with your brand values and ethics.
The four main networks are Be Free, Commission Junction, TradeDoubler and ukaffiliates. Each will bring advantages to a partnership, so do your research before making a commitment and examine areas such as the number of sites represented and the charges. For example, Be Free has more of a US presence while TradeDoubler is bigger in Europe.
Network charges
TradeDoubler charges a set-up fee, 30 per cent commission and a monthly fee of £250. Commission Junction does not charge a monthly fee but has a minimum monthly commission payment of $250 (£151). As part of larger parent firm Dealgroupmedia, ukaffiliates can offer a range of schemes such as cost-per-thousand (CPM), cost-per-action (CPA) and cost-per-click (CPC), which could be useful if you view affiliate marketing as part of a larger strategy. Be Free offers extras like search-engine marketing.
"Affiliate marketing shouldn't be seen in isolation," says Adrian Moss, managing director of Dealgroupmedia. He adds that ukaffiliates is flexible and will waive the set-up fee if it thinks a company's product will "fly off the shelves".
A retailer doesn't have to stick with one network either. Both John Lewis and MemoriseThis work with both ukaffiliates and TradeDoubler for example. Working with more than one network obviously provides you with a larger group of potential partners.
"If you combine networks, make sure you are offering the same rewards on all your programmes," warns James Hilton, director of online marketing at MGMMirage. "Consistency is key, and your partners will be sure to find out that French affiliates are being offered more than the German ones."
Ewen Sturgeon, founding director of Wheel Group, feels it is not always good to combine schemes. "It is a little known fact that, with the right management, a single programme can perform as well as, if not better, than any combination of multiple programmes."
The commission rate that you choose to offer your affiliate partners is important. If it is too low they will not be incentivised to promote your scheme above those of your competitors. If it is too high your margins will be hit. It is worth taking a look at what your rivals are offering.
MemoriseThis found that its competitors were offering rates of around five to six per cent, so it decided to come in at seven per cent, raising it to 10 per cent at Christmas.
Don't forget that if you are working with an affiliate network, it may be taking a cut of the commission before it reaches your affiliate partner - this is 30 per cent in the case of TradeDoubler. Also, other companies may be offering unsustainable commission rates in order to gain increased market share.
Calculate commission
To calculate the amount of commission you can afford to pay your partners, you need to work out what a customer is likely to spend with you, set this against your overheads and make a fair decision based on that. You also need to look at the value and frequency of your online sales, how efficient your web site is at converting people from clicking to making a sale, and what channels you are directing people through. For example, if your web site has telephone numbers plastered all over its homepage encouraging people to ring to make a purchase, an affiliate partner will not make any commission from a sale, even if it has directed a customer to your site, as a phone sale will not be registered online.
You need to think about what you are going to offer commission for. Will you be paying for sales only or will you reward other actions such as ordering a catalogue from the site? Paying for clickthroughs alone is a dangerous game as your partner sites can boost their commission through sheer mendacity ('click here for free beer') or persuasion ('help this site remain free by clicking here'), neither of which will bring you the kind of visitors you really want.
Another question is whether to pay a percentage of the transaction made or a set fee every time a user takes the appropriate action. Obviously, sites that are not pure e-tailers, such as recruitment, will need to go with a flat fee as no transaction is being made.
Dealgroupmedia's Moss says that while partners may be happy to accept a percentage commission from a site selling mobile phones, they will be less happy with one from a site selling mortgages as the amount earned will be less frequent. Gaming sites have a less clear-cut path too, as customers may spend little on their first visit, leading to low returns and thus a lack of incentives for the affiliate partners, although they spend more on their subsequent visits.
"We could offer our affiliates a percentage of how much the customer loses over, say, a three-month period, but this would not be fair for smaller sites that like to be paid monthly," points out Hinton. "They would also have to trust us on the amount because we cannot be as transparent with our data as a retailer might. We could also offer a set fee of maybe £10 for every customer who is driven to our site, but if that customer goes on to spend a huge amount our affiliate partners would be upset."
The solution is a hybrid scheme, in which generic sites take a flat fee and 'super affiliates', like niche casino-orientated sites, get a percentage share.
Tracking clickthroughs
Another issue is whether to pay your partners only if someone buys a product directly after they've clicked through an ad, or whether to use cookies to track all clickthroughs and pay the referring site commission if the visitor returns to buy a product in the next few weeks. "You should leave a window open from when the user clicks to when they perform a transaction," says Moss. "If you are paying media owners on results, at least give them a fair crack at the whip. Everyone does it, so if you don't do it your scheme will be less attractive and you'll lose out to competitors."
Nicky Iapino, UK general manager at Commission Junction, says that most site owners will not accept a purchasing window of less than seven days, with most falling into the seven-to-45-day period. Wheel Group recommends a period of 14 days.
Once you have decided on all this and the scheme is up and running, it is important not to change anything. "Treat your affiliates as partners, not suppliers. If you are continuously telling people that your rates have changed you will lose their trust," says Hilton. Setting up a pilot scheme with five or six partners before plunging into a thousands-strong network can help to establish what will and what won't work.
Keep in contact
Communication is an important part of affiliate marketing. Successful schemes will ensure that not only is the retailer in constant contact with its affiliate partners but that there is someone to listen to any problems or concerns the partners have. "As soon as your partners are unhappy, they will migrate to a different scheme and then you'll have no affiliate programme," warns Hilton. Digital agency Wheel organises social events for the partners of its clients, during which affiliate partners can share ideas.
Even though a network will remove some of the burden of communication, a retailer will still need to compose regular newletters and make sure the creative available to the partners is being constantly refreshed, with formats and designs suitable for a wide variety of web sites. Brian Fitzpatrick, online marketing manager at MemoriseThis, estimates that he spends up to 10 per cent of his time dealing with the affiliate programme.
"Having a dedicated manager who the affiliates can identify with goes a long way towards helping both sides to build a strong relationship," says Sturgeon. "It doesn't require full-time commitment if the resource has the relevant experience." This experience should include creative ability, good powers of strategic thinking and multi-tasking abilities.
Affiliate partners should have a web site they can visit to update the creative they are carrying to promote your site. It should be stocked with a constantly updated supply of different formats, including banner ads, buttons, text links, Skyscrapers and so on.
Partners should be kept aware of any new products, promotions or seasonable offers. Don't treat the creative resources open to your affiliate partners as a 'banner farm' which bears no relationship to your wider online advertising.
It is perfectly possible to use the affiliate network as a cost-effective testing ground for new creative, ideas and new markets.
Most retailers will find that a small number of partners drive the majority of the traffic. These companies should be treated as super-affiliates and be offered additional incentives such as money-off coupons when users click through from their site, cash bonuses for reaching sales targets, and higher rates according to their monthly performance.
Web sites will have their own individual criteria against which to measure the success of an affiliate programme, but Hilton points out that at least 20 per cent of revenues should be coming from the network. "It is one of the most rewarding and most ignored forms of marketing."
Rich resources
One source of information for budding affiliate marketers who want to know more is AffiliateMarketing. co.uk. This resource centre offers an email newsletter, reviews of different affiliate networks and affiliate marketing software, case studies and a discussion forum. The web site is managed by Neil Durrant, the author of The Practical Guide to Creating and Managing a Profitable Affiliate Program.
Another useful point of contact is the Internet Affiliate Marketing Association (iAfma.org).
Thanks to: Will Cooper, chairman, UK, and vice-president international sales at TradeDoubler; Brian Fitzpatrick, online marketing manager at MemoriseThis; Sotiris Damianos, European e-commerce manager at Opodo; Nicky Iapino, UK general manager at Commission Junction; and Max Moore, affiliate director at Espotting Media, as well as our panel.
MASTERCLASS PANEL
James Hilton is online marketing director at online gaming firm MGMMirage, involved in setting up an affiliate marketing scheme. He was previously head of digital marketing at Guardian Media Group and set up an affiliate scheme for recruitment site Workthing.
Ewen Sturgeon is founding director of digital agency Wheel Group and has worked in digital business since the mid-90s. Wheel manages affiliate schemes for Marks & Spencer, Laura Ashley, e-sure and Dateline, and hosts affiliate discussion groups.
Adrian Moss is managing director of Dealgroupmedia, which owns affiliate network ukaffiliates. For its clients, it uses ads on major portals and niche sites, its own channels (cheekymonkey.com and thedeal.net), e-mail marketing and search-engine optimisation.
JOHN LEWIS REAPS THE REWARDS OF BUY.COM'S EXPERIENCE
When John Lewis purchased electronics e-tailer buy.com in February 2001 it also inherited a lot of experience in affiliate marketing.
Buy.com had been running such a programme in the UK since 2000 through affiliate marketing agency TradeDoubler. John Lewis retained TradeDoubler, so when it launched its transactional web site in October 2001 it already had an affiliate network in place.
"We wanted the affiliate programme to kick in straight away," says Vicky Wood, online partnership manager at Johnlewis.com.
"We chose TradeDoubler because it gave us the assurance of being able to vet affiliates in advance and we would also have an affiliate manager who dealt specifically with John Lewis." The company offers its affiliates a seven per cent commission on sales.
Six months after launch, John Lewis appointed ukaffiliates to run a more targeted affiliate network.
"We use ukaffiliates in a different way to TradeDoubler," says Wood. "Rather than building up an affiliate base, the partnership is more about targeting larger sites and negotiating cost-per-action rates with them, rather than offering a standard rate."
The company claims that affiliate marketing drives 10 per cent of total revenue for John Lewis Direct, the direct sales division, which includes a catalogue as well as the web site.
The company has around 3,000 affiliate partners, but Wood says it is more interested in quality than quantity. Giving incentives to affiliates is a priority: Wood cites coupons, competitions and higher commission rates as methods she has used to drive affiliate sales.
Wood is careful to keep in contact with her partners.
"It is important to listen to them and ask what they want from us," she says. "Perhaps they would like to put search boxes for our products on their web sites, or maybe they would like more text links."
Information about the John Lewis scheme can be accessed via an affiliates link on the firm's home page.
TOP TIPS ON AFFILIATE MARKETING
1. The 80/20 rule applies, so 20 per cent of your affiliate partners will drive 80 per cent of affiliate sales. Target the top-performing web sites with incentives and tools.
2. Don't change your revenue model regularly, as affiliates can and will get confused and you will end up scaring them off.
3. Make sure your communication is a two-way channel - send out regular newsletters, highlighting new products and incentives, but also make sure you listen to what your affiliate partners want from you.
4. Promote your programme on your own site, don't just rely on your network partners.
5. As well as vetting your affiliate partners when they sign up, keep an eye on their content over a period of time - what was once a gossip site could now be a dodgy adult site.
6. Identify any low times and then target your affiliate partners with special incentives to drive up sales during these periods.
7. A purchasing window of about 14 days is appropriate for most affiliate schemes. This is usually measured from the time users first click through the ad to the next time they visit the site.
8. If you are running a specific promotion outside your affiliate programme, think about making the creative (or a variant on it) available to your affiliates as well.
9. Update your creative every month - it is important to keep it fresh and varied.
10. Deep linking - taking visitors directly to a place where they can make a purchase rather than to your home page - will drive sales. Also, think about providing different landing pages for different affiliate partners.
CHECKLIST
Questions that should be asked before embarking on an affiliate programme
- Who will run my affiliate network? An agency, a network provider or can I run it in-house?
- If opting for a network, what kind of reach do I require? UK-only, European or global?
- Will I employ a specific affiliate manager or can my marketing staff take this on?
- Have I checked what commission rates are being offered by my competitors?
- What I can afford to pay as a commission rate?
- What will I pay affiliates for - clickthrough, sales, driving registrations?
- Are there any sectors I don't want to be linked with, such as adult, personal or gambling sites?
- How long a window will I leave between the clickthrough and purchase?
- Have I established a regular channel of communication with my affiliate partners?
- Can my site convert potential customers who arrive through the scheme into buyers?
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