New vs. existing customers in the affiliate channel
Affiliate marketing has grown considerably over the past few years. The latest Online Performance Marketing Study from the IAB in conjunction with PWC estimated that advertisers spent £1.1bn on the channel in 2014. With the increase in spend, it is no surprise to see the channel coming under a greater amount of scrutiny with data analysis being at the heart of understanding the value delivered.
As affiliate programmes mature, attention is switched to focus on qualitative measurements rather than just volume in order to determine success. One of the metrics that is becoming more regularly considered within the channel is the split of new versus existing customers. While monitoring this split is nothing new, there have been some recent high-profile cases where advertisers have reduced the commission rates offered for existing customers.
With this in mind, it’s important to examine the issue and how best to reward affiliates based on this measurement. Rather than penalising affiliates for driving sales from existing customers, it could feasibly be argued they are maintained with new customers paid on an increased tier. By reducing (or in extreme cases removing) commission for existing customers, an advertiser is effectively saying an affiliate is providing little to no value in driving existing customers.
What constitutes a new customer will vary for each advertiser and sector. For example, some will classify this as someone who has never purchased before while others will stipulate that anyone who hasn’t purchased for a period of 12 months or more should be classified as a new customer.
In addition to the classification of new customers, the length of time an advertiser has traded online will impact their share of new customers. As time passes there will invariably be a tipping point at which it is no longer possible to maintain such a high share of sales from new customers.
With only a finite amount of customers, is reducing commission for existing customers counter-intuitive? Shouldn’t advertisers also understand the additional value that can be attributed to retaining and nurturing its existing customer base?
There is also the argument of who owns the customer. By not rewarding an affiliate for driving existing customer sales, the advertiser is effectively saying that the customer would have purchased from them anyway, irrespective of the affiliate’s involvement. The counter argument to this point is if the customer was going to purchase from the advertiser anyway, why were they interacting with the brand through an affiliate’s site? That interaction is indicative the affiliate had an element of influence over the transaction, despite them being an existing customer.
This is especially true in sectors where there is a homogenous product offering. Just because a consumer has purchased from you before doesn’t mean they won’t purchase the product from a competitor if they are influenced to do so having visited an affiliate’s site. What value should be placed on customer retention when they could have easily transacted with a competitor instead?
It can also be short sighted to reduce commission for existing customers. While some promotional types such as cashback and voucher code sites have levers in place to target new customers, content sites have very little control over whether they are able to attract new or existing customers, but are able to target particular sectors. By reducing commission for existing customers there is a chance they will stop promoting these advertisers, so they will also lose out on any new customer sales too. With another key focus for advertisers being to recruit relevant content sites, reducing commission for existing customers will have a negative impact upon this.
New versus existing customers is a key metric to be monitored but it is important that advertisers are looking beyond this split. The value of the customers that are being driven as well as their post-conversion behaviour – such as how often they are returning and how much they are spending – should also be considered. Affiliates should be rewarded for driving valuable customers rather than penalised for influencing existing customers to purchase from a retailer again. With the significant volume of data available, advertisers are now in a good position to understand the true value of customers referred through the affiliate channel and reward accordingly.
Matt Swan, Head of Business Intelligence, Affiliate Window
Tel: +44 (0) 844 557 9240
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