As the performance industry continues to grow, more and more brands are waking up to the power of affiliate marketing. The Drum’s Jessica Davies dissects the key trends.
Affiliate marketing growth
Described by some as the digital industry’s ‘best kept secret’, affiliate marketing generated £9bn in sales in the UK in 2012, commanding an average return of £11 for every £1 spent, according to the Internet Advertising Bureau in its first ever study conducted on the UK online performance marketing industry. Over £800m was spent on affiliate marketing and lead generation last year in a market in which 3,500 advertisers and 10,000 publishers partake, making it one of the most effective performance channels around. The affiliate sector has worked hard alongside the IAB over the past years to rebrand as online performance marketing, freeing itself from former murky connotations and reasserting itself as a vital, trusted part of the marketing mix – at least in the UK anyway. In contrast the US affiliate marketing sector has earned the nickname of the “wild west” by many in the industry, with far less rigorous regulation than the UK. eBay is the latest high-profile case to fall victim to dodgy undertakings in the US. The e-retailer worked with the FBI to bring down two fraudulent affiliate marketers Shawn Hogan and Brian Dunning, who had been siphoning off tens of millions of dollars over the years from the company by dropping cookies on unknowing users, then taking a cut of any subsequent sale on eBay without having promoted eBay themselves, according to reports. However, UK agencies and affiliates are confident the UK market would never suffer from the same problems due to the tight measures put in place over the years. Mobile: Challenges and opportunitiesMobile is being eyed by many of the leading affiliates as the device that can help retailers drive in-store sales. Cashback affiliate TopCashback is among the innovators in the space having launched its first in-store mobile cashback solution Snap & Save, designed to drive in-store sales while providing more transparency around redemption rates. Once a shopper has bought an item in-store they photograph their physical receipt via the app and receive instant cashback once validated by TopCashback. Yet although there are countless opportunities for affiliates in the mobile space there is one glaring issue which, unless rectified, could lead to a significant loss of revenue. Mobile tracking is not being built in where it should and affiliates are losing out on revenue because advertisers can’t tell when a sale has been driven by an affiliate on a mobile device. James Little, partnerships director at TopCashback, says merchants have “no excuse” when it comes to not using the proper mobile tracking, given it is easy to implement. Although networks such as Affiliate Window have been active in addressing the issue with advertisers there remains a level of apathy when it comes to honing their mobile tracking. “I wonder if they [merchants] are really incentivised to do it or if they are given too much of a soft approach. Mobile is still only a small percentage of sales after all, even though it drives an increasing amount of traffic,” says Little. Affiliate publisher VoucherCodes co-founder Max Jennings believes there are even bigger concerns relating to mobile tracking than lost revenue. “As sales from handset devices grow in share, we’ve identified a far bigger threat in the risk that this poses to the accuracy of the data we use every day, and that our industry thrives on. Without these insights, our innovation will become stunted and at the most practical level, the partners we work with will no longer be able to forecast and budget for the work we’re doing together,” he says. Most affiliates agree that suspending advertisers from their sites until they add mobile tracking would be counter-productive, and instead would rather work with them on a case by case approach to help them incorporate mobile tracking. However, advertisers should be at least aware of the issue, so they can be ready once mobile sales start rocketing. Market disruptersIn all areas of digital the development of increasingly sophisticated technologies can prove disruptive to existing models and affiliate marketing is no exception. The arrival of platforms such as Performance Horizon Group (PHG) and Convertr, which are designed to help advertisers track, manage and optimise conversions driven by partners across multiple channels in real time, have caught the eye of several brands in the UK including Netflix and Marks and Spencer. These companies provide a platform through which brands can have a direct relationship with their affiliates as opposed to working solely with an affiliate network. The top affiliates drive eye-wateringly large volumes of traffic and sales, and with marketers’ increasing focus on extracting quality data from their activity to inform future strategies, many are favouring more direct relationships so they can manage processes more closely. The traditional performance marketing model can lend itself to wastage and Convertr claims this can see advertisers inadvertently squander an average 70 per cent of their initial lead generation budget. It maintains that with an average initial budget of £100,000, a media agency will take about 30 per cent. An affiliate network will then take 60 per cent of the remaining budget; affiliates will then take a 20 per cent cut, leaving £22,400 for buying leads once everyone in the chain has taken their cut. Convertr’s head of marketing Phil Haslehurst says: “What this means is that either the publisher is going to get a very poor commission for their lead, or the advertiser isn’t going to get as many leads as they could out of their budget. That’s not performance marketing – it’s wasting your money. “We’re not criticising any single one of these parties for taking their commission or being part of the model. We are, however, saying that the model could clearly be more efficient and technology can facilitate that.” John Bohan, head of sales, M&S for Business agreed performance marketing models can be “overcomplicated” and wasteful. “We were looking for a solution that created a streamlined, direct route to prospective customers. Because the data we generate through Convertr is exclusively ours, we’re able to communicate with those prospective customers with confidence that they’re genuinely interested in engaging with us – and that’s a great foundation on which to build a successful CRM programme,” he says. VoucherCodes’ Max Jennings believes companies like PHG have carved a niche that he says is “highly relevant” for partners looking to engage with their affiliates directly. Yet he also says many merchants don’t have the resource to take on a direct relationship with each of their affiliates and here, the networks will continue to be a vital tool. “This is particularly relevant for our international partners that use the networks, their contacts and their scale when looking to launch in new territories. Therefore while companies like PHG challenge the status quo, I’d hope that longer term this simply serves to entice more players to the market by offering something different,” he says.