As affiliate marketing turns 21, has it finally come of age?
Affiliate marketing in the UK turns 21 this year, and its proponents argue that in an era of big data and fragmented media this performance marketing ‘channel’ has finally come of age.
Essentially, affiliate marketing is a business model made up of an ecosystem of affiliates (or publishers), networks and merchants (retailers) that interact to increase the number of conversions an advertiser makes online which could be anything from a sale to a newsletter sign-up.
And one that’s growing fast. The IAB’s first study on the online performance marketing industry, conducted by PwC, found that UK businesses spent £814m on affiliate marketing and lead generation activities in 2012, which generated £9bn in sales.
A year later, spend topped £1bn and figures released 12 months ago showed a further increase of eight per cent to £1.1bn, generating £16.5bn in sales.
Sophisticated affiliate marketers are reaching out beyond its traditional cashback, coupon and comparison site roots to add a fourth ‘c’ to the mix – content. Others are experimenting with attribution models beyond the last-click cost per acquisition (CPA) model, particularly as cross-device measurement comes to the fore, and smartphones as conversion devices are front of mind.
Here are three affiliate marketing topics that should be on every marketer’s radar this year.
Cross-device and mobile
“The biggest challenge for affiliate marketing is tracking, and how to track accurately and fairly between devices,” says Affilinet’s UK managing director Helen Southgate.
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DigitasLBi head of affiliates Stuart Toll concurs. “We are already reporting that around roughly 50 per cent of traffic and a fairly large proportion of sales comes from mobile.” People will browse on their phone or tablet, then perhaps their laptop and complete the acquisition on yet another device. “Making sure that journey is tracked is going to be very important, but at the moment even the best solutions are only around 60 per cent effective.”
‘Deterministic’ tracking is used by companies such as Facebook and Google, where users are logged into their accounts across multiple devices and platforms, whereas ‘probabilistic’ uses a series of algorithms to determine if a consumer being tracked on one device is likely to be the same as one using another.
Affiliate Window launched its first cross-device tracking technology in 2015 and expects to bring to market a second phase this year. Other networks are also launching their own versions of cross-device, though Southgate says solutions are so far limited and privy to future changes in data protection rules.
Yet Kevin Edwards, Affiliate Window’s strategy director, believes it is key to offering next generation tracking and targeting. “It will become more targeted over time,” he says. “We have to remember we’re consumers as well. How does the industry I’m working in reflect my behaviour as well?”
Without cross-device, he says, advertisers are not apportioning sales to the affiliate traffic, particularly those affiliates with early funnel and mobile traffic who are under-indexing. With it, though, marketers can look beyond the performance metrics to strategise and prioritise forward focus.
Clare O’Brien, the IAB’s affiliate marketing lead, says cross-device tracking is crucial to affiliate’s growth: “Anyone working in the digital space now has to keep bearing in mind that what was true three months ago might not be right now.
“Even last year we were finding our advertisers had optimised their site to show products on mobile but the ecommerce wasn’t as well optimised. Time solves this.
“We are evolving constantly to become optimised for mobile. It is no longer the case that mobile isn’t in the transactional space. That again throws in to the mix if someone is reading a blog and making a purchase at that particular point. How do we change the campaign structure around that?”
Her final words to advertisers is that in 2016 affiliate marketing is becoming ever more mature. “We all ask the question ‘how can we buy it’ and that’s where the affiliate model comes in big time. It is an incredibly sophisticated channel in contrast to what some people still might think.”
“For me, content is really key to the growth of the channel,” says Southgate. “You never hear an advertiser say ‘I want to do more sales through voucher codes,’ do you?”
She says progressive advertisers in the market realise that the affiliate channel can help drive stronger growth in awareness and interest, and engage customers in a way which drives high quality and strong lifetime value, as opposed to simply through discounts.
“Essentially, it’s about engaging customers with the brand through more than just cashback or voucher incentives, which logically drives a stickier customer who is more engaged with the brand.”
For retailers in particular, with all but a few of the top 100 running affiliate programmes, content is becoming a big part of the mix, working with publishers as big as the Daily Mail (who in 2013 started linking to outfits worn by the celebrities in its online coverage) as well as influential fashion and beauty bloggers.
Edwards points to brand advocacy programmes such as Topshop’s as an example of how affiliate marketing is evolving. The retailer works with select bloggers and has allowed its team to make decisions on marketing spend based not just on CPA.
t allows bloggers on its programme to pitch for vouchers to spend on clothing that they like and want to write about. That activity is then monitored.
He says: “It is a subtle shift but is indicative of how we are trying to push that engagement message.”
The rise of content could open up affiliate’s opportunities to sectors and brands who have hitherto been cautious about it, such as luxury goods and premium advertisers who, given a prevalence of cashback and voucher activity, Southgate says “wouldn’t want to touch [it] with a barge pole”.
There are huge opportunities, too, for FMCG brands to become involved and drive more engagement.
There is a huge amount of work going on in terms of attribution and distribution; the cost per acquisition across a user’s journey, says O’Brien. “There is a great deal more to come about that,” she says.
It is, according to Toll, just one factor that needs to be resolved if the content growth in the affiliate channel is set to continue. “The rise of content can really only be facilitated by the rise of quality tracking and data. Without that, you can’t be rewarded for your input.”
Bloggers, niche interest and content sites can often earn a fraction of the commission that a cashback or voucher code might for every click they direct to an advertiser, yet few would deny their influence on a customer’s journey.
“We should be thinking longer term,” Toll continues. “Publishers are contributing to sales but they’re not necessarily converting them. The number of sales, though, is increasing overall.”
Edwards believes that the ‘longtail’ of affiliate marketing needs to be supported and nurtured more and that advertisers must become more receptive to conversations about creative payment solutions.
He cites one unnamed advertiser for whom three content bloggers were contributing almost £25,000 of sales each month that they weren’t rewarded for in any way.
One example of a brand looking beyond the CPA is Schuh. Before last Christmas the retailer sent an offer to a selection of bloggers and content sites. They were offered top-up payments for every sale they influenced but didn’t convert.
However, CPA is here to stay. There has to be a common metric to measure sales and “like it or not”, says Southgate, last-click CPA is still the best way to do that. She believes there could be a change in messaging strategy, a higher or lower CPA or a hybrid between CPA and fixed cost emerge.
“I don’t see us ever moving fully to an attribution model of cutting up commissions as the fundamental problem is it’s too subjective,” she says.
“How can you say one influencer in the journey was more influential than another in two different consumer paths to purchase?”
This article was first published in The Drum's 6 April issue.