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The true value of cashback affiliates – two performance experts debate the issue

February 15, 2013 | 6 min read

The role of cashback affiliate sites is a much debated issue within the performance industry. We asked two industry individuals to take each side of the debate – are cashback affiliates truly valuable or not worth the risk? Affiliate Window’s Kevin Edwards and R.O.EYE’s Gavin Male offer up differing views on the issue.

Cashback reflects the lifetime value of the performance channel

Kevin Edwards, strategy director, Affiliate WindowLet’s begin with a general statement: with performance marketing you get back what you put in, and in this respect if you invest limited resources in any one publisher ‘type’ you’ll never exploit the full benefits of the channel.That said, the industry has cultivated some of the most powerful, convincing and effective online business models that exist. The nature of payment on outcome means publishers are expert converters. But much more than this they can act as powerful levers, pulling in substantial numbers that have a tangible impact on a retailer’s performance.But the channel has moved on, no longer are numbers enough; marketing budgets have to work harder and the challenge to understand ‘value’ has superseded sheer volume. In parallel, affiliate brands have emerged as retail destinations in their own right, commanding loyal, engaged customers.They run multichannel advertising campaigns (surely I can’t be the only one to see the irony in companies monetising the most measurable marketing discipline advertising on television and on the side of taxis?) and offer seemingly countless routes to market, all designed to offer customised marketing based on specific retailers’ needs.In a sense cashback sites reflect the true lifetime value of the performance channel as they are premised on repeat custom. But the value goes deeper than this. Laying the groundwork is essential for any brand to find optimal rates to offer. Questions need to be asked around margin, customer targeting, product mix and product exclusivity. Similarly, keeping an eye on the competition is crucial. Cashback sites sit on a wealth of data that will increasingly be commoditised. The ability to offer advertisers access to a database of lucrative, targeted and segmented customers who you know are due to renew (for example) their car insurance is extremely attractive to financial providers. The challenge for cashback sites is to get better at doing it.Cashback sites are expert planners and can accommodate specific requests and exemptions; central to this is delivering customer quality. We are currently running trials for a client based on finding the optimal cashback rate delivering the highest customer quality while squeezing competitors. Similarly it was a huge shot in the arm the day one of the largest telecoms brands, who had spent a year assessing all routes to market across all trackable media, presented that cashback offered the best quality customers, prone to upgrade and least likely to churn.Those advertisers who are truly interested in delving into the numbers are unearthing fascinating insights that belie the seemingly simple cashback metric.Cashback sites are here to stay, but how advertisers work with them will change in line with their focus. This is a natural progression to maturity and cashback sites are similarly adapting their models to take account of this sophistication.

Treat cashback with caution

Gavin Male, managing director, R.O.EYE"Goal poachers”, “cookie thieves”, “commission sharks”. There have always been questions surrounding the ‘true value’ of cashback publishers, and these are just some of the terms I have heard to describe cashback sites during my years in the industry. When I worked at a major UK network our top two publishers were cashback sites. In my present role we see cashback partners as major contributors to most of the programmes we manage, so I am fully aware of the sales they drive. The January 2013 IAB performance marketing report highlighted that online performance is driven by 31 per cent cashback sales. Add in loyalty and reward sites and this increases by a further 17 per cent to almost half of all online performance marketing activity being derived from some form of cashback or rebate activity.There are of course issues with one channel having this amount of market share and strength. There is a pressure to compete on price and incentive value rather than differentiate the company or offering through positioning and brand. Advertisers, rightly or wrongly, often believe cashback devalues their brand and associates them with discounts. This in turn could lead to a negative view of the performance marketing sector and an incorrect perception of the channel and of affiliate marketing overall. This could be particularly detrimental in traditional, big brand advertisers with an established order in the marketing department.It is widely accepted that cashback sites often produce more sales from existing customers than new customers, and every brand runs the risk of their cashback customer switching to a competitor when their competitors push up their cashback reward. Generally, with higher commission on offer, the cashback site promotes the competitor more. This places the original merchant’s ‘likely’ sale in danger. To combat this, the original merchant often pushes their rate to compete. This leads to tighter margins. ROI is negatively impacted and other suppliers and service providers, including the smaller publishers who might have earned commissions higher up the click stream, are affected. Further spiralling of rates and commissions becomes unsustainable, meaning the market remains dominated by established companies who can buy their way out of trouble, potentially causing stagnation in the market.Brands and networks must focus on diversification and find ways to communicate and acquire new customers through affiliate marketing in additional ways.For online performance marketing to be truly accepted as contributing to growth and driving incremental sales value, MDs and management need to be 100 per cent convinced. This won’t happen when clients can perceive that they are basically paying consumers to buy their product. UK affiliate marketing needs to recognise the dependency which is placed upon these sites and acknowledge that whilst it is a method that sees sales results, the common perception of cashback is that they ‘pinch’ sales from other genres in the channel. In its current guise, something needs to change before margins become further encroached and eventually spiral out of control.This debate was first published as part of the The Drum's Performance supplement

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