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Understanding the good - and bad - of performance marketing

By Peter Klein

February 25, 2013 | 6 min read

Performance marketing is perhaps the most underrated and misunderstood media channel in all of advertising. After more than a decade in existence, it suffers from a bevy of misconceptions among senior marketing executives. These perception issues hold the industry back, just at a time when its prospects for growth couldn’t be greater.

Peter Klein

It’s time to set the record straight about the proper role, value and benefits of performance marketing. By sharing some personal anecdotes of both the good and bad elements, I hope to offer a realistic viewpoint of how performance marketing can benefit almost any advertiser.

I offer this perspective as both an affiliate and advertiser, having built and managed two large, profitable affiliate networks with 13 years of online marketing experience. My only wish is that you keep this advice in mind and then test out a performance marketing campaign for yourself and share feedback of the results with your colleagues.

The good

Let’s start with some basic, unimpeachable facts about performance marketing. There is an undeniably significant upside that can improve a company’s return on marketing spend. Here’s what you need to know:

1. Performance marketing is a $25 billion industry. Nearly 70% of all online advertising transactions are paid for on a performance basis.

2. Hundreds of major brands, from Target to Walmart to H&R Block, utilize performance marketing. They put their faith in the industry and spend millions of dollars each year on affiliate and other performance marketing programs.

3. It is entirely ROI focused. Results are 100% measurable. This is the key to success for any senior marketer.

4. There are many media channels to test, including email, search, display, social, contextual, coreg, incent, mobile and click-to-call. New channels arise every year, offering more diverse online marketing opportunities for advertisers.

5. It takes a small investment to get started, often only $10,000 to begin. It is fully scalable once the test proves successful. The capability of media optimization provides a highly replicable and efficient system to engage, acquire and retain customers.

The not so good

Like any industry, performance marketing has its share of unscrupulous actors. But you can avert many of those issues by keeping a few things in mind when starting your first — or 10th — performance marketing campaign.

1. Due diligence is necessary for working with any agency, affiliate, advertiser or media channel.

2. Ongoing monitoring and transparency are critical to a performance marketing campaign’s success. Affiliates and advertisers sometimes take liberties with creative and reporting.

3. Fraud can be a problem for both lead generation and sales campaigns. Technology makes errors and shortcuts easier to hide.

4. Government regulators around the world are placing a strong focus on privacy, marketing tactics and regulation of verticals that have a strong presence in performance marketing, such as education and subprime finance. As consumers continue to gravitate to these industries, be aware of potential regulatory hurdles you may have to overcome.

5. You can potentially be held liable for the actions of others. Running a performance marketing campaign requires vigilance in closely monitoring the actions of your agency and its partners.

How to leverage the good and avoid the bad

Despite the aforementioned negatives, it isn’t all that difficult to ensure success in every performance marketing campaign.

Taking the time to properly vet each party you work with in your performance marketing campaign — agency, affiliate network, publisher, etc. — will ensure your expectations are well known and proper protocols are put into place to meet your goals.

Ask for transparency or final review before campaigns are launched to ensure all parties are in agreement about every aspect of the campaign.

Leverage external monitoring technology to avoid potential fraud or statistics issues.

Review the latest government regulations in online marketing and the industries in which your campaign will run to understand what is acceptable and what may create issues.

Above all, make sure your agreements are legally sound and clear to all parties. To borrow a common American sports cliché, the best offence is a good defence.

Looking at the state of the American and British economies, there are far worse people and actions in business that we somehow tolerate. Billions of dollars and livelihoods have been lost as a result of financial mismanagement and rogue trades. International sports stars with inspiring comeback stories turn out to be cheats. Hollywood continues to be a showcase for the rise and fall of stardom. And yet these industries continue to attract and spend billions of dollars each year and move forward.

In summary, one has to keep things in perspective when establishing a performance marketing campaign. There is significant upside and a small downside if you make the necessary preparations.

The moral of this story is simple: give performance marketing a chance. Start small by first testing your campaign. Build some success and scale it to greater efficiency and ROI. Don’t let the spurious actions of a few cloud your judgment on the wide world of performance marketing opportunities.

Peter Klein is senior vice president of media at MediaWhiz, an integrated digital media and performance marketing agency. MediaWhiz is a Matomy Media company.


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