The beauty of the affiliate channel is that it is based around partnerships; advertisers and publishers working together for the long-term success of both parties. However, what happens when this partnership loses balance. At what point does it stop being a partnership and more of a win-lose scenario. This article highlights one example of where this can happen when it comes to rewarding publishers.
Optimisation is an important aspect of digital marketing strategy. Gone are the days of relying on TV, radio and print media which offered little transparency and virtually no tracking. How can you optimise if you don’t have the data to know what to optimise?
In the current day, optimisation in the sense of maximising your ROI across channels is an essential process in any company.
For example (a simple example), you have a monthly budget to spend on google ads. Over time you understand what converts and what doesn’t and focus attention on keywords that convert, thus increasing your ROI. Google sets the fees, and the advertiser improves their ROI over time – everyone wins.
The major difference with the affiliate channel is that the advertiser sets how much they pay for sales or leads generated. This is perfect for the advertiser as it allows them to know and to set what their target ROI needs to be and then commission accordingly.
The New Customer Obsession
However, there has been an alarming trend from some advertisers that are one-dimensionally focused on using the affiliate channel purely for new customers only. This would result in very low commissions for existing customer sales.
This is not the way it should be managed and it is a weakness of the channel to a certain extent, in that an advertiser can change or reduce commissions as they feel like with no recourse. What is seen time and time again is that the first channel to receive budget cuts (read ‘commission reductions’) is the affiliate channel – because they can. It is madness to cut a channel and be at risk of ruining relationships with publishers on a channel that consistently outperforms other channels in terms of Return on Ad Spend (ROAS). It is not a ‘switch on, switch off’ channel and should not be treated as such.
Imagine trying to determine the rates to pay Google for new vs existing customers on the ad spend. I think we all know how that conversation will go.
In addition, if the advertiser is not providing any tools to help identify and encourage purchases from new customers, how are publishers supposed to be able to determine who to direct to the advertiser? They may have sufficient data to know that a given user on their site has not purchased with a given advertiser before through their links but how will they know that customer has or hasn’t purchased before via another channel?
The Giant Squeeze
Another example is where the advertiser has built up enough market share and starts to squeeze commission payouts to publishers. In most cases, the publishers have to accept the revised terms simply because of the volume in sales they drive. Some recent examples are well-known marketplaces in SEA. These are businesses where the affiliate channel played an important part in their rapid growth and dominance. Unfortunately, commissions have been reduced so much that now you are lucky to receive a fraction of what they offered 3-5 years ago. The biggest reduction is with commissions for existing customers, and therefore completely eliminating other aspects of incremental value that publishers can drive for them, purely focusing on new customer acquisition.
In some cases, the commissions for existing customer sales are as low as 0.1%!
What is even worse is that commissions that are higher for new customer sales are capped so that the advertiser only pays a maximum amount per sale. In some extreme cases publishers receive zero commission for existing customer sales and offers a fixed amount for new customers, essentially turning publishers into a lead generation channel.
Let’s put these into perspective with examples:
- An order is placed by a customer referred by a publisher. The customer spends US$30. Commission for that purchase is 0.5%. That means the publisher would receive US$0.15 on that order.
- An order is placed by a new customer referred by a publisher. The customer spends US$1,000. Commission for that purchase is 5%. That means the publisher should receive receive US$50 on that order. However, the commission is capped to US$10 per order effectively meaning the actual commission % is 1%.
We can clearly see who is winning in this scenario and it’s not the publisher.
What seems to be completely ignored is the investment that the publishers have to put in to run their own business, whether hosting costs, content writing resources, marketing budgets to drive traffic and so on. Not all traffic driven to the advertiser converts. But the advertiser still benefits from that traffic and brand awareness, without having to pay anything for it.
So What Can Be Done?
The above scenarios may seem extreme, but they do exist. And long term they result in the deterioration of your program and partnerships. You are basically slowly killing your own channel, a channel that provides the best ROAS in online marketing. This is not a healthy long term strategy. In order to keep your program well balanced and able to nurture and grow partnerships, we therefore recommend these steps:
- Run competitor analysis for other programs to ensure yours remains attractive in terms of EPC (earnings per click). The commission structure for a program should revolve around competitor analysis in the same way that it would for product or service pricing strategy. If the commissions set are unfavourable, publishers will look elsewhere for other programs to promote.
- Do not use the affiliate channel as a scapegoat to reduce costs. Look at other channels that perform worse (they will be) and reduce budget on those instead.
- Update your publishers with any technical enhancements/developments that help convert the traffic they are driving to your site.
- Engage with publishers and be willing to bonus them for activity that can drive additional traffic and sales.
- Communicate your objectives to the publishers to help them understand what incremental value you are looking for so that they can adjust accordingly. For example, if you are focused on driving new customers as the only incrementality metric then add bonuses for publishers helping you achieve this metric. Provide them with new customer value-addons that can be communicated to their audience to help focus the traffic they drive to your store.
The vast number of publishers nowadays serve to help customers with their purchase decisions online. They offer trusted content to help customers get introduced to brands for the first time, the ability to compare and research, adding value to their purchase through incentives such as discounts or cashback, plus many more. This added value should be acknowledged to some extent, and the risk publishers have to endure in terms of getting paid for their activity.
The affiliate channel is a blessing; a channel where advertisers control the margin commission that can be paid per sale. Once a basis for measuring incrementality can be made, look to reward publishers fairly; don’t ruin it by punishing partners where time has been spent recruiting and nurturing and risk them promoting competitors more instead.