The Year Affiliates Saved Christmas, Really?

by Scott Jangro on 18 December 2008

Affiliate networks have been touting their big year over year numbers compared to a lackluster overall retail climate. CJ claims 73% and 39% increase in same store sales for Black Friday and Cyber Monday. Linkshare claims 17% increase over that period. That’s compared to single digit increases according co Comscore.

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At the same time, merchants are slashing commission rates. BestBuy announced that they’re cutting commissions on Notebooks and Wii’s to a quarter of a percent.

How can this be?

Overall Retail sales are relatively flat, or up just a little. Affiliate generated sales are way up.

Therefore, affiliate marketing has their collective hands in many more of the sales.

Is this really good news?

It seems to me that at least in BestBuy’s case, the average value of the affiliate channel is going down. How can this happen?

In the current economic environment:

  • More shoppers may be using cash back and loyalty sites
  • More shoppers are certainly looking for deals and coupons

Even without the economic factors, these types of affiliates are becoming more and more popular.

Let’s look at the relative value of a customer coming from these sources vs. a “generic affiliate”.

Loyalty and Cash Back Affiliates

Loyalty affiliates surely bring their share of new customers to merchants. But, they get their hooks in the customer and through the cash-back, rewards, donation model, they essentially create a customer who is a permanent affiliate sale. This is especially the case when the loyalty publisher introduces browser plugin software to ensure that this happens.

Facilitating what amounts to a permanent discount to existing customers == lower average value.

Coupon and Deal Affiliates

Coupon affiliates also surely bring their share of new customers. But the model is such that once a buyer goes off looking for a coupon, even if they don’t find one, the chances of them getting touched by an affiliate is very high. A merchant can’t even control this cost by not offering coupons. The coupon affiliates get their commission regardless with their very efficient and effective ways to get their visitors to click.

Getting commission on a sale that was nearly closed, and even introducing discounts == lower average value.

Other Affiliates

What do Loyalty and Coupon affiliates have in common? They capture a significant number commissions from buyers AFTER they’ve already been to the merchant. This brings their value down. Not to zero, but down.

Contrast this with other types of affiliates. One may have a blog that reviews products. Or has a service that directs buyers to hard-to-get, popular products. These affiliates refer new and old customers, but the average new-to-old customer ratio HAS to be higher. And at least they’re not capitalizing on as many buyers who are already visiting the merchant. So even if a customer isn’t new to the merchant, they may be undecided on a purchase, or not know they can get it there.

Steering a wayward or undecided customer (new or old) to a merchant for a sale == higher average value.

Is BestBuy Really Nuts?

Wii game consoles are out of stock everywhere. If BestBuy were to get 100,000 in stock tomorrow, they could easily sell them all without relying on any affiliates. Why should they give away their profits to cash-back and coupon affiliates?

  • A buyer with a loyalty toolbar is an automatic discount for something that BestBuy doesn’t want to or need to discount.
  • A shopper looking for a coupon won’t find one, but if they touch an affiliate along the way, that affiliate gets BestBuy’s profit.

BestBuy is famous for firing their customers who game the system and only shop there for discounts, rebates, and loss leaders.

BestBuy knows their customers. I don’t believe for a second that they don’t know exactly the value of the buyers they’re getting through their affiliate program. I bet they even know the value of the different types of affiliates who are referring sales. But they can’t easily differentiate these affiliates in their programs, therefore they’re forced to make adjustments that affect the entire program.

Surely they’re losing money on Wii and laptops in the affiliate channel, and that’s one spot they could stop the bleeding. What’s next?

What to do?

Am I suggesting that loyalty and coupon affiliates don’t have a place? Not at all. Consumers love them, and their net value is likely positive in most cases. But they come with a cost that the entire affiliate program is bearing.

Merchants need to get wise to what individual affiliates, or segments of affiliates, are contributing to the value in their channel. This understanding will lead to demand for tools and procedures to more appropriately compensate affiliates for what they bring to the table.

As affiliate marketing gets a larger and larger percentage of retail sales, and taps more and more into “already had” customers, it becomes devalued. For the health of this industry and channel, these things need to be understood and addressed.

So you tell me, are affiliates saving Christmas? or taking it?

  • I operate some of the highest converting product web sites on the internet for my merchant clients since 1998. This year with the down turn they averaged 6.4% conversion ratio according to Google Analytics. Gross Sales up 18% and not a one of them had a coupon -point -reward or cash back incentive attached to any order. Their eBay, Yahoo, and Amazon shops did very well too without a single incentive with those super affiliates footing 100% of the PPC traffic to those storefronts..

    At some point soon the real merchnat management will demand and receive higher commission going to new customer affiliate generators, product shgowcase creators with great SEO SERP pages, and lower commission percentages to those poaching sales at the last minute.
  • Great observation Scott, Your well aware the networks are offering less and less value add to their merchant clients as the entire affiliate ebiz plan moves to some form of incentive marketing. I personally have had my finger on the "value Add pulse" contribution of legit domain bound affiliates battling the incentive cookie cannons and point of sale poachers. There is no work vs reward incentive offered to any affiliate showcasing customer facing creatives and pushing new customers to merchant sites. That traffic as well as direct type-in traffic to a merchant's domain operated by a AM friendly to loyalite BHO's or couponers leaves that affiliate starving on commission paydays.
  • Scott, you are talking about two extremes: Affiliates Saving Christmas or Taking It.

    As anything else, the market will adjust itself. As long there is demand for anything, then there is someone coming up to produce it in order to fill the need. And this someone will also need other people to promote it and spread the words about it - that is what is affiliate marketing all about.
  • I like it. It is necessory to study the writtings about Affiliates
  • Want to make an extra income this Christmas Season?
    Anyone at any age over 18 years old from any background can learn how to do this and start making money on the Internet right now.
  • When the ability to discern is assumed to be false or inaccurate, no reasonable decisions regarding differentiation or optimization can be made. And that is the primary mode today for the vast majority of thinkers and nonthinkers about this issue... it's can't be optimized, so leave it as it is.

    Intellectually, that's lazy. From a business perspective, it's inefficient. Either of those conditions leads to things... and Scott, I think you know where that is. I'll see you there. :-)
  • That said, like you Scott, I see this primarily from a merchant's standpoint. The merchant MUST be delivered value, or long term, things unwind. And I find it unfathomable that a merchant considering these issues would call this a philosophical discussion. This is an ROI discussion to any merchant and there's nothing esoteric about it. I'm not claiming it's simple or that Brook is wrong (his opinion that others touches can make a difference in results is absolutely correct and well proven), all I'm saying is that the effects can be measured and there are many ways to do so, but every conversation seems to be clouded with questions with obvious answers and a refusal to ever label some types of activities as being of lesser value (again, to the merchant).
  • "I'd rather see merchants be given the tools and information they need to make informed decisions."

    I told you... if you're good at this, and possess ethics, you'll reach the same conclusions I have. And I was right.

    I've also come to see others arguments as tainted by their roles in the industry. Myself, I play many different roles - product ppc affiliate, domain name bidder as a ppc consultant, coupon affiliate, direct to merchant theme ppc, site bound non-coupon affiliate using seo, or ppc, or both, or more, merchant, merchant consultant, seo consultant, conversion and analytcs consultant, OPM, AM rescue, poaching police, BHO and adware cop and on and on - that I can easily see this from everyone's viewpoint. I haven't worked directly for a network, but I have done plenty of network and inhouse tracking consulting also... so I do understand these other perspectives very well.
  • I'm glad you're mentioned about this matter, Scott!
  • Brook Schaaf
    Hey Scott - no apology necessary. I feel like you are bringing up great points here. :)

    As a community, it is important for us to talk such things through. I do feel that most people in this industry believe in value and that it is entirely appropriate to segment by value because different traffic sources do have different values. An example of this is paying different commissions for incentivized versus non-incentivized leads.

    I definitely agree that everyone should have a good understanding of these issues.
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