Hi Scott,
Well thought out piece. I think that the "yay us" phenomenon is good to call out since the comScore piece is aggregate growth and the reportings of the networks is network specific. Obviously then affiliate marketing is still not that big of a piece of the pie. But I do understand why the industry wants to focus on the positive with so many negative articles about the economy now. Still spin is spin.
However Best Buy is dead wrong. I rant about it here on Revenews: http://www.revenews.com/angeldjambazov/best-buy-gives-affiliates-a-slap-in-the-face/" target="_blank">
http://www.revenews.com/angeldjambazov/best-buy-g...
You point out that part of what Best Buy is cutting out is Loyalty affiliates running toolbars. I sincerely doubt that's the case. I would bet money that Ebates and others have exclusive commission structure deals that are not impacted by this decision. I think it is an easy cut made for profitability’s sake under the thought that demand for items like the wii will drive the customer. But the wii is not exclusive to best buy and good affiliates are responsible to helping to funnel those customers. It's a dumb move to cut them off.
thanks Angel.
Don't mistake what I wrote for saying that BestBuy made a good, right, or smart move.
I don't think they're cutting out loyalty publishers. I think the problem is bigger than a few of them. If I had to take a bet, I'd wager that deals sites contribute to this even more than the toolbar toting publishers that we love to hate. Therefore, it's so big that they have no choice but to slash the entire program if they want to affect it. That's my gut feel anyway.
Solid post. I completely agree with Scott's argument that different types of affiliates should be separated out and analyzed independently. Overall, I think the affiliate channel is completely undervalued by merchants and the action taken by Best Buy is a great example. If you look at the ROI on these sales versus non pay-for-performance media that's accounted for as "branding" or as a less effective direct response vehicle, it's not even close. The network #'s are way up this year because affiliate marketing is a much more cost effective channel for the merchant.
I think this is a reasonable argument but it's important to remember that sales attribution becomes a sort of philosophical question at a certain point. For example, if the click path over the last month includes a coupon site, loyalty site, shopping comparison site, FaceBook ad, Google keyword, and datafeed driven content site, who deserves credit? If multiple sources are credited, should it be an even ratio?
Coupon sites and loyalty sites both appeal to a certain segment of the consumer market. One common trait of this segment is the idea of getting something extra, or wanting reassurance that they are getting the best deal. In this sense I think coupon sites provide an excellent value. In addition to strong conversion, they also usually contribute high average order values.
Both models appeal to basic human nature and long predate affiliate marketing.
Hey Brook.
This discussion usually does go toward talking about attribution in the case when more than one affiliate/channel are involved, but I'm not even talking about that this time.
Coupon and Loyalty sites do appeal to a segment of consumers, and a large and growing one at that. There is no question in my mind that they add to conversion and contribute to higher sales, especially when someone has been shown a good deal at a site they weren't previously headed toward, and then they go shopping with it.
I'm not questioning that either.
My point is that value is averaged down because these same sites have extended their presence deep into the buying process, and are able to more and more get commissions on sales that were going to happen anyway.
(+) Coupon lover finding a deal and going shopping = high value
(+) Loyalty shopper going to make a big purchase and looking for the best place to shop to maximize what they give to charity = some value, I guess (though I have a hard time with this one from the merchant perspective)
(-) Shopper ready to buy at a merchant site discovering that they can get a deal by hunting for a coupon = low value (especially when they don't even find a deal.)
(-) Shopper ready to buy at a merchant site and a percentage of EVERY purchase automatically being handed to a loyalty site and charity regardless of how much it will cost the merchant = low value
People buy stuff. There simply shouldn't be an affiliate with their hand in the pot getting a cut of every sale.
If there's enough of the "had customer" (-) commissions, that diminishes the value of the affiliate program, and affiliate marketing. At some point it's got to give.
I actually disagree with these last minus points - not entirely, but it's not fair to make them as blanket statements.
The main idea here is that the purchase would have happened anyway. "Would have happened anyway" is an idea that deserves examination but can be a dangerous assumption.
In these scenarios, the shopper is abandoning the cart (bad) only to return later and purchase (good). It is not logical to assume the customer would have returned to the checkout process, though it is certainly possible. This goes back to the philosophical questions about intent.
I think for a lot of people they need something extra to persuade them to make the purchase.
I believe these coupon/loyalty shoppers will always be a fraction of the marketplace. Most people probably have personal experience with getting a better deal by having more information but they do not consistently seek out more information. This is pretty much true everywhere in life.
To take an example from outside of affiliate marketing, consider Consumer Reports. This is a magazine that applies specific techniques toward evaluating product quality and value. In theory, we should all have a subscription. And yet the Consumer Reports best values are often not the top selling products among a given type.
Again, I think this is a useful issue to explore but we have to be careful about making behavioral assumptions.
yes, there are a lot of people who need something extra to persuade them to make a purchase. Again, I'm not talking about them. I could have included them as another plus. My list wasn't exhaustive.
In my minus points, I said "ready to buy". Not "on the fence". Not "shopping around". Not "need a push".
You cannot deny that there is a percentage of buyers who don't need something extra to persuade them to make a purchase. They're going to buy something, no matter what it costs.
But, a coupon field sends them off looking. A shopping plugin takes an indiscriminate cut.
I'm not asking you to change your mind about coupon and loyalty sites and shun them. I'm not trying to make a blanket statement for the purpose of destroying loyalty and coupon models. Some of my favorite people in the world make a living off of coupon models.
I am asking you to open your mind to the idea that affiliates are taking commissions that they don't deserve. That some affiliates have methods that create low or negative value.
Call it philosophical if you want. Does that mean we should ignore it? Personally, I think it can be measured.
It's not necessarily a large percentage (I wish I knew what it was), but there is danger that it is a growing percentage. And as it grows, it lowers the value of affiliate marketing.
I think my earlier comments show my mind is more than open to this line of thinking. I am cautious with regards to determining who deserves what based on certain perceptions and biases.
As our model continues to evolve, we can anticipate more sophisticated value segmentation entering the marketplace. One example is a new customer bonus. How that value segmentation works will be based on certain assumptions. As an industry, we should be careful about how those assumptions are created.
Scott, are you saying that you think intent can be measured? What is an example of such a measurement?
I felt that you were defending the coupon model unnecessarily and orthogonally to my points. I apologize.
Clearly you cannot measure intent. You measure value.
A buyer who consistently searches for coupons after arriving at the shopping cart, and returns through an affiliate link probably has different value than a buyer who came from an affiliate link from a coupon site in the first place.
That can be measured.
I'm making an appeal for people to think about this stuff because I fear that a bubble of sorts may be forming from affiliates who can take too much because they're better at getting in the clickstream than they are at driving value.
When merchants get less value and drop commissions globally, or drop their affiliate program, that hurts everybody. The bubble bursts.
And I'm not advocating that the industry (i.e. networks or organizations) take some standard stance on this, certainly not based on global assumptions. I'd rather see merchants be given the tools and information they need to make informed decisions. These are individual merchant decisions.
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.
"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.
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).
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. :-)
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.
[...] The Year Affiliates Saved Christmas, Really? Affiliate networks have been touting their big year-over-year numbers compared to a lackluster overall retail climate. At the same time, merchants are slashing commission rates, Best Buy announced that they’re cutting commissions on Notebooks and Wii’s to a quarter of a percent. How can this be? [...]
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.
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.
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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.
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:
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?
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?