September 28, 2005, 12:00 AM

Web retailers cast a wider net with bigger and better affiliate marketing

Internet Retailer’s latest merchant survey: Web retailers cast a wider net with bigger and better affiliate marketing.

Though it’s not as big a part of their overall sales and marketing program as paid search or e-mail, affiliate marketing is an effective strategy to build broader brand awareness and drive motivated buyers to business-to-consumer e-commerce sites, say web retailers participating in the latest Internet Retailer survey.

Most web retailers have already made a multi-year investment in affiliate marketing and count on a network of several thousand affiliates to drive visitor traffic, according to the latest Internet Retailer survey. For instance, 43.2% of web merchants taking part in the survey indicate that their affiliate marketing program is at least 4 years old, compared with 23.2% who say they’ve had a program in place for 2-3 years, 10.5% with programs only about a year old and 23.2% with programs in operation less than a year.

10,000 affiliates

The survey was e-mailed in early September to all subscribers of IRNewsLink, the magazine’s newsletter, and 194 responses were collected and analyzed using web survey technology by Web Surveyor, which has partnered with Internet Retailer in a series of monthly surveys of the e-retailing industry. The results show that almost 12% operate networks of more than 10,000 affiliates. That number compares with 8.6% with 5,001-10,000 affiliates, 24.9% with 1,001-5,000 affiliates, 13% with 501-1,000 affiliates, 7% with 251-500 affiliates and 35% with fewer than 250 affiliates.

By signing up other web sites and site operators with incentives such as paid commissions, web merchants use affiliate marketing to extend their reach into their core retailing category or to take on new markets.

The Internet Retailer survey shows that web merchants are growing the size of their affiliate marketing programs and casting a wider net to sign up new affiliate sites. With the cost of paid search rising and e-mail campaigns facing ongoing consumer concerns over privacy and spam, web retailers are looking for cost-effective online marketing alternatives. It’s clear, according to the survey, that more retailers are taking a closer look at expanding or launching an affiliate network. 59.3% of the store-based merchants, catalog companies, virtual merchants, consumer brand manufacturers and consumer services companies taking part in the survey have grown their affiliate marketing programs in the past year, with 35.9% growing by more than 10%.

As more online merchants look to sell to a global market, they are also counting on affiliate programs to help them find more international customers. Just over half (50.5%) of respondents report they have an international affiliate program.

Whether they are using affiliates to drive more international or domestic traffic, web retailers are willing to pay higher commissions to Internet site operators that deliver quality traffic and sales leads. 65.2% of survey participants said they offer higher commissions to better-performing affiliates, compared with 34.8% that don’t. Consumer brand manufacturers which sell direct to the public with an e-commerce site are especially likely to pay higher commissions to motivated affiliates, with 83.3% of manufacturers in the survey saying they offer better commissions to some affiliates. In comparison, 73% of store-based merchants say they offer higher commissions to better-performing affiliates, followed by catalog companies (70.7%), virtual merchants (61%) and consumer services companies (52.2%).

While paying a higher commission is the top incentive for web retailers, most merchants are also searching for and implementing other incentives that will drive more outside sales. 75.5% of online retailers offer early access to new products to better-performing affiliates.

Lean staffing

With more highly motivated and performing networks, web retailers are counting on affiliate marketing to help generate a larger portion of their online sales, but without having to maintain a large internal staff. In fact, many web merchants expect their affiliate marketing programs to operate effectively with a minimal investment of time, money and personnel.

The survey found that 65.5% of respondents manage their affiliate marketing internally, compared with 34.5% who outsource all or a portion of affiliate management to an outside provider. 47.6% use just one part-time employee to oversee the affiliate network, whether managed in-house or outside, while 30.3% have a single full-time affiliate program manager. Few retailers participating in the survey had a large contingent of full-time or part-time employees handling affiliate operations. 15.7% of all companies responding to the questionnaire had two to three employees assigned to oversee affiliate marketing, followed by 3.2% with four to five and 3.2% with more than 10.

With only a limited number of employees dedicated to overseeing affiliate marketing, web merchants also earmark less than 25% of their total marketing budgets to affiliate programs. In fact only 9.9% of web retailers taking part in the survey dedicated 25% or more of their sales and marketing budgets to an affiliate program. That number compares with 42.3% that designate 5% or less of their marketing resources to affiliate marketing, followed by 30.2% that designate 6-10% of the annual marketing budget and 17.6% with annual affiliate operations accounting for 11-25% of the entire marketing budget.

But even if they are dedicating just a small percentage of their marketing resources to affiliate marketing, Internet retailers expect affiliate programs to generate a growing portion of web sales. In fact, the Internet Retailer survey found that almost 16% of web merchants count on affiliate marketing to generate more than 21% of their total sales, compared with 17.9% of retailers who say affiliates drive 11-20% of all sales, 25.5% who realize 6-10% of all sales from affiliate marketing and 40.8% who say that affiliate marketing accounts for less than 5% of total annual merchandise sales.

86.2% of store-based merchants participating in the survey said affiliate sales account for 20% or less of their total sales, compared with 90.2% for catalogers, 85.7% for virtual merchants, 100% for consumer brand manufacturers and 66.7% for consumer services companies.

Part of the strategy

Interestingly, rather than diluting their brand, the Internet Retailer survey found that many web merchants see a network of several thousand affiliates as a key part of their growth strategy.

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