November 1, 2012, 12:00 AM

Friends or Foes?

Weeding out the bad while cultivating the good improves affiliate sales harvests.

Thad Rueter

Senior Editor

Lead Photo

Three years ago, Carolina Rustica followed the lead of its competitors and began building an affiliate marketing network that now includes some 4,000 web sites. Maintained largely by Commission Junction Inc., the retailer's affiliates are mostly coupon sites, not bloggers or other content sites that often show up in affiliate programs, says Richard Sexton, president of the specialty furniture and lighting retailer.

For Sexton, these affiliates essentially serve as a freelance sales force, and he typically pays them a commission of between 12% and 14% when a shopper who arrives at CarolinaRustica.com from an affiliate site buys. Sexton says affiliate referrals account for 25% of the e-retailer's web orders, and that when it comes to online marketing the amount the retailer spends on affiliates is second only to its spending for paid search.

Despite that, Sexton has misgivings about affiliate marketing. "I'm not completely sold on affiliates since there seem to be a lot of loose cannons out there not following our terms and conditions, such as bidding on our trademark 'Carolina Rustica'," he says. When an affiliate bids to place paid search ads against a search for the Carolina Rustica name, the retailer has to bid more—sometimes twice as much—to get its own name to appear in paid search results, he says.

Like Sexton, many retailers are hesitant to totally trust affiliate marketing, but are unwilling to risk going without it. There is good reason for that: 74% of online buyers research two to three non-retailer web sites before buying a product, and 32% of online buyers typically begin their shopping trips on affiliate sites, according to a June study from Forrester Consulting, part of Forrester Research Inc., commissioned by affiliate network operator Rakuten LinkShare Corp. Such consumer behavior will help drive retailer spending on affiliate marketing to $4.47 billion in 2016, more than double the $2.08 billion spent in 2011, the study says. That's a compound annual growth rate of about 16.5%, just slightly ahead of recent e-commerce growth.

Despite the misgivings, affiliate marketing remains a staple for a simple reason, retailers, affiliate marketers and other experts say: Unless fraud is involved, retailers only pay a fee when they close a sale. Newly developed affiliate services are also helping affiliate marketing be more exact, such as letting retailers' affiliates automatically link products they mention on content sites to the sites they work with. Finally, technology is making it easier for retailers to gain and track sales from affiliates—and to weed out dishonest operators.

Coupon affiliates

The world of affiliate marketing largely encompasses coupon, discount and comparison shopping, and content sites. An example of a content site would be "mommy blogs," a natural place to find shoppers who need baby products.

It would be hard for a retailer to ignore the potential of these sites, given the simplicity of their appeal and their traffic. The top 20 such sites attracted nearly 740 million U.S. visits in September, according to online marketing research firm Experian Hitwise. That compares with just more than 2 billion total U.S. visits in September for the top 500 retail sites.

For Bake Me a Wish, an online retailer of cookies, cakes and brownies whose affiliate marketing is handled by Rakuten LinkShare, coupon sites have proven far more efficient than content and comparison shopping sites, says Joseph Dornoff, the merchant's vice president of marketing and operations. "Comparison shopping engines may put products side by side and may also be a lead-in for the customer, but it rarely finalizes a sale with the degree of efficacy that a coupon site provides," he says. "We also tend to see a lot of loyalty to coupon sites."

Indeed, more research from Forrester Consulting says 66% of online coupon users will apply coupons to at least a quarter of their online purchases, and heavy coupon users—those who say they've used coupons six or more times in the last year—will spend more than $800 more online than light coupon users.

Some e-retailers, however, say that coupon sites are a waste of money. About a year and a half ago, Spreadshirt.com, which sells customized apparel, kicked out all coupon sites from its affiliate program, says marketing director Hugo Smoter. It had found that 89% of the commissions charged by affiliate networks were for sales that stemmed from coupon sites—and that shoppers frequently would search for those sites and their discount codes only after figuring out what they wanted to buy from Spreadshirt.com. That means the e-retailer was paying commissions on sales to shoppers who had already decided to buy, and that the coupon sites were hardly doing any work to earn their commissions. "We were cannibalizing and inflating the price of our own sales," Smoter says.

Since then, Spreadshirt.com has added to its e-commerce site a coupon page that not only offers the discounts that many shoppers have come to expect, but which the retailer designed to show up on both paid and natural search results pages when consumers search for Spreadshirt coupons.

"It has saved us a lot of money and commissions," says Smoter, who estimates that affiliates today account for no more than 5% of the Spreadshirt's sales. "We kept the cash-back sites," he says, referring to sites that are similar to coupon sites, but which offer a percentage of the purchase price back to the buyer. "They provided better value. We found there was a lot more loyalty with those sites."

One such site that Spreadshirt works with is eBates.com. Consumers get 2.5% cash back for coming through the affiliate's portal and then making a Spreadshirt purchase. They can also get cash back when they use the portal to shop hundreds of other e-retail sites eBates.com works with, thus creating eBates' loyal user base. Consumers using Ebates.com this year will buy $1.5 billion worth of merchandise through its retailer clients, 50% more than last year, CEO Kevin Johnson says.

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