But losses mount for the home furnishings e-retailer that went public in October.
With its 144-year history making and selling fly-fishing gear and other outdoor products, the Orvis Co. has learned a thing or two about where and how to hook new customers. So when the Manchester, Vt.-based company set out in 1998 to lure more shoppers to its first foray on the Web, executives cast around for ways to apply to e-commerce the same principles that have made Orvis a $220 million annual success story.
That meant keeping the costs of acquiring new customers under strict control. “Coming from a catalog background, we went into e-commerce with the idea of maintaining our marketing approach,” says Joe Cassidy, the company’s direct marketing manager. “We weren’t going to spend dollars like a drunken sailor like some of the dot-coms trying to build brands and sales. We look for opportunities where our marketing costs will be a percentage of our sales, rather than our sales being a percentage of our marketing costs.”
Like thousands of online merchants facing the same challenge, Orvis turned to affiliate marketing, inviting content and commerce sites to create links to the Orvis site and share a percentage of the resulting sales. Orvis already had 600 wholesale accounts and set criteria for outlets carrying its products-enough know-how, it seemed, to start its own affiliate program a few months after the site launched. But that wasn’t enough. To move beyond known waters and fish the deeper seas of the entire Web for new connections, Orvis realized it needed help reeling in catches that counted. Potentially hundreds of sites-and their customers-knew next to nothing about Orvis, and Orvis knew next to nothing about them. “The Internet is such a busy medium,” says Orvis CEO Leigh “Perk” Perkins, “that even though Orvis has been around for 144 years, we’re just a speck out there.”
Since hiring Dynamic Trade, a Chicago-based outsourcer specializing in an emerging area known as performance marketing, the company has built its affiliate ranks to 300 since last June, including a number of aggregators representing hundreds of sites. Dynamic Trade has helped narrow the universe of potential affiliates to those making the most sense, puts Orvis merchandise in front of new shoppers, and manages the company’s affiliate relationships- “profitably,” according to Perkins.
The method, in marketing parlance, is contextual relevance. Take Orvis’ new affiliate deals with Shopmerrill.com, the shopping site of financial services firm Merrill Lynch. During fly-fishing season, Dynamic Trade saw a demographic matchup between Shopmerrill’s high-income visitors and a high-end rod sold by Orvis. Their resulting promotion drove “significant” sales, says Jeff Molander, Dynamic Trade’s vice president of marketing.
But contextual selling doesn’t just pay off with pricey goods. Dynamic Trade recently set up a cross-promotion between client Atyouroffice.com and affiliate Bargaindog.com, a discounter that uses e-mail to get the word out. Atyouroffice offered its customers free desk organizers with every purchase of already-discounted office supplies from Bargaindog. The result: a 22.5% conversion rate, far outpacing industry averages ranging from 2 to 8%. “Consumers see products and descriptions in a buy-it-now situation,” says Molander. “This goes way beyond a banner ad.”
Targeted promotions are the latest wrinkle in a simple concept pioneered by Amazon, CDnow and others: Web sites post an offer from a retail partner, along with a link to the retailer’s site for purchase. Whenever users click through and buy, the affiliate site collects a percentage of the sale, typically 5 to 20%.
Give me gravy
For many affiliates, the percentage is pure gravy-“found” revenue that costs them no more than a little cyber real estate. The upside for e-retailers is obvious, too: Like click-through banner ads, affiliate programs can turn a single point of sale into hundreds or thousands of transactions. But unlike advertising based on the traditional cost-per-thousand formula, marketing costs kick in only after sales are in the bag, and program’s results can be tracked. In other words, Orvis and other retailers pay nothing unless and until the sales roll in.
“For retailers, building affiliate networks is an extremely cost-effective way to acquire customers,” says Marissa Gluck, analyst with Jupiter Communications. “It’s low risk because they’re paying solely on revenue and not regardless of whether or not someone buys.” The win-win sounds good to an increasing number of e-retailers-and a legion of sites clamoring to sign up as affiliates. Some 2,000 affiliate programs have popped up since 1997, says consultant Declan Dunn, author of The Complete Insider’s Guide to Associate and Affiliate Programs. Earlier this spring, the first conference on Internet affiliate marketing, Affiliate Force 2000, drew 3,500 delegates to Miami Beach. And Forrester Research predicts that affiliate marketing, today generating an estimated 13% of e-retail sales, will drive more than 20% by 2003.
But Forrester’s predictions won’t come to pass without crossing over major speed bumps. Affiliate marketing might be low-risk and cost-effective, but it’s hardly problem-free. Managing affiliate relationships can be a labor-intensive proposition. Tracking, reporting and paying sales commissions; nudging poorly performing affiliates into action, and troubleshooting interface problems take loads of time. So does cherry-picking millions of Web sites, each a potential affiliate, for those most likely to deliver buyers.
Industry observers cite the so-called 20/80 rule of affiliate marketing: 20% of affiliates deliver 80% of affiliate sales. But some consultants say the ratio is even more lopsided, more in the neighborhood of 10/90. With nothing to lose and no qualifying hoops to jump through, Web sites eager for extra cash may sign up as affiliates with commerce sites unrelated to their content. Brand-protective retailers worry their links could wind up on sites peddling pornography or racist views.
But the greater likelihood is simply links that don’t produce. “I’ve seen affiliate links incompatible with the content,” adds Gluck, “and instances where site owners are going to join as many affiliate programs as they can, regardless of whether it makes sense for their content, on the off chance that someone’s going to click through and buy something. So you might have a site with content about Chihuahuas offering Metallica CDs. After all, the only thing required of the affiliate is registering and throwing up a link.”